As filed with the Securities and Exchange Commission on April 24, 2017.
Registration No. 333-217213
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
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, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth 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 | ☐ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Amount to be Registered(1) |
Proposed Maximum Offering Price Per Unit |
Proposed Maximum
Offering Price(2)(3) |
Amount of Registration Fee(4) |
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Class A Common Shares |
24,150,000 | $20.00 | $483,000,000 | $55,979.70 | ||||
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(1) | Includes shares subject to the underwriters overallotment option to purchase additional shares from us, if any. |
(2) | Includes offering price of shares that the underwriters have the option to purchase. |
(3) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933. |
(4) | $11,590 of such fee was previously paid. |
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 24, 2017
PRELIMINARY PROSPECTUS
21,000,000 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 21,000,000 Class A common shares. We currently expect the initial public offering price to be between $18.00 and $20.00 per Class A common share.
Our Class A common shares have been approved for listing 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 27 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 3,150,000 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. Unless otherwise indicated, all share and per share amounts reflect a 1-for-6.33 share split of our Class A common shares and Class B common shares effected on March 31, 2017, and all unit and per unit amounts with respect to the operating company and the San Francisco Venture reflect an equivalent split effected at the same time.
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; |
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| 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; |
| 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 |
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| 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. |
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 $528.0 million in cash available to fund the development of our communities, based on cash balances at December 31, 2016 and assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). 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. |
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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. 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
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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 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
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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
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,
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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 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
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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.
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.
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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.
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.
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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.
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
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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.
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; |
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| 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. |
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 23,981,655 Class A units of the operating company (approximately 32.0% of the outstanding Class A units), which will increase to 29,244,813 Class A units upon completion of the concurrent private placement to Lennar, assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). Mr. Haddad owns 3,137,134 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 25,648,648 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 |
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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 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 58.1% 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 (59.4% 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
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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.
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
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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 Class A units of the operating company to Lennar. The percentage of beneficial ownership after this offering set forth below is based on 112,450,578 Class A common shares issued and outstanding on a fully diluted basis as of March 31, 2017 (and 138,715,315 Class A common shares immediately after this offering, assuming no exercise by the underwriters of their over-allotment option).
Equity Holder |
% of all Class A
Common Shares |
|||
Emile Haddad (1) |
2.5 | % | ||
Lennar (2) |
40.2 | % | ||
Anchorage Capital Master Offshore, Ltd. |
7.1 | % | ||
Castlelake, L.P. (3) |
16.5 | % | ||
Investors in this offering |
15.1 | % | ||
Other investors |
18.6 | % | ||
|
|
|||
Total |
100 | % |
(1) | Represents the following equity interests, which are held by Mr. Haddad: (A) 304,760 Class A common shares, (B) 3,137,134 Class B common shares and (C) 3,137,134 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 869,734 restricted share units (RSUs). |
(2) | Represents the following equity interests, which are held by Lennar and its wholly owned subsidiaries: (A) 858,034 Class A common shares, (B) 54,893,461 Class B common shares, (C) 29,244,813 Class A units of the operating company and (D) 25,648,648 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) 3,910,858 Class A common shares, (B) 18,932,182 Class B common shares, (C) 7,101,625 Class A units of the operating company and (D) 11,830,557 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.
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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.
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 |
21,000,000 shares (24,150,000 shares if the underwriters exercise their over-allotment option in full) |
Class A common shares to be outstanding immediately after completion of this offering |
58,426,008 shares (61,576,008 shares if the underwriters exercise their over-allotment option in full) |
Class A common shares to be outstanding immediately after completion of this offering and the concurrent private placement, on a fully diluted basis |
138,033,617 shares (141,183,617 shares if the underwriters exercise their over-allotment option in full), assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). |
Class B common shares to be outstanding immediately after completion of this offering and the concurrent private placement |
79,583,734 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 $365.6 million, or approximately $421.6 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). |
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 5% 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 |
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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 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. The lock-up restrictions described in the section entitled Shares Eligible for Future SaleLock-up Agreements will not apply to shares purchased by such funds in this offering, if any.
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 37,426,008 Class A common shares outstanding as of December 31, 2016, and excludes:
| 3,150,000 Class A common shares issuable upon the exercise in full of the underwriters over-allotment option; |
| 2,331,026 Class A common shares issuable pursuant to outstanding RSUs as of December 31, 2016; |
| 6,150,416 Class A common shares available for future issuance under our Incentive Award Plan (as defined below) (which includes 396,028 unvested restricted Class A common shares issued in January 2017); and |
| 79,607,609 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 79,583,734 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 74,320,576 Class B common shares outstanding as of December 31, 2016.
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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 $19.00 per Class A common share (which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus); and |
| reflects a 1 -for- 6.33 reverse split of our Class A common shares and our Class B common shares effected on March 31, 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 58.1% upon completion of this offering and the concurrent private placement of Class A units of the operating company to Lennar, or 59.4% 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 65.6% of the voting power of our outstanding common shares (57.0% 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 45.2% and 20.4%, respectively, of the voting power of our outstanding common shares (40.4% and 16.6%, respectively, following this offering if the underwriters do not exercise their over-allotment option, and 39.5% and 16.2%, 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 that are currently outstanding 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 $350.8 million, assuming no material changes to the relevant tax law, a price per Class A common share of $19.00 (the midpoint of the estimated initial public offering price range set forth on the cover page 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 1.77%. 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 our Class A common shares have been approved for listing 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
47
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.
48
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 $5.63 in the as adjusted net tangible book value per Class A common share as of December 31, 2016, based upon the midpoint of the estimated initial public offering price range set forth on the cover page 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 58,426,008 Class A common shares (61,576,008 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, 79,607,609 Class A common shares will be reserved for issuance upon exchange of Class A units of the operating company (including 37,479,205 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 6,150,416 Class A common shares will be available for future issuance under the Incentive Award Plan (including 2,331,026 Class A common shares that may be issued in settlement of outstanding RSUs), assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). See Shares Eligible for Future Sale.
The 21,000,000 Class A common shares sold in this offering (24,150,000 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, 11,159,851 outstanding Class A common shares; and |
| 181 days after the date of this prospectus, an additional 26,266,157 outstanding Class A common shares. |
49
The foregoing does not include up to 74,342,872 Class A common shares that we may issue upon conversion of Class B common shares or 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), assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). Beginning May 2, 2017, all holders of currently outstanding 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 90% 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
50
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 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.
51
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.
52
We estimate that we will receive gross proceeds from this offering of $399.0 million, or $458.9 million if the underwriters exercise their over-allotment option in full, based on an offering price of $19.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page 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 $365.6 million, or approximately $421.6 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.
53
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.
54
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 21,000,000 Class A common shares in this offering at the public offering price of $19.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page 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 | $ | 527,955 | ||||
|
|
|
|
|||||
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 | 579,660 | ||||||
Noncontrolling interests |
1,265,197 | 1,394,104 | ||||||
|
|
|
|
|||||
Total capital |
1,508,113 | 1,973,764 | ||||||
|
|
|
|
|||||
Total capitalization |
$ | 1,577,500 | $ | 2,043,151 | ||||
|
|
|
|
55
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 $1,380.5 million, or $12.35 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 21,000,000 Class A common shares in this offering at an assumed initial public offering price of $19.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) and after deducting underwriting discounts and commissions, and estimated offering expenses, (ii) the sale in a private placement to Lennar of (a) $100 million of Class A units of the operating company at a price per unit equal to the assumed initial public offering price of $19.00 per share, and (b) an equivalent number of our Class B common shares at a price of $0.00633 per share, and (iii) the use of proceeds from this offering and such private placement, our adjusted net tangible book value as of December 31, 2016 would have been $1,846.1 million, or $13.37 per Class A common share. This represents an immediate increase in adjusted net tangible book value of $1.02 per share to our existing shareholders, and an immediate dilution in adjusted net tangible book value of $5.63 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 |
$ | 19.00 | ||||||
Net tangible book value per Class A common share as of December 31, 2016 |
$ | 12.35 | ||||||
Net increase in net tangible book value per Class A common share
|
1.02 | |||||||
|
|
|||||||
Adjusted net tangible book value per Class A common share as of December 31, 2016 |
13.37 | |||||||
|
|
|||||||
Dilution in adjusted net tangible book value per Class A common share to investors in this offering |
$ | 5.63 | ||||||
|
|
A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) our as adjusted net tangible book value by $19.6 million, our as adjusted net tangible book value per share by $0.17 and dilution per share to new investors purchasing our Class A common shares in this offering by $0.83, 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 $0.04 and decrease the dilution per share to new investors participating in this offering by $0.04, 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
56
decrease the adjusted net tangible book value per share by $0.03, assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses.
If the underwriters exercise their over-allotment option in full, the adjusted net tangible book value will be $13.47 per share, and the immediate dilution experienced by investors purchasing our Class A common shares in this offering will be $5.53 per share. In addition, in calculating per share amounts above, the number of Class A common shares outstanding excludes 6,150,416 Class A common shares available for future issuance under the Incentive Award Plan.
The following table summarizes, as of December 31, 2016, the differences between existing shareholders and new investors with respect to the number of Class A common shares owned, the total net tangible book value attributable to the investment of existing shareholders, and the total net tangible book value attributable to the cash paid by investors purchasing Class A common shares in this offering and the cash paid by the investor purchasing securities in the concurrent private placement, before deducting underwriting discounts and commissions and estimated offering expenses, and after giving effect to (i) the sale of 21,000,000 Class A common shares in this offering at a price per share equal to the assumed initial public offering price of $19.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus), and (ii) the sale in a private placement to Lennar of (a) $100 million of Class A units of the operating company at a price per unit equal to the assumed initial public offering price of $19.00 per share, and (b) an equivalent number of our Class B common shares at a price of $0.00633 per share, and assuming that all Class A units of the operating company, and all Class A units of the San Francisco Venture, are exchanged for our Class A common shares, and all Class B common shares are converted into our Class A common shares:
Class A
Common Shares Owned |
Total Net Tangible Book Value |
Average
Price Per Share |
||||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing shareholders |
111,768,880 | 81.0 | % | $ | 1,380,520 | 73.5 | % | $ | 12.35 | |||||||||||
Investors in this offering |
21,000,000 | 15.2 | % | $ | 399,000 | 21.2 | % | $ | 19.00 | |||||||||||
Investor in concurrent private placement |
5,264,737 | 3.8 | % | $ | 100,033 | 5.3 | % | $ | 19.00 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
138,033,617 | 100 | % | $ | 1,879,553 | 100 | % | $ | 13.62 | |||||||||||
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the dollar amount and the percent of the total net tangible book value attributable to investors purchasing our Class A common shares in this offering by $21.0 million and 0.9%, respectively, assuming the number of Class A common shares offered by us, as set forth on the cover page 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 dollar amount and the percent of the total net tangible book value attributable to investors purchasing our Class A common shares in this offering by $19.0 million and 0.8%, respectively, 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 number of Class A common shares purchased by investors in this offering would increase to 24,150,000, and our existing shareholders would own 79.2%, investors in this offering would own 17.1% and the investor in the concurrent private placement would own 3.7% of the total number of our Class A common shares outstanding upon the closing of this offering.
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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 |
58
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.
59
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 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(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 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (loss) income attributable to the company |
$ | (33,266 | ) | $ | 1,149 | $ | (5,137 | ) | $ | | $ | 24,311 | $ | (12,943 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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) |
60
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
61
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. |
62
(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 | ||
|
|
63
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. |
64
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 | ) |
65
(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. |
66
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
67
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
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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
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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
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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 $13.5 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 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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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 |
$ | 15,719 | ||
Land salesrelated party |
6,786 | |||
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.
On April 18, 2017, the operating company entered into a $50 million senior unsecured revolving credit facility (the Revolving Credit Facility) with ZB, N.A. dba California Bank & Trust. The Revolving Credit Facility provides for borrowings and issuances of letters of credit in an aggregate amount of up to $50 million initially, with an accordion feature that will allow the operating company to increase the maximum aggregate amount to $100 million, subject to certain conditions, including receipt of commitments. The Revolving Credit Facility matures in two years, with two options for the operating company to extend the maturity date, in each case, by an additional year, subject to the satisfaction of certain conditions including the approval of the administrative agent and lenders. Borrowings under the Revolving Credit Facility bear interest at LIBOR plus a margin ranging from 1.75% to 2.00% based on the operating companys leverage ratio. No funds have been drawn on the Revolving Credit Facility.
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 $528.0 million in cash available to fund the development of our communities, based on cash balances at December 31, 2016 and assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). 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 $125 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 |
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Sold or Transferred to the Lennar-CL Venture (C) |
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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) | | | | |||||||||||||||||||||||||
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Subtotal |
82 | 1,860 | | |||||||||||||||||||||||||||||
Available for Future Sale |
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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) | ✓ | ✓ | ||||||||||||||||||||||||
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Subtotal |
694 | 9,787 | 4,110,000 | |||||||||||||||||||||||||||||
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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. |
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(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. |
(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
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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. 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.
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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 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
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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.
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 |
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Previously Sold |
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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 | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||
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|
|
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Subtotal |
906 | 3,866 | 2,000,000 | |||||||||||||||||||||||||||||
Available for Future Sale |
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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 | ✓ | ✓ | ✓ | |||||||||||||||||||||||
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|
|
|
|
|
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Subtotal |
1,215 | 5,634 | 2,900,000 | |||||||||||||||||||||||||||||
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|
|
|
|
|
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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. 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). On April 12, 2017, Messrs. Pine and Kirkham resigned as directors, effective as of the day prior to the date on which the registration statement for this offering becomes effective. These arrangements with respect to directors terminate upon completion of this offering. See Certain Relationships and Related Party TransactionsVoting and Standstill Agreement.
Director Independence
Our Class A common shares have been approved for listing 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 | $ | 6,476 | $ | 7,512,567 | |||||||||||||
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 8,500,822, 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 8,500,822, 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 8,500,822). As of the date hereof, awards have been made under the Incentive Award Plan with respect to 2,746,434 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 631,912 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 631,912 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 38,107,706 Class A common shares and 74,320,576 Class B common shares issued and outstanding as of March 31, 2017 (59,107,706 Class A common shares and 79,583,734 Class B common shares immediately after this offering, assuming (i) no exercise by the underwriters of their over-allotment option, (ii) the concurrent private placement to Lennar and (iii) an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus).
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) |
9,877,096 | 16.7 | % | | | % | 7.1 | % | ||||||||||||
Castlelake, L.P. (3) |
3,910,858 | 6.6 | % | 18,932,182 | 23.8 | % | 16.5 | % | ||||||||||||
Lennar Corporation (4) |
858,034 | 1.5 | % | 54,893,461 | 69.0 | % | 40.2 | % | ||||||||||||
Marathon Asset Management LP (5) |
3,649,403 | 6.2 | % | 306,751 | 0.4 | % | 2.9 | % | ||||||||||||
OZ Domestic Partners II, L.P. (6) |
| | % | 1,374,078 | 1.7 | % | 1.0 | % | ||||||||||||
OZ Domestic Partners, L.P. (7) |
| | % | 634,418 | 0.8 | % | 0.5 | % | ||||||||||||
OZ Overseas Intermediate Fund II, L.P. (8) |
1,544,870 | 2.6 | % | | | % | 1.1 | % | ||||||||||||
OZ Overseas Intermediate Fund, L.P. (9) |
1,544,870 | 2.6 | % | | | % | 1.1 | % | ||||||||||||
Third Avenue Management LLC (10) |
4,881,026 | 8.3 | % | | | % | 3.5 | % | ||||||||||||
Directors and Named Executive Officers: |
||||||||||||||||||||
Emile Haddad (11) |
304,760 | 0.5 | % | 3,137,134 | 3.9 | % | 2.5 | % | ||||||||||||
Michael Alvarado (12) |
71,999 | 0.1 | % | 16,676 | 0.0 | % | 0.1 | % | ||||||||||||
Lynn Jochim (13) |
67,671 | 0.1 | % | 16,676 | 0.0 | % | 0.1 | % | ||||||||||||
Rick Beckwitt |
| | % | | | % | 0.0 | % | ||||||||||||
Kathleen Brown |
| | % | | | % | 0.0 | % | ||||||||||||
William Browning |
| | % | | | % | 0.0 | % | ||||||||||||
Evan Carruthers |
| | % | | | % | 0.0 | % | ||||||||||||
Jonathan Foster |
| | % | | | % | 0.0 | % | ||||||||||||
Gary Hunt |
9,923 | 0.0 | % | | | % | 0.0 | % | ||||||||||||
Jon Jaffe |
| | % | | | % | 0.0 | % | ||||||||||||
Stuart A. Miller (14) |
| | % | | | % | 0.0 | % | ||||||||||||
Michael Rossi |
| | % | | | % | 0.0 | % | ||||||||||||
Michael Winer |
| | % | | | % | 0.0 | % | ||||||||||||
All directors and executive officers as a group (17 persons) |
624,752 | 1.1 | % | 3,178,824 | 4.0 | % | 2.7 | % |
(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 |
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Offshore. Mr. Kevin Ulrich is the Chief Executive Officer of Anchorage and the senior managing member 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. Although Stuart Miller is the CEO of Lennar and has the power to cast 41.8% of the votes that can be cast by all of Lennars stockholders, Lennar has concluded that he is not a beneficial owner of the securities owned by subsidiaries of Lennar. |
(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. |
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(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. |
(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) | Includes 3,137,134 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. |
(12) | Includes 24,389 Class A common shares and 16,676 Class B common shares owned by Mr. Alvarados family trust, of which Mr. Alvarado serves as sole trustee. |
(13) | Includes 24,389 Class A common shares and 16,676 Class B common shares owned by Ms. Jochims family trust, of which Ms. Jochim and her husband serve as co-trustees. |
(14) | Although Stuart Miller is the CEO of Lennar and has the power to cast 41.8% of the votes that can be cast by all of Lennars stockholders, Lennar has concluded that he is not a beneficial owner of the securities owned by subsidiaries of Lennar. |
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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 7,178,796 Class A units of the operating company. |
| Mr. Haddad contributed to the operating company all of his FPL units in exchange for 335,011 Class A units of the operating company. |
|
We sold 74,320,576 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 |
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accredited investors (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act) at a price of $0.00633 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 26,027,226 Class A units of the San Francisco Venture and (3) the conversion of Castlelakes interest in the San Francisco Venture into 11,830,557 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 378,578 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 4,064,318 Class A units and 20,424 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 2,448,571 Class A units and 16,315 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 798,161 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 11,831,466 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 5,918,290 Class A units and 597,606 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 2,350,406 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 105,585,871 Class A common shares (including 79,319,714 Class A common shares issuable upon exchange of Class A units of the operating company (including 37,479,205 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, assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus).
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 $ 17.98, or (2) Class A units of the operating company at a price per unit of $ 17.98 and Class B common shares of the Company at a price per share of $ 0.00633. 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. The lock-up restrictions described in the section entitled Shares Eligible for Future SaleLock-up Agreements will not apply to shares purchased by such funds in this offering, if any.
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 23,981,655 Class A units of the operating company (approximately 32.0% of the outstanding Class A units), which will increase to 29,244,813 Class A units upon completion of the concurrent private placement to Lennar, assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). Mr. Haddad owns 3,137,134 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 25,648,648 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 37,426,008 Class A common shares outstanding and 74,320,576 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 58.1% of the outstanding Class A units of the operating company immediately following completion of this offering and the concurrent private placement (59.4% if the underwriters exercise their over-allotment option in full), assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus). 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 Second 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
Our Class A common shares have been approved for listing 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, respectively, on the dates of the first, second and third annual meetings of shareholders after this offering. 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. Our Class A common shares have been approved for listing on the NYSE, and 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 58,426,008 Class A common shares (61,576,008 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, 79,607,609 Class A common shares will be reserved for issuance upon exchange of Class A units of the operating company (including 37,479,205 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, assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus), and 8,481,442 Class A common shares will be available for future issuance under our Incentive Award Plan (including 2,331,026 Class A common shares that may be issued in settlement of outstanding RSUs).
The 21,000,000 Class A common shares sold in this offering (24,150,000 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 11,159,851 outstanding Class A common shares; and |
| 181 days after the date of this prospectus, an additional 26,266,157 outstanding Class A common shares. |
The foregoing does not include up to 74,342,872 Class A common shares that we may issue upon conversion of Class B common shares or 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), assuming an initial public offering price of $19.00 per share (the midpoint of the estimated range set forth on the cover page of this prospectus).
Exchange / Redemption Rights
The operating company has an aggregate of 74,267,379 Class A units outstanding and the San Francisco Venture has an aggregate of 37,379,205 Class A units outstanding. Beginning May 2, 2017, all holders of currently outstanding 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 after a 12 month holding period.
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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 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 Class A 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 Class A common shares, which will equal approximately 584,260 Class A common shares immediately after the completion of this offering (615,760 Class A common shares if the underwriters exercise their over-allotment option in full); or |
| the average weekly trading volume of our Class A common 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 90% 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. Any shares purchased by such funds in the offering will be exempted from the lock-up restrictions described in this section.
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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 San Francisco Venture. An aggregate of 105,585,871 Class A common shares, including 79,319,714 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 |
|||
Citigroup Global Markets Inc. |
||||
J.P. Morgan Securities LLC |
||||
RBC Capital Markets, LLC |
||||
Wells Fargo Securities, LLC |
||||
Deutsche Bank Securities Inc. |
||||
Evercore Group L.L.C. |
||||
Zelman Partners LLC |
||||
JMP Securities LLC |
||||
|
|
|||
Total |
21,000,000 | |||
|
|
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 page 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 3,150,000 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. The lock-up restrictions described in the section entitled Shares Eligible for Future SaleLock-up Agreements will not apply to shares purchased by such funds in this offering, if any.
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We, our executive officers, directors and certain of our existing shareholders (representing, in the aggregate, approximately 90% 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 5% 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.
Our Class A common shares have been approved for listing 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 approximately $7.4 million. 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 $30,000).
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 Canada
The shares may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements , Exemptions and Ongoing Registrant Obligations . Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this offering memorandum (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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 |
189
| 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.
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 ). |
190
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 Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, or FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
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.
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
191
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; |
| 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. |
192
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).
Notice to Prospective Investors in Israel
In the State of Israel this prospectus shall not be regarded as an offer to the public to purchase securities under the Israeli Securities Law, 5728 - 1968, which requires a prospectus to be published and authorized by the Israel Securities Authority, if it complies with certain provisions of Section 15 of the Israeli Securities Law, 5728 - 1968, including, inter alia, if: (i) the offer is made, distributed or directed to not more than 35 investors, subject to certain conditions, or the Addressed Investors; or (ii) the offer is made, distributed or directed to certain qualified investors defined in the First Addendum of the Israeli Securities Law, 5728 - 1968, subject to certain conditions, or the Qualified Investors. The Qualified Investors shall not be taken into account in the count of the Addressed Investors and may be offered to purchase securities in addition to the 35 Addressed Investors. Our company has not and will not take any action that would require it to publish a prospectus in accordance with and subject to the Israeli Securities Law, 5728 - 1968. We have not and will not distribute this prospectus or make, distribute or direct an offer to subscribe for our securities to any person within the State of Israel, other than to Qualified Investors and up to 35 Addressed Investors.
Qualified Investors may have to submit written evidence that they meet the definitions set out in of the First Addendum to the Israeli Securities Law, 5728 - 1968. In particular, we may request, as a condition to be offered securities, that Qualified Investors will each represent, warrant and certify to us or to anyone acting on our behalf: (i) that it is an investor falling within one of the categories listed in the First Addendum to the Israeli Securities Law, 5728 - 1968; (ii) which of the categories listed in the First Addendum to the Israeli Securities Law, 5728 - 1968 regarding Qualified Investors is applicable to it; (iii) that it will abide by all provisions set forth in the Israeli Securities Law, 5728 - 1968 and the regulations promulgated thereunder in connection with the offer to be issued securities; (iv) that the securities that it will be issued are, subject to exemptions available under the Israeli Securities Law, 5728 - 1968: (a) for its own account; (b) for investment purposes only; and (c) not issued with a view to resale within the State of Israel, other than in accordance with the provisions of the Israeli Securities Law, 5728 - 1968; and (v) that it is willing to provide further evidence of its Qualified Investor status. Addressed Investors may have to submit written evidence in respect of their identity and may have to sign and submit a declaration containing, inter alia, the Addressed Investors name, address and passport number or Israeli identification number.
193
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-1
Page | ||||
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 |
||||
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 | ) | ||
|
|
|
|
|||||
OTHER COMPREHENSIVE LOSS: |
||||||||
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 | ||||||
|
|
|
|
|||||
Other comprehensive loss before taxes |
(241 | ) | (108 | ) | ||||
INCOME TAX (PROVISION) BENEFIT RELATED TO OTHER COMPREHENSIVE LOSS |
(8 | ) | 32 | |||||
|
|
|
|
|||||
OTHER COMPREHENSIVE LOSSNet of tax |
(249 | ) | (76 | ) | ||||
|
|
|
|
|||||
COMPREHENSIVE LOSS |
(96,866 | ) | (3,898 | ) | ||||
|
|
|
|
|||||
LESS COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
(63,522 | ) | (1,165 | ) | ||||
|
|
|
|
|||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY |
$ | (33,344 | ) | $ | (2,733 | ) | ||
|
|
|
|
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 |
|||||||||||||||||||||||||||||||
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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|
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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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|
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|
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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 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
BALANCEDecember 31, 2016 |
| | 37,426,008 | 74,320,576 | $ | 260,779 | $ | (15,394 | ) | $ | (2,469 | ) | $ | 242,916 | $ | 1,265,197 | $ | 1,508,113 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: |
||||||||
Net loss |
$ | (96,617 | ) | $ | (3,822 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
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: |
||||||||
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 | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(124,637 | ) | (41,373 | ) | ||||
|
|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
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: |
||||||||
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 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(5,043 | ) | (6,579 | ) | ||||
|
|
|
|
|||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(46,353 | ) | (43,564 | ) | ||||
CASH AND CASH EQUIVALENTSBeginning of year |
108,657 | 152,221 | ||||||
|
|
|
|
|||||
CASH AND CASH EQUIVALENTSEnd of year |
$ | 62,304 | $ | 108,657 | ||||
|
|
|
|
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. |
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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
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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.
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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.
F-15
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, Presentation 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
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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
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(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
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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: |
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Cash paid for interest |
$ | 2,807 | $ | | ||||
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NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Contingent consideration related to acquisition of the San Francisco Venture (See Note 3) |
$ | 64,870 | $ | | ||||
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Accrued deferred equity and debt offering costs |
$ | 1,038 | $ | | ||||
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Capital issued in acquisition of interest in the Management Company (See Note 3) |
$ | 173,488 | $ | | ||||
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Capital issued in acquisition of interest in the San Francisco Venture (See Note 3) |
$ | 8,939 | $ | | ||||
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Capital issued in acquisition of interest in the Great Park Venture |
$ | 419,088 | $ | | ||||
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Capital issued in purchase of rights to 12.5% of Non-Legacy Incentive Compensation from FPC-HF Venture I (See Note 3) |
$ | 14,110 | $ | | ||||
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Recognition of initial TRA liability |
$ | 201,845 | $ | | ||||
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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 | ||||||
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Total properties and equipment |
40,249 | 38,483 | ||||||
Accumulated depreciation |
(5,840 | ) | (4,724 | ) | ||||
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Properties and equipmentnet |
$ | 34,409 | $ | 33,759 | ||||
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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 $1,423 in 2015 |
4,257 | 8,577 | ||||||
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$ | 69,387 | $ | 8,577 | |||||
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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.
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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: |
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Capital Commitment from Seller |
$ | 30,000 | $ | | ||||
Legacy Incentive Compensation Receivable |
43,101 | | ||||||
Transition Services Agreement |
1,356 | | ||||||
Other |
7,954 | 5,032 | ||||||
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$ | 82,411 | $ | 5,032 | |||||
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Liabilities: |
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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 | ||||||
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$ | 221,157 | $ | 1,115 | |||||
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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
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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.
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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 |
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2017 |
$ | 2,966 | $ | 795 | ||||
2018 |
3,059 | 491 | ||||||
2019 |
2,869 | 491 | ||||||
2020 |
640 | 491 | ||||||
2021 |
513 | | ||||||
Thereafter |
| | ||||||
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$ | 10,047 | $ | 2,268 | |||||
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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.
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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.
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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.
20. | SUBSEQUENT EVENTS (UNAUDITED) |
The Company has further evaluated events subsequent to April 7, 2017 through April 24, 2017, the date these consolidated financial statements were reissued, noting the following:
On April 18, 2017, the Company entered into a $50 million senior unsecured revolving credit facility (the Revolving Credit Facility) with a financial institution. The Revolving Credit Facility provides for borrowings and issuances of letters of credit in an aggregate amount of up to $50 million initially, with an accordion feature that will allow the Company to increase the maximum aggregate amount to $100 million, subject to certain conditions, including receipt of commitments. The Revolving Credit Facility matures in two years, with two options for the Company to extend the maturity date, in each case, by an additional year, subject to the satisfaction of certain conditions including the approval of the administrative agent and lenders. Borrowings under the Revolving Credit Facility bear interest at LIBOR plus a margin ranging from 1.75% to 2.00% based on the Companys leverage ratio. No funds have been drawn on the Revolving Credit Facility.
* * * * * *
F-49
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2016
($ 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.
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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.
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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
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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
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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 | ||||
|
|
|
|
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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
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
|
4.5 - 4.75% | July 24, 2015 | $ | 245,000,000 | $ | 5,950,000 | $ | 0 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
$ | 517,000,000 | $ | 236,200,000 | $ | 143,500,000 | |||||||||||||||||||||||
|
|
|
|
|
|
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 |
| |||
2018 |
35,001 | |||
2019 |
137,450 | |||
2020 |
93,750 | |||
Thereafter |
| |||
|
|
|||
Total |
$ | 266,201 | ||
|
|
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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.
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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. |
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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.
* * * * *
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 |
||||||||
CASH |
$ | 32,575 | $ | 21,606 | ||||
LAND HELD FOR DEVELOPMENT |
504,775 | 473,561 | ||||||
OTHER ASSETS |
7,680 | 8,350 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 545,030 | $ | 503,517 | ||||
|
|
|
|
|||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
LIABILITIES: |
||||||||
Accounts payable and other liabilities |
$ | 44,249 | $ | 39,611 | ||||
Notes payable |
360,669 | 331,331 | ||||||
|
|
|
|
|||||
Total liabilities |
404,918 | 370,942 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 6) |
||||||||
MEMBERS CAPITAL |
140,112 | 132,575 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 545,030 | $ | 503,517 | ||||
|
|
|
|
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: |
||||||||
Home sales |
$ | 16,475 | $ | | ||||
Other |
142 | 115 | ||||||
|
|
|
|
|||||
Total revenues |
16,617 | 115 | ||||||
|
|
|
|
|||||
COSTS AND EXPENSES: |
||||||||
Cost of home sales |
15,807 | | ||||||
Field |
142 | 269 | ||||||
Builder marketing |
1,627 | 493 | ||||||
General and administrative |
3,261 | 1,276 | ||||||
|
|
|
|
|||||
Total costs and expenses |
20,837 | 2,038 | ||||||
|
|
|
|
|||||
NET LOSS |
$ | (4,220 | ) | $ | (1,923 | ) | ||
|
|
|
|
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 | ) | ||||||
|
|
|
|
|
|
|||||||
BALANCEMarch 31, 2015 |
$ | 47,426 | $ | 101,197 | $ | 148,623 | ||||||
|
|
|
|
|
|
|||||||
BALANCEDecember 31, 2015 |
$ | 36,393 | $ | 96,182 | $ | 132,575 | ||||||
Contributions |
8,083 | 3,674 | 11,757 | |||||||||
Net loss |
(2,901 | ) | (1,319 | ) | (4,220 | ) | ||||||
|
|
|
|
|
|
|||||||
BALANCEMarch 31, 2016 |
$ | 41,575 | $ | 98,537 | $ | 140,112 | ||||||
|
|
|
|
|
|
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: |
||||||||
Net loss |
$ | (4,220 | ) | $ | (1,923 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activitieschanges in operating assets and liabilities: |
||||||||
Other assets |
670 | 2,729 | ||||||
Land held for development |
(31,214 | ) | (47,771 | ) | ||||
Accounts payable and other liabilities |
4,638 | (1,875 | ) | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(30,126 | ) | (48,840 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from note payable |
42,799 | 25,435 | ||||||
Note payable repayments |
(13,461 | ) | | |||||
Contributions from members |
11,757 | | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
41,095 | 25,435 | ||||||
|
|
|
|
|||||
NET INCREASE (DECREASE) IN CASH |
10,969 | (23,405 | ) | |||||
CASHBeginning of period |
21,606 | 52,790 | ||||||
|
|
|
|
|||||
CASHEnd of period |
$ | 32,575 | $ | 29,385 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest capitalized to land held for development |
$ | 2,834 | $ | 1,433 | ||||
|
|
|
|
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 | ||||||
|
|
|
|
|||||
Total |
100.00 | % | 100.00 | % | ||||
|
|
|
|
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
F-74
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
F-75
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 | ||||
|
|
|
|
F-76
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.
F-77
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.
F-80
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)
F-82
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.
F-86
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.
F-87
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
F-88
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.
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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 | |||||
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|
|
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 | ||||||
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|
|
|
|||||
$ | 29,542 | $ | 37,645 | |||||
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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 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 | ||||||
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|
|
|||||
Total accounts payable and other liabilities |
$ | 73,923 | $ | 59,325 | ||||
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|
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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 (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
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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 | ) | |||||
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Related party land sale revenues |
$ | 491,424 | $ | 125,616 | ||||
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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 $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.
* * * * * *
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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 | ||||
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|
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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 | ||||||
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|
|
|||||
Total liabilities |
139,072 | 125,363 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 7) |
||||||||
MEMBERS CAPITAL |
1,378,389 | 1,311,032 | ||||||
|
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|
|
|||||
TOTAL |
$ | 1,517,461 | $ | 1,436,395 | ||||
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See notes to unaudited condensed consolidated financial statements.
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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.
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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.
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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 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. |
F-106
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 | ||||||
|
|
|
|
|||||
$ | 29,556 | $ | 29,542 | |||||
|
|
|
|
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 | |||
|
|
|||
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: |
||||||||
Accrued liabilities |
25,524 | 33,535 | ||||||
Accrued liabilitiesrelated party (Note 6) |
5,681 | 5,350 | ||||||
Development obligations |
30,543 | 21,270 | ||||||
|
|
|
|
|||||
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.
* * * * * *
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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)
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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. |
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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.
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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: |
||||||||
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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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.
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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.
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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. |
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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.
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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
F-128
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,
F-129
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 |
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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. |
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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
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,
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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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21,000,000 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 |
$ | 55,980 | ||
FINRA filing fee |
72,950 | |||
New York Stock Exchange listing fee |
295,000 | |||
Printing expenses |
650,000 | |||
Fees and expenses of legal counsel |
1,800,000 | |||
Accounting fees and expenses |
1,500,000 | |||
Transfer agent and registrar fees |
23,000 | |||
Miscellaneous |
3,050,000 | |||
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Total |
$ | 7,446,930 | ||
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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.
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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 |
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1.1 | Form of Underwriting Agreement | |
3.1* | Certificate of Formation of Registrant, as amended | |
3.2 | Form of Second 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 |
II-3
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 | Fourth Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of April 21, 2017, 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 | |
10.28 | Entitlement Transfer Agreement, dated as of December 6, 2016, by and between CPHP Development Co., LLC and The Shipyard Communities, LLC | |
10.29 | Form of Restricted Share Unit Agreement | |
10.30 | Form of Restricted Share Agreement | |
10.31 | Credit Agreement, dated as of April 18, 2017, by and among Five Point Operating Company, LLC, ZB, N.A. dba California Bank & Trust and the lenders party thereto | |
10.32 | Second Amended and Restated Development and Management Agreement, dated as of April 21, 2017, by and among Heritage Fields El Toro, LLC, Five Point Communities Management, Inc., Five Point Operating Company, LLC and Five Point Communities, LP | |
10.33 | First Amendment to Development Management Agreement (Concord Naval Weapons Station), dated as of April 13, 2017, by and between Lennar Concord, LLC and TSC Management Co., LLC |
II-4
Exhibit |
Exhibit Description |
|
10.34 | Guaranty Agreement (Concord Naval Weapons Station), dated as of April 13, 2017, by and between Lennar Corporation and TSC Management Co., 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) |
* | Previously filed. |
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 Amendment No. 1 to the 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 24, 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 24, 2017 | ||
/s/ Erik Higgins Erik Higgins |
Principal Financial
Officer
|
April 24, 2017 | ||
* Rick Beckwitt |
Director |
April 24, 2017 | ||
* Kathleen Brown |
Director |
April 24, 2017 | ||
* William Browning |
Director |
April 24, 2017 | ||
* Evan Carruthers |
Director |
April 24, 2017 | ||
* Jonathan Foster |
Director |
April 24, 2017 | ||
* Gary Hunt |
Director |
April 24, 2017 | ||
* Jon Jaffe |
Director |
April 24, 2017 | ||
* Joshua Kirkham |
Director |
April 24, 2017 |
II-7
Signature |
Title |
Date |
||
* Stuart A. Miller |
Director |
April 24, 2017 | ||
* Daniel Pine |
Director |
April 24, 2017 | ||
/s/ Michael Rossi Michael Rossi |
Director |
April 24, 2017 | ||
* Michael Winer |
Director |
April 24, 2017 |
By: |
/s/ Emile Haddad |
|
Emile Haddad | ||
Attomey - In - Fact |
II-8
EXHIBIT INDEX
Exhibit |
Exhibit Description |
|
1.1 | Form of Underwriting Agreement | |
3.1* | Certificate of Formation of Registrant, as amended | |
3.2 | Form of Second 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 |
Exhibit |
Exhibit Description |
|
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 | Fourth Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of April 21, 2017, 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 | |
10.28 | Entitlement Transfer Agreement, dated as of December 6, 2016, by and between CPHP Development Co., LLC and The Shipyard Communities, LLC | |
10.29 | Form of Restricted Share Unit Agreement | |
10.30 | Form of Restricted Share Agreement | |
10.31 | Credit Agreement, dated as of April 18, 2017, by and among Five Point Operating Company, LLC, ZB, N.A. dba California Bank & Trust and the lenders party thereto | |
10.32 | Second Amended and Restated Development and Management Agreement, dated as of April 21, 2017, by and among Heritage Fields El Toro, LLC, Five Point Communities Management, Inc., Five Point Operating Company, LLC and Five Point Communities, LP | |
10.33 | First Amendment to Development Management Agreement (Concord Naval Weapons Station), dated as of April 13, 2017, by and between Lennar Concord, LLC and TSC Management Co., LLC | |
10.34 | Guaranty Agreement (Concord Naval Weapons Station), dated as of April 13, 2017, by and between Lennar Corporation and TSC Management Co., LLC | |
21.1* | List of Subsidiaries of the Registrant |
Exhibit |
Exhibit Description |
|
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) |
* | Previously filed. |
Exhibit 1.1
Five Point Holdings, LLC
[●] Class A Common Shares 1
Underwriting Agreement
New York, New York
[●], 2017
Citigroup Global Markets Inc.
J.P. Morgan Securities LLC
RBC Capital Markets, LLC
Wells Fargo Securities, LLC
As Representatives of the several Underwriters
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
c/o RBC Capital Markets, LLC
200 Vesey Street
New York, New York 10281
c/o Wells Fargo Securities, LLC
375 Park Avenue
New York, New York 10152
Ladies and Gentlemen:
Five Point Holdings, LLC, a limited liability company organized under the laws of Delaware (the Company), proposes to sell to the several underwriters named in Schedule I hereto (the Underwriters), for whom you (the Representatives) are acting as representatives, [●] Class A common shares (Class A Shares) of the Company (said shares to be issued and sold by the Company being hereinafter called the Underwritten Securities). The Company also proposes to grant to the Underwriters an option to purchase up to [●] additional Class A Shares to cover over-allotments, if any (the Option Securities; the Option Securities, together with the Underwritten Securities, being hereinafter called the Securities). To the extent there are no additional Underwriters listed on Schedule I other than you, the term Representatives as used
1 |
Plus an option to purchase from the Company up to [●] additional Securities to cover over-allotments |
herein shall mean you, as Underwriters, and the terms Representatives and Underwriters shall mean either the singular or plural as the context requires. The use of the neuter in this Agreement shall include the feminine and masculine wherever appropriate. Certain terms used herein are defined in Section 20 hereof.
As part of the offering contemplated by this Agreement, Citigroup Global Markets Inc. has agreed to reserve out of the Securities set forth opposite its name on the Schedule II to this Agreement, up to [●] shares, for sale to the Companys employees, officers, and directors [and other parties associated with the Company] (collectively, Participants), as set forth in the Prospectus under the heading Underwriting (the Directed Share Program). The Securities to be sold by Citigroup Global Markets Inc. pursuant to the Directed Share Program (the Directed Shares) will be sold by Citigroup Global Markets Inc. pursuant to this Agreement at the public offering price. Any Directed Shares not orally confirmed for purchase by any Participants by [8:00 A.M.] Eastern Time on the business day following the date on which this Agreement is executed will be offered to the public by Citigroup Global Markets Inc. as set forth in the Prospectus.
On May 2, 2016, the Company and certain other persons effected a series of formation transactions as described in the Disclosure Package and the Prospectus (each as defined below) under the caption Structure and Formation of Our Company (collectively, the Formation Transactions).
On April 3, 2017, the Company and Five Point Operating Company, LLC, a Delaware limited liability company (Opco), entered into the Amended and Restated Securities Purchase Agreement with LenFive, LLC (LenFive) and Lennar Homes of California, Inc. (the Securities Purchase Agreement) pursuant to which Opco will sell and issue $100 million of its Class A common units, and an equal number of Class B common shares of the Company at a price of $0.00633 per share, to LenFive in a private placement transaction that will close substantially concurrently with the closing of the offering contemplated by this Agreement (the Concurrent Private Placement).
Each of (i) the Company, (ii) Opco, (iii) Five Point Land, LLC, a Delaware limited liability company, (iv) Heritage Fields LLC, a Delaware limited liability company, (v) The Shipyard Communities, LLC, a Delaware limited liability company, (vi) Five Point Communities Management, Inc., a Delaware corporation, and (vii) Five Point Communities, LP, a Delaware limited partnership, is referred to herein as a Five Point Party and, collectively, as the Five Point Parties. The Five Point Parties, together with the other subsidiaries of the Company, after giving effect to the Formation Transactions, are referred to herein as the Five Point Entities and each, a Five Point Entity.
1. Representations and Warranties .
The Company represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a registration statement (file number 333-217213) on Form S-11, including a related preliminary
2
prospectus, for registration under the Securities Act of the offering and sale of the Securities. Such Registration Statement, including any amendments thereto filed prior to the Execution Time, has become effective. The Company may have filed one or more amendments thereto, including a related preliminary prospectus, each of which has previously been furnished to you. The Company will file with the Commission a final prospectus in accordance with Rule 424(b). As filed, such final prospectus shall, except to the extent the Representatives shall agree in writing to a modification, be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did, and when the Prospectus is first filed in accordance with Rule 424(b) and on the Closing Date and on any date on which Option Securities, if any, are purchased, if such date is not the Closing Date (a settlement date), the Prospectus (and any supplement thereto) will, comply in all material respects with the applicable requirements of the Securities Act and the rules thereunder; on the Effective Date, at the Execution Time and on the Closing Date, the Registration Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of its date and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company makes no representations or warranties as to the information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto), it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8 hereof.
(c) (i) The Disclosure Package and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, when taken together as a whole, (ii) each electronic road show, when taken together as a whole with the Disclosure Package and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, and (iii) each individual Written Testing-the-Waters Communication, if any, when taken together as a whole with the Disclosure Package and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, in each case, does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity
3
with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8 hereof.
(d) (i) At the time of filing the Registration Statement and (ii) as of the Execution Time (with such date being used as the determination date for purposes of this clause (ii)), the Company was not and is not an Ineligible Issuer (as defined in Rule 405), without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an Ineligible Issuer.
(e) From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the Execution Time, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Securities Act (an Emerging Growth Company). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(f) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule III hereto. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
(g) No Issuer Free Writing Prospectus includes any information that conflicts with the information contained in the Registration Statement. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8 hereof.
(h) Each of the Company and its subsidiaries listed on Annex A hereto (its Subsidiaries) has been duly incorporated or organized and is validly existing as a corporation, limited liability company or limited partnership in good standing under the laws of the jurisdiction in which it is chartered or organized with full corporate, limited liability company or limited partnership power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the
4
Disclosure Package and the Prospectus, and is duly qualified to do business as a foreign corporation, limited liability company or limited partnership and is in good standing under the laws of each jurisdiction which requires such qualification, except where the failure to be so incorporated or organized or so validly existing and in good standing, to have such power or authority or to be so qualified or in good standing would not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business, properties or assets of the Company and its Subsidiaries, taken as a whole (a Material Adverse Effect), and except as set forth in or contemplated in the Disclosure Package and the Prospectus.
(i) All the outstanding shares of capital stock, partnership interests, member interests or other equity interests of each Subsidiary of the Company have been duly and validly authorized and issued and are fully paid (in the case of any Subsidiaries that are organized as limited liability companies, limited partnerships or other business entities, to the extent required under the applicable limited liability company, limited partnership or other organizational agreement) and non-assessable (except in the case of interests held by general partners or similar entities under the applicable laws of other jurisdictions, in the case of any Subsidiaries that are organized as limited liability companies, as such non-assessability may be affected by Section 18-607 or Section 18-804 of the Delaware Limited Liability Company Act or similar provisions under the applicable laws of other jurisdictions or the applicable limited liability company agreement and, in the case of any Subsidiaries that are organized as limited partnerships, as such non-assessability may be affected by Section 17-607 or Section 17-804 of the Delaware Revised Uniform Limited Partnership Act or similar provisions under the applicable laws of other jurisdictions or the applicable limited partnership agreement), and, except as otherwise set forth in the Disclosure Package and the Prospectus, all outstanding shares of capital stock of the Subsidiaries are owned by the Company either directly or through wholly owned Subsidiaries free and clear of any perfected security interest or any other security interests, claims, liens or encumbrances.
(j) There is no contract or other document or agreement required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit to the Registration Statement, which is not described or filed as required (and the Preliminary Prospectus contains in all material respects the same description of the foregoing matters contained in the Prospectus); and the statements in the Preliminary Prospectus and the Prospectus under the headings Certain Relationships and Related Party Transactions, Policies with Respect to Certain Activities, Structure and Formation of Our Company, Description of Shares, The Limited Liability Company Agreement of the Operating Company, The Operating Agreement of the San Francisco Venture, Shares Eligible for Future Sale, and U.S. Federal Income Tax Considerations and under Part II, Items 33 and 34 of the Registration Statement, insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings in all material respects.
(k) This Agreement has been duly authorized, executed and delivered by the Company.
5
(l) The [Fourth] Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of [●], 2017 (the HF LLC Agreement), has been duly authorized, executed and delivered by Five Point Heritage Fields, LLC, a Delaware limited liability company (FPHF), and constitutes a valid and legally binding agreement of FPHF.
(m) None of the Company or its Subsidiaries is, nor after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Disclosure Package and the Prospectus, will any of them be, required to register as an investment company, as defined in the Investment Company Act of 1940, as amended.
(n) No consent, approval, authorization, registration, filing with or order of any court or governmental agency or body is required for the execution and delivery by the Company of this Agreement, the issue and sale by the Company of the Securities pursuant to this Agreement, the consummation by the Company and Opco of the transactions contemplated by this Agreement and the Concurrent Private Placement, except (i) such as have been obtained under the Securities Act, (ii) such as may be required under the rules and regulations of the Financial Industry Regulatory Authority (FINRA), (iii) such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in the Registration Statement, the Disclosure Package and the Prospectus, and (iv) such as would not reasonably be expected to have a Material Adverse Effect.
(o) The execution and delivery by the Company of this Agreement, the issue and sale by the Company of the Securities pursuant to this Agreement, the consummation by the Company and Opco of the transactions contemplated by this Agreement and the Concurrent Private Placement did not and will not conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries or Heritage Fields LLC and its subsidiaries (collectively, the Great Park Venture) pursuant to, (i) the charter, by-laws or similar organizational documents of the Company or any of its Subsidiaries or the Great Park Venture, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or any of its Subsidiaries or the Great Park Venture is a party or bound or to which its or their property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or any of its Subsidiaries or the Great Park Venture of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its Subsidiaries or the Great Park Venture or any of its or their properties, except in the case of clauses (ii) and (iii) only, for such conflicts, breaches, violations, liens, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect.
(p) No holders of securities of the Company have rights to the registration of such securities under the Registration Statement.
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(q) The consolidated historical financial statements and schedules of (i) the Company and its subsidiaries (collectively, the Predecessor), (ii) the Great Park Venture, (iii) The Shipyard Communities, LLC and its subsidiaries (collectively, the San Francisco Venture), and (iv) Five Point Communities, LP and its subsidiary and Five Point Communities Management, Inc. (collectively, the Five Point Venture) included in the Preliminary Prospectus, the Prospectus and the Registration Statement, together with the related notes, present fairly, in all material respects, the financial condition of the Predecessor, the Great Park Venture, the San Francisco Venture and the Five Point Venture, respectively, as of the dates indicated, and the results of operations and cash flows of the Predecessor, the Great Park Venture, the San Francisco Venture and the Five Point Venture, respectively, for the periods indicated, comply as to form, in all material respects, with the applicable accounting requirements of the Securities Act and have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) applied on a consistent basis throughout the periods involved (except as otherwise noted therein). The balance sheet of the Company included in the Registration Statement, the Preliminary Prospectus and the Prospectus, together with the related notes, presents fairly, in all material respects, the financial condition of the Company as of the date indicated, complies as to form, in all material respects, with the applicable accounting requirements of the Securities Act and has been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved (except as otherwise noted therein). The selected financial data set forth under the caption Selected Historical Consolidated Financial Information in the Preliminary Prospectus, the Prospectus and the Registration Statement present fairly, in all material respects, on the basis stated in the Preliminary Prospectus, the Prospectus and the Registration Statement, the information included therein. The pro forma financial statements and the related notes thereto included in the Preliminary Prospectus, the Prospectus and the Registration Statement include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma adjustments reflect the proper application of those adjustments to the historical financial statement amounts in the pro forma financial statements included in the Preliminary Prospectus, the Prospectus and the Registration Statement. The pro forma financial statements and the related notes thereto included in the Preliminary Prospectus, the Prospectus and the Registration Statement comply as to form, in all material respects, with the applicable accounting requirements of Regulation S-X under the Securities Act and the pro forma adjustments have been properly applied to the historical amounts in the compilation of those statements.
(r) Except as set forth in the Disclosure Package and the Prospectus, no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries or the Great Park Venture or its or their property is pending or, to the knowledge of the Company, threatened that (i) would reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (ii) would reasonably be expected to have a Material Adverse Effect.
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(s) Except as set forth in or contemplated in the Disclosure Package and the Prospectus or as would not reasonably be expected to have a Material Adverse Effect:
(i) the Company or its Subsidiaries or the Great Park Venture have good and marketable title (fee or leasehold) to all of the real properties owned by them (fee or leasehold) and the improvements located thereon described in the Disclosure Package and the Prospectus as being owned or leased by them (each such property, individually, a Property and collectively, the Properties), free and clear of all mortgages, pledges, liens, claims, security interests, restrictions or encumbrances of any kind, except for such mortgages, pledges, liens, claims, security interests, restrictions or encumbrances now or that will hereafter be executed and as are described in the Disclosure Package and the Prospectus;
(ii) all liens, charges, encumbrances, claims or restrictions on or affecting any of the Properties or assets of the Company or any of its Subsidiaries or the Great Park Venture and, to the knowledge of the Company, any of the Option Properties that are required to be disclosed in the Disclosure Package and the Prospectus are disclosed therein;
(iii) each of the Properties and, to the knowledge of the Company, each of the real properties, and the improvements located thereon, described in the Disclosure Package and the Prospectus as being subject to an option or right to purchase or acquire in their favor (each such property, individually, an Option Property and collectively, the Option Properties) complies with all applicable codes, laws and regulations (including, without limitation, building and zoning codes, laws and regulations and laws relating to access to the Properties or the Option Properties, as applicable), other than non-compliance that would not render a material portion of any such Property or Option Property, as applicable, unusable for its current, intended or permitted purpose or non-compliance for existing improvements or other portions of the Property or Option Property, as applicable, that are intended to be demolished, renovated and otherwise improved as part of the redevelopment of any Property or Option Property, as applicable, by the Company or its Subsidiaries or the Great Park Venture;
(iv) the Company has not received written notice of any, and, to the Companys knowledge, there are no pending or threatened condemnation proceedings, zoning changes or other proceedings or actions that will in any material manner affect the size of, use or operation of, improvements on, construction on or access to the Properties or the Option Properties, other than those changes sought by the Company or any of the Five Point Entities;
(v) the mortgages and deeds of trust that encumber the Properties and, to the knowledge of the Company, the Option Properties are not convertible into equity securities of the entity owning such Property or Option Property, as applicable, and said mortgages and deeds of trust are not cross-defaulted or cross-collateralized with any property other than other Properties or Option Properties, as applicable;
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(vi) neither the Company nor any of its Subsidiaries, nor the Great Park Venture, nor, to the knowledge of the Company, any tenant of any of the Properties or any of the Option Properties, is in default under (x) any tenant lease (as lessor or lessee, as the case may be) relating to any of the Properties or Option Properties, as applicable, or (y) any of the mortgages or other security documents or other agreements encumbering or otherwise recorded against the Properties or Option Properties, as applicable, whether with or without the passage of time or the giving of notice, or both, which would constitute a default under any of such documents or agreements; and
(vii) the Company or one of the Five Point Entities currently has the full power and authority to acquire good and marketable fee title to each of the Option Properties pursuant to option or other agreements that are in full force and effect, and none of the parties to any such option or other agreements are in default thereunder.
(t) None of the Five Point Entities is in violation or default of (i) any provision of its charter or bylaws or similar organizational documents (including, in the case of a limited liability company, its limited liability company agreement and, in the case of a limited partnership, its limited partnership agreement), (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over it or any of its properties, as applicable, except, in the case of clauses (ii) and (iii), as would not reasonably be expected to have a Material Adverse Effect.
(u) Deloitte & Touche LLP, which has certified certain financial statements of the Predecessor, the Great Park Venture, the San Francisco Venture and the Five Point Venture and whose reports with respect to the audited consolidated financial statements and schedules are included in the Disclosure Package and the Prospectus, are independent public accountants with respect to the Predecessor, the Great Park Venture, the San Francisco Venture and the Five Point Venture within the meaning of the Securities Act and the applicable published rules and regulations thereunder.
(v) There are no unpaid transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance by or sale by the Company of the Securities.
(w) Each Five Point Entity has filed all tax returns that are required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not reasonably be expected to have a Material Adverse Effect) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not reasonably be expected to have a Material Adverse Effect.
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(x) No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of the Companys or its Subsidiaries or the Great Park Ventures principal suppliers, contractors or customers except, in each case, as would not reasonably be expected to have a Material Adverse Effect.
(y) (i) The Company and each of its Subsidiaries and the Great Park Venture are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; (ii) all material policies of insurance and fidelity or surety bonds, if any, insuring the Company or any of its Subsidiaries or the Great Park Venture or their respective businesses, assets, employees, officers and directors are in full force and effect; (iii) the Company and its Subsidiaries and the Great Park Venture are in compliance with the terms of such policies and instruments in all material respects; and there are no material claims by the Company or any of its Subsidiaries or the Great Park Venture under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; (iv) neither the Company nor any such Subsidiary, nor the Great Park Venture, has been refused any insurance coverage sought or applied for, except as would not reasonably be expected to have a Material Adverse Effect; and (v) neither the Company nor any such Subsidiary, nor the Great Park Venture, has any reason to believe that it will not be able to renew, if desired, its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect.
(z) No Subsidiary of the Company is currently prohibited, directly or indirectly, from (i) paying any dividends to the Company, (ii) making any other distribution on such Subsidiarys capital stock, (iii) repaying to the Company any loans or advances to such Subsidiary from the Company or (iv) transferring any of such Subsidiarys property or assets to the Company or any other Subsidiary of the Company, except as set forth in or contemplated in the Disclosure Package and the Prospectus. The Great Park Venture is not currently prohibited, directly or indirectly, from paying any dividends or making any other distribution to the Company on account of the Companys interests in the Great Park Venture, except as set forth in or contemplated in the Disclosure Package and the Prospectus.
(aa) The Company and its Subsidiaries and the Great Park Venture possess all licenses, certificates, permits and other authorizations issued by all applicable authorities necessary to conduct their respective businesses as described in the Disclosure Package and the Prospectus, except as set forth in the Disclosure Package and the Prospectus or where the failure to possess such licenses, certificates, permits or other authorizations would not reasonably be expected to have a Material Adverse Effect, and, except as set forth in or contemplated in the Disclosure Package and the Prospectus, neither the
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Company nor any such Subsidiary, nor the Great Park Venture, has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect.
(bb) The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences (collectively, the Specified Procedures). The Company has no reason to believe that the Great Park Venture does not maintain a system of internal accounting controls sufficient to provide reasonable assurance of the Specified Procedures. Except as disclosed in the Disclosure Package and the Prospectus, the Company is not aware of any material weakness in its internal controls over financial reporting.
(cc) The Company and its Subsidiaries maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act); such disclosure controls and procedures are effective.
(dd) No Five Point Entity or, to the knowledge of the Company, any affiliate of any Five Point Entity has taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(ee) Any third-party statistical and market-related data included in the Registration Statement, the Disclosure Package and the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate, in all material respects.
(ff) Except as set forth in the Disclosure Package and the Prospectus, the Company and its Subsidiaries and the Great Park Venture (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (Environmental Laws) other than non-compliance that would not reasonably be expected to have a Material Adverse Effect, (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses other than non-compliance that would not reasonably be expected to have a Material Adverse Effect and (iii) have not received notice of any actual or potential liability under any environmental law, other than for a liability that would not reasonably be expected to have a Material Adverse Effect. Except as set forth in the Disclosure Package and the Prospectus, neither the Company nor any of the Subsidiaries, nor the Great Park Venture,
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has been named as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Except as set forth in the Disclosure Package and the Prospectus, costs and liabilities currently expected to be incurred by the Company in response to Environmental Laws would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(gg) None of the following events has occurred or exists: (i) a failure to fulfill the obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974, as amended (ERISA), and the regulations and published interpretations thereunder with respect to a Plan, determined without regard to any waiver of such obligations or extension of any amortization period; (ii) an audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other federal or state governmental agency or any foreign regulatory agency with respect to the employment or compensation of employees by any of the Company or any of its Subsidiaries; or (iii) any breach of any contractual obligation, or any violation of law or applicable qualification standards, with respect to the employment or compensation of employees by the Company or any of its Subsidiaries, except in the case of clauses (i) (iii), that would not reasonably be expected to have a Material Adverse Effect. None of the following events has occurred or is reasonably likely to occur: (i) a material increase in the aggregate amount of contributions required to be made to all Plans in the current fiscal year of the Company and its Subsidiaries compared to the amount of such contributions made in the most recently completed fiscal year of the Company and its Subsidiaries; (ii) a material increase in the accumulated postretirement benefit obligations (within the meaning of FASB Accounting Standards Codification 715-60) of the Company and its Subsidiaries compared to the amount of such obligations in the most recently completed fiscal year of the Company and its Subsidiaries; (iii) any event or condition giving rise to a liability under Title IV of ERISA that would reasonably be expected to have a Material Adverse Effect; or (iv) the filing of a claim by one or more employees or former employees of the Company or any of its Subsidiaries related to their employment that would reasonably be expected to have a Material Adverse Effect. For purposes of this paragraph, the term Plan means a plan (within the meaning of Section 3(3) of ERISA) subject to Title IV of ERISA with respect to which the Company or any of its Subsidiaries may have any liability.
(hh) As of the date hereof, the Company and, to the knowledge of the Company, its directors and officers, in their capacities as such, are in compliance with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith that are in effect and with which the Company is required to comply.
(ii) None of the Five Point Entities nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Five Point Entities is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder or the U.K. Bribery Act 2010 or similar law of any other relevant
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jurisdiction; and none of the Five Point Entities nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Five Point Entities is aware of or has taken any action, directly or indirectly, that would result in a sanction for violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder or the U.K. Bribery Act 2010 or similar law of any other relevant jurisdiction; and prohibition of noncompliance therewith is covered by the codes of conduct or other procedures instituted and maintained by the Company.
(jj) The operations of the Five Point Entities are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements and the money laundering statutes and the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Money Laundering Laws) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Five Point Entities with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(kk) None of the Five Point Entities nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of any of the Five Point Entities (i) is currently subject to any sanctions administered or imposed by the United States (including any administered or enforced by the Office of Foreign Assets Control of the U.S. Treasury Department, the U.S. Department of State, or the Bureau of Industry and Security of the U.S. Department of Commerce), the United Nations Security Council, the European Union, or the United Kingdom (including sanctions administered or controlled by Her Majestys Treasury) (collectively, Sanctions) or (ii) will, directly or indirectly, use the proceeds of this offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person in any manner that will result in a violation of any economic Sanctions by, or would result in the imposition of Sanctions against, any person (including any person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(ll) None of the Five Point Entities nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of any of the Five Point Entities, is a person that is, or is 50% or more owned or otherwise controlled by a person that is: (i) the subject of any Sanctions; or (ii) located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions that broadly prohibit dealings with that country or territory (currently, the Crimea region of Ukraine, Cuba, Iran, North Korea, Sudan, and Syria) (collectively, Sanctioned Countries and each, a Sanctioned Country).
(mm) Except as has been disclosed to the Underwriters or is not material to the analysis under any Sanctions, none of the Five Point Entities has engaged in any dealings or transactions with or for the benefit of a Sanctioned Person, or with or in a Sanctioned Country, in the preceding 3 years, nor do any of the Five Point Entities have any plans to increase its dealings or transactions with Sanctioned Persons, or with or in Sanctioned Countries.
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(nn) As of the Closing Date, all of the significant subsidiaries of the Company, as defined by Rule 1-02 of Regulation S-X, are set forth on Annex A hereto.
(oo) The Company and its Subsidiaries own, possess, license or have other rights to use, on reasonable terms, all patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, know-how and other intellectual property necessary for the conduct of the Companys business as now conducted or as proposed in the Disclosure Package and Prospectus to be conducted, except where the failure to so own or possess such rights would not reasonably be expected to have a Material Adverse Effect. To the Companys knowledge, the Great Park Venture owns, possesses, licenses or has other rights to use, on reasonable terms, all patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, know-how and other intellectual property necessary for the conduct of its business as now conducted or as proposed in the Disclosure Package and Prospectus to be conducted. Except as set forth in or contemplated by the Disclosure Package and the Prospectus, to the Companys knowledge, the Company and its Subsidiaries and the Great Park Venture have not received any notice of any claim or infringement, misappropriation or conflict with the asserted rights of others in connection with its patents, patent rights, licenses, inventions, trademarks, service marks, trade names, copyrights and know-how.
(pp) The sale and issuance of the Class A common units of Opco to LenFive in connection with the Concurrent Private Placement, pursuant to the Securities Purchase Agreement and as described in the Disclosure Package and Prospectus, are exempt from the registration requirements of the Securities Act, the applicable rules and regulations of the Commission thereunder, and the securities laws of any state having jurisdiction with respect thereto, and none of the Five Point Entities has taken or will take any action that would cause the loss of such exemption. The Concurrent Private Placement will not be integrated with the offering and sale of the Securities contemplated by this Agreement pursuant to the Securities Act, the rules and regulations thereunder or the interpretations thereof by the Commission.
(qq) The Registration Statement, the Prospectus, any preliminary prospectus and any Issuer Free Writing Prospectuses comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus and any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program. No authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. The Company has not offered, or caused the Underwriters to offer, Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customers or suppliers level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
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Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale . (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $[●] per share, the amount of the Underwritten Securities set forth opposite such Underwriters name in Schedule I hereto[; provided, however, that with respect to an aggregate of [●] shares of Underwritten Securities allocated at the direction of the Company to a fund managed by Castlelake, L.P. and a fund managed by Third Avenue Management, LLC (the Company Allocated Securities), the Underwriters shall purchase the Company Allocated Securities at $[●] per share. With respect to the Company Allocated Securities, each Underwriter agrees, severally and not jointly, to purchase that proportion of the Company Allocated Securities that the number of Underwritten Securities set forth in Schedule I opposite the name of such Underwriter bears to the total number of Underwritten Securities, subject to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares.]
(b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to [●] Option Securities at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Securities but not payable on the Option Securities. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Said option may be exercised in whole or in part at any time on or before the 30th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Company setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date. The maximum number of Option Securities to be sold by the Company is [●]. The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment . Delivery of and payment for the Underwritten Securities and the Option Securities (if the option provided for in Section 2(b) hereof shall have been exercised on or before the third Business Day immediately preceding the Closing Date) shall be made at 10:00 AM, New York City time, on [●], 2017, or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall
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designate, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the Closing Date). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the respective aggregate purchase prices of the Securities being sold by the Company to or upon the order of the Company by wire transfer payable in same-day funds to the account or accounts specified by the Company. Delivery of the Underwritten Securities and the Option Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after the third Business Day immediately preceding the Closing Date, the Company will deliver the Option Securities (at the expense of the Company) to the Representatives, at 388 Greenwich Street, New York, New York, on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to the account or accounts specified by the Company. If settlement for the Option Securities occurs after the Closing Date, the Company will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters . It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus.
5. Agreements .
The Company agrees with the several Underwriters that:
(a) Prior to the termination of the offering of the Securities, the Company will not file any amendment to the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Company has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. The Company will cause the Prospectus, properly completed, and any supplement thereto to be filed in a form approved by the Representatives with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Company will promptly advise the Representatives (i) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement shall have been filed with the Commission, (ii) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (iii) of any request by the Commission or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any
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additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any notice objecting to its use or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Company will use its reasonable best efforts to prevent the issuance of any such stop order or the occurrence of any such suspension or objection to the use of the Registration Statement and, upon such issuance, occurrence or notice of objection, to obtain as soon as practicable the withdrawal of such stop order or relief from such occurrence or objection, including, if necessary, by filing an amendment to the Registration Statement or a new registration statement and using its reasonable best efforts to have such amendment or new registration statement declared effective as soon as practicable.
(b) If, at any time prior to the filing of the Prospectus pursuant to Rule 424(b), any event occurs as a result of which the Disclosure Package would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made, not misleading, the Company will (i) notify promptly the Representatives so that any use of the Disclosure Package may cease until it is amended or supplemented; (ii) amend or supplement the Disclosure Package so that, as so amended or supplemented, it no longer contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (iii) supply any amendment or supplement to you in such quantities as you may reasonably request.
(c) If, at any time when a prospectus relating to the Securities is required to be delivered under the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172), any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made at such time, not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply in all material respects with the Securities Act or the rules thereunder, the Company promptly will (i) notify the Representatives of any such event; (ii) prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement so that, as so amended or supplemented, it no longer contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made at such time, not misleading; and (iii) supply any amendment or supplement to you in such quantities as you may reasonably request.
(d) The Company will make generally available to its security holders and to the Representatives as soon as practicable (which may be satisfied by filing with the Commissions Electronic Data Gathering, Analysis and Retrieval System) an earnings statement or statements of the Company and its Subsidiaries which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158.
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(e) The Company will furnish to the Underwriters and counsel for the Underwriters, without charge, a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172), as many copies of each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus and any supplement thereto as the Representatives may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering.
(f) The Company will use its commercially reasonable efforts to arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may reasonably request and maintain such qualifications in effect so long as required for the distribution of the Securities; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to taxation or to service of process in suits, other than, in the case of such service of process, those suits arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject.
(g) The Company will not, without the prior written consent of the Representatives, offer, sell, contract to sell, pledge, or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any affiliate of the Company or any person in privity with the Company or any affiliate of the Company), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, any other Class A Shares or any securities convertible into, or exercisable, or exchangeable for, Class A Shares; or publicly announce an intention to effect any such transaction, for a period of 180 days after the date of this Agreement; provided , however , that the Company may (i) issue and sell the Securities to be sold hereunder; (ii) issue and sell Class A Shares, or any securities convertible into, or exercisable or exchangeable for, Class A Shares, pursuant to any director or employee equity incentive plan of the Company in effect at the Execution Time; (iii) file one or more registration statements on Form S-8; (iv) issue Class A Shares upon the conversion or exchange of securities or the exercise of warrants outstanding at the Execution Time or issued pursuant to subclause (ii), (v) or (vi); (v) issue and sell in private placements without registration under the Securities Act up to the number of Class A Shares representing 10% of the total number of outstanding Class A Shares (or options, warrants or other securities convertible into, or exercisable or exchangeable for, Class A Shares) in connection with bona fide mergers or acquisitions, joint ventures, strategic partnerships, commercial relationships or other strategic transactions, provided that the acquirer of any such Class A Shares (or options, warrants or other securities convertible into, or exercisable or exchangeable for, Class A Shares) so issued pursuant to this subclause (v) enters into an agreement in the form of Exhibit A hereto with respect to such Class A Shares (or options, warrants or other securities convertible into, or exercisable or exchangeable for,
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Class A Shares) for the remainder of the 180-day restricted period; and (vi) issue and sell Class A common units of Opco, and Class B common shares of the Company, in the Concurrent Private Placement.
(h) If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(j) hereof for an officer or director of the Company, which waiver shall be substantially in the form of the addendum hereto, and provide the Company with notice of the impending release or waiver at least three Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two Business Days before the effective date of the release or waiver.
(i) The Company will not permit any Five Point Entity or any affiliate of a Five Point Entity that the Company controls to take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(j) The Company agrees to pay the costs and expenses relating to the following matters: (i) the preparation, printing or reproduction and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus, and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp or transfer taxes in connection with the original issuance and sale of the Securities; (iv) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (v) the registration of the Securities under the Exchange Act and the listing of the Securities on the New York Stock Exchange (the NYSE); (vi) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such registration and qualification); (vii) any filings required to be made with FINRA (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such filings); provided that the fees and expenses of counsel for the Underwriters relating to this subclause (vii) shall not exceed $30,000; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Securities; provided that the Company shall pay no more than fifty percent (50%) of the cost of any aircraft chartered in connection with any such presentations; (ix) the fees and expenses of the Companys accountants and the fees and expenses of counsel (including local and special
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counsel) for the Company; and (x) all other costs and expenses incident to the performance by the Company of its obligations hereunder. Except as explicitly provided in Section 7 or Section 8, the Underwriters shall pay all of their own costs and expenses, including the costs of their counsel.
(k) The Company agrees to pay (i) all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program, (ii) all costs and expenses incurred by the Underwriters in connection with the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of copies of the Directed Share Program material and (iii) all stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program
(l) The Company covenants with Citigroup Global Markets Inc. that the Company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
(m) The Company agrees that, unless it has or shall have obtained the prior written consent of the Representatives, and each Underwriter, severally and not jointly, agrees with the Company that, unless it has or shall have obtained, as the case may be, the prior written consent of the Company, it has not made and will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a free writing prospectus (as defined in Rule 405) required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the Free Writing Prospectuses included in Schedule II hereto and any electronic road show. Any such free writing prospectus consented to by the Representatives or the Company is hereinafter referred to as a Permitted Free Writing Prospectus. The Company agrees that (x) it has treated and will treat, as the case may be, each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus and (y) it has complied and will comply, as the case may be, with the requirements of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus, including in respect of timely filing, if applicable, with the Commission, legending and record keeping.
(n) The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Securities within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 5(g) hereof.
(o) If at any time following the distribution of any Written Testing-the-Waters Communication, any event occurs as a result of which such Written Testing-the-Waters Communication would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made at such time not misleading, the Company will (i) notify promptly the Representatives so that use of the Written Testing-the-Waters Communication may cease until it is amended or supplemented; (ii) amend or supplement
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the Written Testing-the-Waters Communication so that, as so amended or supplemented, it no longer contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made at such time, not misleading; and (iii) supply any amendment or supplement to the Representatives in such quantities as may be reasonably requested.
6. Conditions to the Obligations of the Underwriters . The obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions:
(a) The Prospectus, and any supplement thereto, have been filed in the manner and within the time period required by Rule 424(b); any material required to be filed by the Company pursuant to Rule 433(d) under the Securities Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; and no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company, threatened.
(b) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company, shall have furnished to the Representatives their opinion or opinions and negative assurance letter, each dated the Closing Date or the applicable settlement date, as the case may be, and addressed to the Representatives, in form and substance reasonably satisfactory to the Representatives.
(c) The Representatives shall have received from Proskauer Rose LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date or the applicable settlement date, as the case may be, and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Registration Statement, the Disclosure Package, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a certificate of the Company signed by the Chairman of the Board or the President and the principal financial or accounting officer of the Company, dated the Closing Date or the applicable settlement date, as the case may be, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Disclosure Package, the Prospectus and any amendment or supplement thereto, as well as each electronic road show used in connection with the offering of the Securities, and this Agreement and that:
(i) the representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date or the applicable settlement date, as the case may be, with the same effect as if made on such date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date or the applicable settlement date, as the case may be;
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(ii) no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use has been issued and no proceedings for that purpose have been instituted or, to the knowledge of the Company, threatened; and
(iii) since the date of the most recent financial statements included in the Disclosure Package and the Prospectus (exclusive of any supplement thereto), there has been no Material Adverse Effect, except as set forth in the Disclosure Package and the Prospectus.
(e) Deloitte & Touche LLP shall have furnished to the Representatives at the Execution Time and at the Closing Date or the applicable settlement date, as the case may be, letters, dated respectively as of the Execution Time and as of the Closing Date or the applicable settlement date, as the case may be, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Securities Act and the Exchange Act and the applicable rules and regulations adopted by the Commission thereunder, in form and substance satisfactory to the Representatives (except that, in any letter dated the Closing Date, the specified date referred to shall be a date no more than three days prior to such Closing Date).
(f) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been (i) any change or decrease in consolidated total assets or total capital of the Predecessor, the Great Park Venture or the San Francisco Venture specified in the letter or letters referred to in paragraph (e) of this Section 6 or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of the Company and its Subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in the Registration Statement, the Disclosure Package and the Prospectus the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement, the Disclosure Package and the Prospectus.
(g) Subsequent to the Execution Time, there shall not have been any decrease in the rating of any of the Companys debt securities by any nationally recognized statistical rating organization (as defined for purposes of Rule 3(a)(62) under the Exchange Act) or any notice given of any intended or potential decrease in any such rating or of a possible change in any such rating that does not indicate the direction of the possible change.
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(h) Prior to the Closing Date and any settlement date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request.
(i) The Securities shall have been approved for listing on the NYSE, subject to official notice of issuance, and evidence of such approval shall have been provided to the Representatives.
(j) At the Execution Time, the Company shall have furnished to the Representatives a letter substantially in the form of Exhibit A hereto from each person listed on Schedule IV hereto addressed to the Representatives.
(k) On or prior to the Closing Date, the Concurrent Private Placement shall have been consummated, or will be consummated substantially concurrently with the issuance of the Underwritten Securities and payment therefor in accordance with the terms of this Agreement, on terms substantially consistent with the Disclosure Package and the Prospectus.
If any of the conditions specified in this Section 6 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing.
The closing pursuant to Section 2 shall take place at the office of Proskauer Rose LLP, counsel for the Underwriters, at 2049 Century Park East, Suite 3200, Los Angeles, CA 90067 on the Closing Date or the applicable settlement date, as the case may be.
7. Reimbursement of Underwriters Expenses . If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally through Citigroup Global Markets Inc. on demand for all reasonable and documented out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution .
(a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees, affiliates and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or
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otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in the Preliminary Prospectus, the Prospectus, any Issuer Free Writing Prospectus, or any Written Testing-the-Waters Communication, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein (in the case of the Preliminary Prospectus or the Prospectus, in the light of the circumstances under which they were made) not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have.
(b) The Company agrees to indemnify and hold harmless Citigroup Global Markets Inc., the directors, officers, employees, affiliates and agents of Citigroup Global Markets Inc. and each person, who controls Citigroup Global Markets Inc. within the meaning of either the Securities Act or the Exchange Act (Citigroup Entities), from and against any and all losses, claims, damages and liabilities to which they may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim), insofar as such losses, claims damages or liabilities (or actions in respect thereof) (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the prospectus wrapper material prepared by or with the consent of the Company for distribution in foreign jurisdictions in connection with the Directed Share Program attached to the Prospectus, any preliminary prospectus or any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein, when considered in conjunction with the Prospectus or any applicable preliminary prospectus, not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of the securities which immediately following the Effective Date of the Registration Statement, were subject to a properly confirmed agreement to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, except that this clause (iii) shall not apply to the extent that such loss, claim, damage or liability is finally judicially determined to have resulted primarily from the gross negligence or willful misconduct of the Citigroup Entities.
(c) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, the directors, officers, employees, affiliates and agents of the Company, and each person who controls the Company, within the meaning of either the
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Securities Act or the Exchange Act, to the same extent as the indemnity in Section 8(a) to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the indemnity in Section 8(a). This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Company acknowledges that the statements set forth (i) in the last paragraph of the cover page regarding delivery of the Securities and, under the heading Underwriting, (ii) the list of Underwriters and their respective participation in the sale of the Securities, (iii) the sentences related to concessions and reallowances and (iv) the paragraph related to stabilization, syndicate covering transactions and penalty bids in the Preliminary Prospectus and the Prospectus constitute the only written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion therein.
(d) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a), (b) or (c) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying partys choice at the indemnifying partys expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided , however , that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying partys election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including one local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to
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such claim or action) unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and (ii) does not include an admission of fault by or on behalf of any indemnified party. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to Section 8(b) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for Citigroup Global Markets Inc., the directors, officers, employees and agents of Citigroup Global Markets Inc., and all persons, if any, who control Citigroup Global Markets Inc. within the meaning of either the Securities Act or the Exchange Act for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program.
(e) In the event that the indemnity provided in paragraph (a), (b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters, severally, agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) (collectively Losses) to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and by the Underwriters, on the other, from the offering of the Securities. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Underwriters, severally, shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company, on the one hand, and of the Underwriters, on the other, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by the Company, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault of the Company, on the one hand, and of the Underwriters, on the other, shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company, on the one hand, or the Underwriters, on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (e), in no event shall any Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Securities exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent
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misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee, affiliate and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee, affiliate and agent of the Company shall have the same rights to contribution as the Company subject in each case to the applicable terms and conditions of this paragraph (e).
9. Default by an Underwriter . If any one or more Underwriters shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided , however , that in the event that the aggregate amount of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination . This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such delivery and payment (i) trading in the Companys Class A Shares shall have been suspended by the Commission or the NYSE or trading in securities generally on the NYSE shall have been suspended or limited or minimum prices shall have been established on such exchange, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities, (iii) there shall have occurred a material disruption in commercial banking or securities settlement or clearance services in the United States or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Preliminary Prospectus or the Prospectus (exclusive of any amendment or supplement thereto).
11. Representations and Indemnities to Survive . The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and
27
of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its officers, directors, employees, agents, affiliates or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement.
12. Notices . All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered, telefaxed or sent by electronic transmission/email to (a) the Citigroup Global Markets Inc. General Counsel (fax no.: (646) 291-1469) and confirmed to the General Counsel, Citigroup Global Markets Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General Counsel, (b) J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179, Attention: Equity Syndicate Desk, 4 th Floor (fax no.: (212) 622-8458), (c) RBC Capital Markets, LLC, 200 Vesey Street, New York, New York 10281, Attention: Equity Syndicate and (d) Wells Fargo Securities, LLC, 375 Park Avenue, 7 th Floor, New York, New York 10152, Attention: Legal Department; or, if sent to the Company, will be mailed, delivered or telefaxed to the Chief Executive Officer, Five Point Holdings, LLC, 25 Enterprise, Suite 300, Aliso Viejo, California 92656 and confirmed to it at Five Point Holdings, LLC, 25 Enterprise, Suite 300, Aliso Viejo, California 92656, attention of the Legal Department.
13. Successors . This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors, employees, agents and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder.
14. No Fiduciary Duty . The Company hereby acknowledges that (a) the purchase and sale of the Securities pursuant to this Agreement is an arms-length commercial transaction between the Company, on the one hand, and the Underwriters and any affiliate through which it may be acting, on the other, (b) the Underwriters are acting as principal and not as an agent or fiduciary of the Company and (c) the Companys engagement of the Underwriters in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, the Company agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Underwriters has advised or is currently advising the Company on related or other matters). The Company agrees that it will not claim that the Underwriters have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Company in connection with such transaction or the process leading thereto.
15. Integration . This Agreement supersedes all prior agreements and understandings (whether written or oral) among the Company and the Underwriters, or any of them, with respect to the subject matter hereof.
16. Applicable Law . This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
28
17. Waiver of Jury Trial . The Company and the Underwriters hereby irrevocably waive, to the fullest extent permitted by applicable law, 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.
18. Counterparts . This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
19. Headings . The section headings used herein are for convenience only and shall not affect the construction hereof.
20. Definitions . The terms that follow, when used in this Agreement, shall have the meanings indicated.
Business Day shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.
Commission shall mean the Securities and Exchange Commission.
Disclosure Package shall mean (i) the Preliminary Prospectus that is generally distributed to investors and used to offer the Securities, (ii) the Issuer Free Writing Prospectuses, if any, identified in Schedule II hereto and (iii) any other Free Writing Prospectus that the parties hereto shall hereafter expressly agree in writing to treat as part of the Disclosure Package.
Effective Date shall mean each date and time that the Registration Statement, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or becomes effective.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.
Execution Time shall mean the date and time that this Agreement is executed and delivered by the parties hereto.
Free Writing Prospectus shall mean a free writing prospectus, as defined in Rule 405.
Issuer Free Writing Prospectus shall mean an issuer free writing prospectus, as defined in Rule 433.
Preliminary Prospectus shall mean any preliminary prospectus referred to in paragraph 1(a) above and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information.
Prospectus shall mean the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time.
29
Registration Statement shall mean the registration statement referred to in paragraph 1(a) above, including exhibits and financial statements and any prospectus supplement relating to the Securities that is filed with the Commission pursuant to Rule 424(b) and deemed part of such registration statement pursuant to Rule 430A, as amended at the Execution Time and, in the event any post-effective amendment thereto or any Rule 462(b) Registration Statement becomes effective prior to the Closing Date, shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be.
Rule 158, Rule 163, Rule 164, Rule 172, Rule 405, Rule 415, Rule 424, Rule 430A and Rule 433 refer to such rules under the Securities Act.
Rule 430A Information shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A.
Rule 462(b) Registration Statement shall mean a registration statement and any amendments thereto filed pursuant to Rule 462(b) relating to the offering covered by the registration statement referred to in Section 1(a) hereof.
Securities Act shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.
30
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company and the several Underwriters.
Very truly yours, | ||
Five Point Holdings, LLC | ||
By: |
|
|
Name: | ||
Title: |
31
32
SCHEDULE I
Underwriters |
Number of Underwritten
|
|||
Citigroup Global Markets Inc. |
||||
J.P. Morgan Securities LLC |
||||
RBC Capital Markets, LLC |
||||
Wells Fargo Securities, LLC |
||||
Deutsche Bank Securities Inc. |
||||
Evercore Group L.L.C. |
||||
Zelman Partners LLC |
||||
JMP Securities LLC |
||||
|
|
|||
Total |
||||
|
|
SCHEDULE II
Schedule of Free Writing Prospectuses included in the Disclosure Package
SCHEDULE III
Schedule of Written Testing-the-Waters Communications
SCHEDULE IV
Lock-up Agreement Signatories
Institutional Holders
| Anchorage Capital Master Offshore, Ltd. |
| Castlelake I, L.P. |
| TCO Fund, L.P. |
| TCO Investors L.P. |
| TCS Diamond Solutions, LLC |
| TCS II REO LLC |
| HFET Opportunities LLC |
| HPSCP Opportunities, L.P. |
| LenFive, LLC |
| LenFive Sub, LLC |
| LenFive Sub III, LLC |
| UST Lennar HW Scala SF Joint Venture |
| Marathon Asset Management, LP, on behalf of certain of its affiliated funds and managed accounts that constitute the Marathon 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. |
| Third Avenue Trust on behalf of Third Avenue Real Estate Value Fund |
Directors and Executive Officers
| Michael White |
| Kathleen Brown |
| Michael Alvarado |
| Evan Carruthers |
| Michael Rossi |
| Gary Hunt |
| Jonathan Foster |
| Michael Winer |
| William Browning |
| Lynn Jochim |
| Jonathan Jaffe |
| Greg McWilliams |
| Rick Beckwitt |
| Erik Higgins |
| Stuart Miller |
| Emile Haddad |
| Kofi Bonner |
ANNEX A
Subsidiaries
Five Point Operating Company, LLC
Five Point Holdings, Inc.
Five Point Communities Management, Inc.
Five Point Communities, LP
Five Point Land, LLC
LandSource Holding Company, LLC
NWHL GP LLC
The Newhall Land and Farming Company (A California limited partnership)
The Newhall Land and Farming Company, Inc.
The Newhall Land and Farming Company, LLC
Tournament Players Club at Valencia, LLC
LandSource Communities Development Sub LLC
Southwest Communities Development LLC
Legacy Lands, LLC
SRV Holdings
Stevenson Ranch Venture, LLC
Southwest Communities Development LLC
Legacy Lands, LLC
Five Point Heritage Fields, LLC
The Shipyard Communities, LLC
The Shipyard Communities Retail Operator, LLC
AG Phase 1 SLP, LLC
AG Phase 2 SLP, LLC
AG Phase 3B SLP, LLC
CP Development Co., LLC
TSC Management Co., LLC
[Form of Lock-Up Agreement] | EXHIBIT A |
Five Point Holdings, LLC
Public Offering of Class A Common Shares
[ ], 2017
Citigroup Global Markets Inc.
J.P. Morgan Securities LLC
As Representatives of the several Underwriters
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed Underwriting Agreement (the Underwriting Agreement), between Five Point Holdings, LLC, a Delaware limited liability company (the Company), and each of you as representatives (the Representatives) of a group of underwriters named therein (the Underwriters), relating to an underwritten public offering (the Offering) of Class A common shares of the Company (the Class A Shares).
In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned will not, without the prior written consent of the Representatives, offer, sell, contract to sell, pledge or otherwise dispose of, (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any affiliate of the undersigned or any person in privity with the undersigned or any affiliate of the undersigned), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Securities and Exchange Commission (the SEC) in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations of the SEC promulgated thereunder, with respect to (i) any membership interests in the Company or Five Point Operating Company, LLC or (ii) any Class A Shares or any securities convertible into, or exercisable or exchangeable for Class A Shares (collectively, the Lock-up Securities), or publicly announce an intention to effect any such transaction, for a period from the date hereof until 180 days after the date of the Underwriting Agreement (the Lock-up Period). If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing restrictions shall be equally applicable to any issuer-directed Class A Shares the undersigned may purchase in the Offering.
The restrictions in this letter agreement shall not apply to:
(i) | the transfer of Lock-up Securities (a) as a bona fide gift or gifts, (b) by will, other testamentary document or intestate succession, (c) to a Family Member (as defined below), (d) to a trust for the direct or indirect benefit of the undersigned and/or one or more Family Members, (e) to a charitable trust, or (f) to a corporation, limited liability company or partnership wholly owned by the undersigned and/or one or more Family Members; |
(ii) | if the undersigned is a corporation, partnership or limited liability company, the distribution of Lock-up Securities to the partners, members, stockholders or affiliates of such entity; |
(iii) | the transfer of Lock-up Securities to the Company (a) pursuant to the exercise, including a cashless exercise, of any option to purchase Class A Shares granted by the Company pursuant to employee benefit plans or arrangements described in the registration statement on Form S-11 of the Company relating to the Class A Shares sold in the Offering (the Registration Statement) or the final prospectus relating to the Class A Shares sold in the Offering (the Prospectus), where any Class A Shares received by the undersigned upon any such exercise will be subject to the terms of this letter agreement, or (b) for the purpose of satisfying any applicable federal or state income or employment taxes or withholding taxes due as a result of the exercise, including a cashless exercise, of any option to purchase Class A Shares or the vesting of any restricted share awards granted by the Company pursuant to employee benefit plans or arrangements described in the Registration Statement or the Prospectus, where any Class A Shares received by the undersigned upon any such exercise or vesting will be subject to the terms of this letter agreement; |
(iv) | any transfer of Lock-up Securities (a) to any other person or entity (or group of persons or entities) that has executed a letter agreement substantially in the form of this letter agreement relating to the Offering, or (b) to one or more persons or entities controlling, controlled by or under common control with such persons or entities; |
(v) | transactions relating to Lock-up Securities acquired in open market transactions after the completion of the Offering; |
(vi) | the transfer of Lock-up Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Class A Shares involving a change of control of the Company that has been approved by the Companys board of directors; provided that if such a transaction is not completed, the Lock-up Securities owned by the undersigned shall remain subject to the restrictions contained in this letter agreement; |
(vii) | if Five Point Operating Company, LLC is converted into a limited partnership, the conversion or exchange of interests in Five Point Operating Company, LLC into or for general partner or limited partner interests in such limited partnership (which interests, following the conversion or exchange, will be subject to the terms of this letter agreement); and |
(viii) | any transfer pursuant to an order of a court or regulatory agency or to comply with any regulations or investment guideline limits that are provided to the Representatives prior to the date hereof and which relate to ownership of the Lock-Up Securities; provided that, prior to any such transfer, the undersigned shall certify in writing to the Representatives that such transfer is required to comply with such order, regulations or guideline limits; and, provided further that, if, in connection with any such transfer the undersigned (or any transferee) is required to file a report under the Exchange Act, (a) such report shall include a statement to the effect that the filing relates to the transfer of securities pursuant to an order of a court or regulatory agency or to comply with regulations or investment guideline limits related to the ownership of the Lock-Up Securities, as applicable, unless such a statement would be prohibited by such order or regulations, and (b) the undersigned shall provide a draft of such report to the Representatives at least two business days prior to the filing thereof. |
It shall be a condition to any transfer pursuant to each of clauses (i) (v) above that, prior to the expiration of the Lock-up Period, no public disclosure or filing under the Exchange Act by any party to the transfer (donor, donee, transferor or transferee) shall be required, or made voluntarily, in connection with such transfer, except that if any Lock-Up Securities are transferred pursuant to clause (ii) or (iv) above, that transfer may be disclosed in the financial statements of the transferor or its parent as required by generally accepted accounting principles.
It shall be a further condition to any transfer pursuant to clause (i), (ii) or (iv) above that (x) any such transfer shall not involve a disposition for value, and (y) each transferee in connection with any transfer pursuant to such clauses executes and delivers to the Representatives a letter agreement substantially in the form of this letter agreement.
For purposes of this letter agreement, the term Family Member shall mean any relationship by blood, domestic partnership, marriage or adoption not more remote than first cousin.
In addition, the restrictions described in this letter agreement shall not apply to the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act, provided that no transfers occur under such plan during the Lock-up Period and no public announcement or filing shall be required or voluntarily made by any person in connection therewith other than general disclosure in Company periodic reports to the effect that Company directors and officers may enter into such trading plans from time to time.
If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Class A Shares, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver.
Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
If the Company or any record or beneficial owner of Lock-Up Securities subject to a lock-up agreement for the benefit of the Underwriters (each, a Lock-Up Party) is granted an early release during the Lock-Up Period from any restriction set forth in such Lock-Up Partys lock-up agreement to participate in any public or private offering or sale (an Exit Transaction), then the undersigned shall be notified and, upon written notice to the Representatives, shall be granted an early release in the same manner and on the same terms (including with respect to any conditions or provisos that apply to such release) from such restriction solely to participate in such Exit Transaction or undertake a transaction that is substantially similar to the Exit Transaction, on a pro rata basis based on the percentage of Class A Shares held by each such other Lock-Up Party that are released from such restriction (or, in the case of the Company, based on the percentage of Class A Shares issued and outstanding) in connection with the Exit Transaction. Notwithstanding the foregoing, any Class A Shares that are not sold in the Exit Transaction shall remain subject to the restrictions contained in this letter agreement and, if the Exit Transaction is a public offering or sale that is underwritten and the undersigned participates in such Exit Transaction, then the undersigned shall, if requested by the Representatives, also enter into a new letter agreement covering any remaining Class A Shares that are not sold in the underwritten Exit Transaction.
If (i) the Underwriting Agreement is not entered into by August 15, 2017, (ii) the Underwriting Agreement (other than the provisions which survive termination under the terms thereof) terminates prior to payment for the delivery of the Class A Shares to be sold thereunder, or (iii) the Representatives, on behalf of the Underwriters, advise the Company, or the Company advises the Representatives, in each case, in writing prior to the execution of the Underwriting Agreement, that they have, or it has, determined not to proceed with the Offering, then, in each such case, the undersigned shall be automatically and immediately released from all obligations under this letter agreement, and this letter agreement shall be of no further force or effect.
This letter agreement and any claim, controversy or dispute arising under or related to this letter agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws and principles thereof.
Yours very truly, |
|
Signature |
|
Print Name of Signatory |
[Form of Press Release] | EXHIBIT B |
Five Point Holdings, LLC
[Date]
Five Point Holdings, LLC (the Company) announced today that Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, the lead book-running managers in the Companys recent public sale of [●] Class A common shares, are [waiving] [releasing] a lock-up restriction with respect to Class A common shares held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
[Form of Waiver of Lock-up] | ADDENDUM |
[Letterhead]
Five Point Holdings, LLC
Public Offering of Class A Common Shares
, 20
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Five Point Holdings, LLC (the Company) of [●] Class A common shares (the Class A Shares) of the Company and the lock-up letter dated [●], 2017 (the Lock-up Letter), executed by you in connection with such offering, and your request for a [waiver] [release] dated , 20 , with respect to Class A Shares (the Shares).
Citigroup Global Markets Inc. and J.P. Morgan Securities LLC hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective , 20 ; provided , however , that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
Yours very truly, |
[Signature of CGMI Representative] |
[Name and title of CGMI Representative] |
[Signature of JPM Representative] |
[Name and title of JPM Representative] |
cc: Company
Exhibit 3.2
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
FIVE POINT HOLDINGS, LLC
TABLE OF CONTENTS
ARTICLE I | ||||||
DEFINITIONS |
|
|||||
Section 1.1 |
Definitions | 1 | ||||
Section 1.2 |
Construction | 5 | ||||
ARTICLE II | ||||||
ORGANIZATION |
|
|||||
Section 2.1 |
Formation | 5 | ||||
Section 2.2 |
Name | 5 | ||||
Section 2.3 |
Registered Office; Registered Agent; Principal Office; Other Offices | 5 | ||||
Section 2.4 |
Purposes | 5 | ||||
Section 2.5 |
Powers | 5 | ||||
Section 2.6 |
Power of Attorney | 5 | ||||
Section 2.7 |
Term | 6 | ||||
Section 2.8 |
Title to Company Assets | 7 | ||||
ARTICLE III | ||||||
MEMBERS AND SHARES |
|
|||||
Section 3.1 |
Members | 7 | ||||
Section 3.2 |
Shares | 8 | ||||
Section 3.3 |
Certificates; Treatment Under the UCC | 9 | ||||
Section 3.4 |
Record Holders | 10 | ||||
Section 3.5 |
Registration and Transfer of Shares | 10 | ||||
Section 3.6 |
Restrictions on Transfer | 11 | ||||
Section 3.7 |
Splits and Combinations | 11 | ||||
ARTICLE IV | ||||||
DISTRIBUTIONS |
|
|||||
Section 4.1 |
Distributions to Record Holders | 12 | ||||
ARTICLE V | ||||||
MANAGEMENT AND OPERATION OF BUSINESS |
|
|||||
Section 5.1 |
Power and Authority of Board of Directors | 13 | ||||
Section 5.2 |
Number, Qualification, Term and Election of Directors | 14 | ||||
Section 5.3 |
Vacancies | 15 | ||||
Section 5.4 |
Meetings | 15 | ||||
Section 5.5 |
Organization | 15 | ||||
Section 5.6 |
Resignations and Removals of Directors | 15 | ||||
Section 5.7 |
Quorum | 15 | ||||
Section 5.8 |
Nomination of Directors | 16 | ||||
Section 5.9 |
Actions of the Board by Written Consent | 16 | ||||
Section 5.10 |
Meeting by Means of Conference Telephone | 16 |
i
Section 5.11 |
Committees | 16 | ||||
Section 5.12 |
Compensation | 16 | ||||
Section 5.13 |
Duties of Officers and Directors | 16 | ||||
Section 5.14 |
Exculpation and Indemnification | 17 | ||||
Section 5.15 |
Resolution of Conflicts of Interest; Interested Directors | 19 | ||||
Section 5.16 |
Certificate of Formation | 20 | ||||
Section 5.17 |
Officers | 20 | ||||
Section 5.18 |
Business Opportunities and Non-Employee Directors | 22 | ||||
Section 5.19 |
Reliance by Third Parties | 23 | ||||
ARTICLE VI | ||||||
BOOKS, RECORDS, ACCOUNTING AND REPORTS |
|
|||||
Section 6.1 |
Records and Accounting | 23 | ||||
Section 6.2 |
Fiscal Year | 23 | ||||
Section 6.3 |
Reports | 23 | ||||
ARTICLE VII | ||||||
TAX MATTERS |
|
|||||
Section 7.1 |
Tax Returns and Information | 24 | ||||
Section 7.2 |
Tax Elections | 24 | ||||
Section 7.3 |
Withholding | 24 | ||||
ARTICLE VIII | ||||||
DISSOLUTION AND LIQUIDATION |
|
|||||
Section 8.1 |
Dissolution | 24 | ||||
Section 8.2 |
Liquidator | 25 | ||||
Section 8.3 |
Liquidation | 25 | ||||
Section 8.4 |
Cancellation of Certificate of Formation | 25 | ||||
Section 8.5 |
Return of Contributions | 25 | ||||
Section 8.6 |
Waiver of Partition | 25 | ||||
ARTICLE IX | ||||||
AMENDMENT OF AGREEMENT |
|
|||||
Section 9.1 |
Amendments to be Adopted Solely by the Board of Directors | 26 | ||||
Section 9.2 |
Amendment Procedures | 26 | ||||
Section 9.3 |
Amendment Requirements | 26 | ||||
ARTICLE X | ||||||
MERGER, CONSOLIDATION OR CONVERSION |
|
|||||
Section 10.1 |
Authority | 27 | ||||
Section 10.2 |
Procedure for Merger, Consolidation or Conversion | 27 | ||||
Section 10.3 |
Approval by Members of Merger, Consolidation or Conversion or Sale of All or Substantially All of the Companys Assets | 28 | ||||
Section 10.4 |
Certificate of Merger, Conversion or Consolidation | 29 | ||||
Section 10.5 |
Amendment of Operating Agreement | 29 |
ii
Section 10.6 |
Effect of Merger or Consolidation | 29 | ||||
Section 10.7 |
Business Combinations With Interested Shareholders | 29 | ||||
ARTICLE XI | ||||||
MEMBER MEETINGS |
|
|||||
Section 11.1 |
Member Meetings | 30 | ||||
Section 11.2 |
Notice | 30 | ||||
Section 11.3 |
Adjournments | 31 | ||||
Section 11.4 |
Quorum | 31 | ||||
Section 11.5 |
Voting | 31 | ||||
Section 11.6 |
Proxies | 31 | ||||
Section 11.7 |
List of Members Entitled to Vote | 32 | ||||
Section 11.8 |
Record Date | 32 | ||||
Section 11.9 |
Register | 33 | ||||
Section 11.10 |
No Action By Written Consent | 33 | ||||
Section 11.11 |
Conduct of Meetings | 33 | ||||
Section 11.12 |
Inspectors of Election | 33 | ||||
Section 11.13 |
Nature of Business at Meeting of Members | 33 | ||||
Section 11.14 |
Nomination of Directors | 35 | ||||
ARTICLE XII | ||||||
GENERAL PROVISIONS |
|
|||||
Section 12.1 |
Notices | 36 | ||||
Section 12.2 |
Further Action | 37 | ||||
Section 12.3 |
Binding Effect | 37 | ||||
Section 12.4 |
Integration | 37 | ||||
Section 12.5 |
Creditors | 37 | ||||
Section 12.6 |
Waiver | 37 | ||||
Section 12.7 |
Counterparts | 37 | ||||
Section 12.8 |
Applicable Law | 38 | ||||
Section 12.9 |
Exclusive Forum | 38 | ||||
Section 12.10 |
Invalidity of Provisions | 38 | ||||
Section 12.11 |
Consent of Members | 38 | ||||
Section 12.12 |
Facsimile Signatures | 38 |
EXHIBITS
EXHIBIT A CLASS A SHARE CERTIFICATE
EXHIBIT B CLASS B SHARE CERTIFICATE
iii
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
FIVE POINT HOLDINGS, LLC
This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FIVE POINT HOLDINGS, LLC, is dated as of , 2017. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in Section 1.1 .
WHEREAS, an Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC was entered into as of May 2, 2016, and thereafter amended pursuant to the First Amendment to the Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC, dated as of March 31, 2017 (as so amended, the Existing Agreement );
WHEREAS, pursuant to the Existing Agreement, the board of directors of the Company has authorized and approved an amendment and restatement of the Existing Agreement on the terms set forth herein.
NOW THEREFORE, the Existing Agreement is hereby amended and restated to read in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions . The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
Additional Member means a Person admitted as a Member of the Company in accordance with Article III as a result of an issuance of Shares to such Person by the Company.
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 the Person in question. As used herein, the term 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.
Agreement means this Second Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC, as it may be amended, supplemented or restated from time to time.
Board of Directors has the meaning assigned to such term in Section 5.1 .
Business Day means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of California shall not be regarded as a Business Day.
Certificate means a certificate (a) substantially in the form of Exhibit A or Exhibit B to this Agreement, (b) in global form in accordance with the rules and regulations of the Depositary or (c) in such other form as may be adopted by the Board of Directors, issued by the Company evidencing ownership of one or more Shares.
Certificate of Formation means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware as referenced in Section 5.16 , as such Certificate of Formation may be amended, supplemented or restated from time to time.
1
Class A Common Share means a Share in the Company designated as a Class A Common Share.
Class B Common Share means a Share in the Company designated as a Class B Common Share.
Code means the Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of any successor Law.
Commission means the United States Securities and Exchange Commission.
Common Shares means any Shares that are not Preferred Shares, and for the avoidance of doubt includes Class A Common Shares and Class B Common Shares.
Company means Five Point Holdings, LLC, a Delaware limited liability company, and any successors thereto.
Company Group means the Company and each Subsidiary of the Company.
Conflicts Committee means a committee of the Board of Directors composed entirely of two or more Independent Directors.
Delaware Act means the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
Depositary means, with respect to any Shares issued in global form, The Depository Trust Company and its successors and permitted assigns.
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.
Director means a member of the Board of Directors of the Company.
Effective Date has the meaning assigned to such term in Section 3.7(b) .
electronic transmission means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process.
Exchange Act means the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
Existing Agreement has the meaning assigned to such term in the Recitals.
Governmental Entity means any court, administrative agency, regulatory body, commission or other governmental authority, board, bureau or instrumentality, domestic or foreign and any subdivision thereof.
Group Member means a member of the Company Group.
Hunters Point means The Shipyard Communities, LLC, a Delaware limited liability company.
Hunters Point Unit means a Class A unit of membership interest in Hunters Point.
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Indemnified Person means (a) any Person who is or was a Director or Officer of the Company, and (b) any Person who is or was serving at the request of the Company as a director, officer, employee or agent of another Person, including any Group Member.
Independent Director means a Director who meets the then current independence and other standards required of audit committee members established by the Exchange Act and the rules and regulations of the Commission thereunder and by the New York Stock Exchange or any other National Securities Exchange on which Shares are listed for trading.
Investor Rights Agreement means the Investor Rights Agreement, dated as of May 2, 2016, by and among the Company and the investors named therein, as the same may be amended, supplemented, restated or otherwise modified from time to time.
Law means any federal, state, local, non-U.S. or other law (including common law), statute, code, ordinance, rule or regulation or other requirement enacted, promulgated, issued, entered or put into effect by a Governmental Entity.
Liquidator means one or more Persons selected by the Board of Directors to perform the functions described in Section 8.2 as liquidating trustee of the Company within the meaning of the Delaware Act.
Member means each Record Holder of a Share, including, unless the context otherwise requires, each Substitute Member and each Additional Member, in each case in such Persons capacity as a member of the Company.
Merger Agreement has the meaning assigned to such term in Section 10.1 .
National Securities Exchange means an exchange registered with the Commission under Section 6(a) of the Exchange Act.
Officers has the meaning assigned to such term in Section 5.17(a) .
OP Unit means a Class A unit of membership interest in the Operating Company.
Operating Company means Five Point Operating Company, LLC, a Delaware limited liability company.
Opinion of Counsel means a written opinion of counsel (who may be regular counsel to the Company or any of its Affiliates) acceptable to the Board of Directors.
Original Agreement has the meaning assigned to such term in the Recitals.
Outstanding means, with respect to Shares, all Shares that are issued by the Company and reflected as outstanding on the Companys books and records as of the date of determination.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, Governmental Entity or other entity.
Plan of Conversion has the meaning assigned to such term in Section 10.1 .
Preferred Shares means a class or series of Shares that entitles the Record Holders thereof to a preference or priority over the Record Holders of any other class or series of Shares in (a) the right to share in Company distributions, or (b) rights upon dissolution or liquidation of the Company.
Record Date means the date established by the Company for determining (a) the identity of the Record Holders entitled to notice of, or to vote at, any meeting of Members or entitled to exercise rights in respect of any lawful action of Members or (b) the identity of Record Holders entitled to receive any report or distribution or to participate in any offer.
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Record Holder or holder means (a) with respect to any Class A Common Share, the Person in whose name such Share is registered on the books of the Transfer Agent as of the opening of business on a particular Business Day, and (b) with respect to any Share of any other class or series, the Person in whose name such Share is registered on the books that the Company has caused to be kept as of the opening of business on such Business Day.
Securities Act means the Securities Act of 1933, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
Share means a share issued by the Company that evidences a Members rights, powers and duties with respect to the Company pursuant to this Agreement and the Delaware Act. Shares may be Common Shares or Preferred Shares, and may be issued in different classes or series.
Share Designation has the meaning assigned to such term in Section 3.2(e) .
Share Majority means a majority of the total votes that may be cast in the election of Directors by holders of all Outstanding Voting Shares, voting as a single class.
Special Approval means, with respect to any transaction, activity, arrangement or circumstance, that (a) it has been specifically approved by a majority of the members of the Conflicts Committee, or (b) it complies with any rules or guidelines established by the Conflicts Committee with respect to categories of transactions, activities, arrangements or circumstances that are deemed approved by the Conflicts Committee.
Subsidiary means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests of such Person or holds a sole general partner interest or managing member or similar interest of such Person.
Substitute Member means a Person who is admitted as a Member of the Company pursuant to Section 3.5(c) as a result of a transfer of Shares to such Person.
Surviving Business Entity has the meaning assigned to such term in Section 10.2(a)(ii) .
transfer means, with respect to a Share, a transaction by which the Record Holder of a Share assigns such Share to another Person, and includes a sale, assignment, gift, exchange or any other disposition by Law or otherwise, including any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.
Transfer Agent means, with respect to any class or series of Shares, such bank, trust company or other Person (including the Company or one of its Affiliates) as shall be appointed from time to time by the Company to act as registrar and transfer agent for such class or series of Shares; provided that if no Transfer Agent is specifically designated for such class or series of Shares, the Company shall act in such capacity for such class or series.
U.S. GAAP means United States generally accepted accounting principles consistently applied.
Voting and Standstill Agreement means the Amended and Restated Voting and Standstill Agreement, dated as of May 2, 2016, by and among the Company and the investors named therein, as the same may be amended, supplemented, restated or otherwise modified from time to time.
Voting Shares means the Class A Common Shares, the Class B Common Shares and any other class or series of Shares issued after the date of this Agreement that entitles the Record Holder thereof to vote on any matter submitted for consent or approval of Members under this Agreement.
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Section 1.2 Construction . Unless the context requires otherwise: (a) any pronoun 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; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; (c) the term include or includes means includes, without limitation, and including means including, without limitation; and (d) the terms herein, hereof and hereunder (and terms of similar import) are references to this Agreement in its entirety, and not to any particular provision.
ARTICLE II
ORGANIZATION
Section 2.1 Formation . The Company has been formed as a limited liability company pursuant to the provisions of the Delaware Act. Except as expressly provided to the contrary in this Agreement, the rights, duties (including fiduciary duties), liabilities and obligations of the Members and the administration, dissolution and termination of the Company shall be governed by the Delaware Act. All Shares shall constitute personal property of the owner thereof for all purposes, and a Member has no interest in specific Company property.
Section 2.2 Name . The name of the Company shall be Five Point Holdings, LLC. The Companys business may be conducted under any other name or names, as determined by the Board of Directors. The words Limited Liability Company, LLC or similar words or letters shall be included in the Companys name where necessary for the purpose of complying with the Laws of any jurisdiction that so requires. The Board of Directors may change the name of the Company at any time and from time to time by filing an amendment to the Certificate of Formation (and upon such filing, this Agreement shall be deemed automatically amended to change the name of the Company) and shall notify the Members of such change in the next regular communication to the Members.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices . Unless and until changed by the Board of Directors by filing an amendment to the Certificate of Formation (and upon such filing, this Agreement shall be deemed automatically amended to change the registered office and registered agent of the Company), the registered office of the Company in the State of Delaware shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, and the registered agent for service of process on the Company in the State of Delaware at such registered office shall be The Corporation Trust Company. The principal office of the Company shall be located at 25 Enterprise, Suite 300, Aliso Viejo, California 92656 or such other place as the Board of Directors 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 Board of Directors determines to be necessary or appropriate.
Section 2.4 Purposes . The purposes of the Company shall be to (a) promote, conduct or engage in, directly or indirectly, any business, purpose or activity that lawfully may be conducted by a limited liability company organized pursuant to the Delaware Act, (b) acquire, hold and dispose of interests in any corporation, partnership, joint venture, limited liability company or other entity and, in connection therewith, to exercise all of the rights and powers conferred upon the Company with respect to its interests therein, and (c) conduct any and all activities related or incidental to the foregoing purposes.
Section 2.5 Powers . The Company shall be empowered 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 in Section 2.4 and for the protection and benefit of the Company.
Section 2.6 Power of Attorney . Each Member hereby constitutes and appoints each of the Chief Executive Officer, the President, the Secretary, any Director and, if a Liquidator shall have been selected pursuant to Section 8.2 , the Liquidator (and any successor to the Liquidator by merger, transfer, assignment, election or otherwise) and each of their authorized officers and attorneys-in-fact, as the case may be, with full power of substitution, as his or her true and lawful agent and attorney-in-fact, with full power and authority in his or her name, place and stead, to:
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(a) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices:
(i) all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments or restatements hereof or thereof) that the Chief Executive Officer, the President, the Secretary, any Director or the Liquidator determines to be necessary or appropriate 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;
(ii) all certificates, documents and other instruments that the Chief Executive Officer, the President, the Secretary, any Director or the Liquidator determines to be necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement;
(iii) all certificates, documents and other instruments (including conveyances and a certificate of cancellation) that the Board of Directors or the Liquidator determines to be necessary or appropriate to reflect the dissolution, liquidation and termination of the Company pursuant to the terms of this Agreement;
(iv) all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments and restatements hereof or thereof) relating to the admission, withdrawal, removal or substitution of any Member pursuant to, or other events described in, Articles III or VIII ;
(v) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of any class or series of Shares issued pursuant to Section 3.2 ; and
(vi) all certificates, documents and other instruments (including agreements and a certificate of merger, conversion or consolidation) relating to a merger, consolidation or conversion of the Company pursuant to Article X ; and
(b) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments that the Board of Directors or the Liquidator determines to be necessary or appropriate to (i) 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 or (ii) effectuate the terms or intent of this Agreement; provided , that when any provision of this Agreement requires the Members of any class or series to take any action, the Chief Executive Officer, the President, the Secretary, any Director or the Liquidator may exercise the power of attorney made in this Section 2.6(b) to take such action, only after the necessary vote, consent, approval, agreement or other action of the Members or of the Members of such class or series, as applicable.
(c) Nothing contained in this Section 2.6 shall be construed as authorizing the Chief Executive Officer, the President, the Secretary, any Director or the Liquidator to amend, change or modify this Agreement except in accordance with Article IX or as may be otherwise expressly provided for in this Agreement.
(d) The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and, to the maximum extent permitted by Law, not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Member and the transfer of all or any portion of such Members Shares and shall extend to such Members heirs, successors, assigns and personal representatives.
Section 2.7 Term . The Companys term shall be perpetual, unless and until it is dissolved in accordance with the provisions of Article VIII . The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation as provided in the Delaware Act.
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Section 2.8 Title to Company Assets . Title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, Director or Officer, individually or collectively, 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 or one or more nominees, as the Board of Directors may determine. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which record title to such Company assets is held.
ARTICLE III
MEMBERS AND SHARES
Section 3.1 Members .
(a) A Person shall be admitted as a Member and shall become bound by the terms of this Agreement when such Person purchases or otherwise lawfully acquires any Share and becomes the Record Holder of such Share in accordance with the provisions of this Agreement, without execution of this Agreement. A Person may become a Record Holder without the consent or approval of any of the Members. A Person may not become a Member without acquiring a Share.
(b) The name and mailing address of each Member shall be listed on the books and records of the Company maintained for such purpose by the Company or the Transfer Agent. The Secretary of the Company shall update the books and records of the Company from time to time as necessary to reflect accurately the information contained therein (or shall cause the Transfer Agent to do so, as applicable).
(c) Except as otherwise provided in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member.
(d) Subject to Articles X and XI , Members may not be expelled from or removed as Members. Members shall not have any right to withdraw from the Company; provided , that when a transferee of a Members Shares becomes a Record Holder of such Shares, such transferring Member shall cease to be a member of the Company with respect to the Shares so transferred.
(e) Except to the extent expressly provided in this Agreement (including any Share Designation), (i) no Member shall be entitled to the withdrawal or return of any capital contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon dissolution of the Company may be considered as such by Law and then only to the extent provided for in this Agreement; (ii) no Member shall have priority over any other Member either as to the return of any capital contributions or as to distributions; (iii) no interest shall be paid by the Company on any capital contributions; and (iv) no Member, in its capacity as such, shall participate in the operation, management or control of the Companys business, transact any business in the Companys name or have the power to sign documents for or otherwise bind the Company by reason of being a Member.
(f) 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 in direct competition with the Company Group, and none of the same shall constitute a breach of this Agreement or any duty (including fiduciary duties) otherwise existing at Law, in equity or otherwise to the Company or any Member; provided , that this Section 3.1(f) shall not excuse a breach of any provision of this Agreement binding upon a Person, or limit or otherwise modify any duties (including fiduciary duties) owed by a Person at law, in equity or otherwise (including by contract) to the Company or any Member, in each case, arising other than from such Persons capacity as a Member. Neither the Company nor any of the other Members shall have any rights by virtue of this Agreement in any such business interests or activities of any Member.
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Section 3.2 Shares .
(a) The Company may issue Shares, and options, rights, warrants and appreciation rights relating to Shares, for any Company purpose at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the Board of Directors shall from time to time, in its discretion determine, whether or not greater consideration could be received upon the issue or sale of (i) the same number of Shares of such class or series from another Person or (ii) the same number of Shares of another class or series, and as otherwise permitted by Law, all without the approval of any Members; provided that the Company shall only be permitted to issue Class B Common Shares in connection with the issuance of OP Units, the issuance of Hunters Point Units, 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. Each Share shall have the rights and be governed by the provisions set forth in this Agreement (including any Share Designation). Except to the extent expressly provided in this Agreement (including any Share Designation), no Share shall entitle any Member to any preemptive, subscription, preferential, or similar rights with respect to the issuance of Shares.
(b) As of the date of this Agreement, two classes of Shares have been designated: Class A Common Shares and Class B Common Shares.
(c) Except as otherwise expressly provided in this Agreement, the powers, preferences and rights of the holders of Class A Common Shares and holders of Class B Common Shares, and the qualifications, limitations and restrictions thereof, shall be in all respects identical. The Class A Common Shares and the Class B Common Shares shall entitle the Record Holders thereof to one vote per Share on any and all matters submitted for the consent or approval of Members generally.
(d) If a holder of Class B Common Shares tenders for redemption any OP Units, pursuant to the terms of the limited liability company agreement of the Operating Company, then, concurrently with the redemption of such OP Units for cash or, if the Company elects to acquire such OP Units in exchange for Class A Common Shares, the exchange of such OP Units, or if the Company or the Operating Company otherwise acquires any OP Units from a holder of Class B Common Shares, then a number of Class B Common Shares held by such holder equal to the number of OP Units that are redeemed, exchanged or otherwise acquired shall be automatically, without further action by such holder, converted into Class A Common Shares at the rate of 0.0003 Class A Common Shares for each Class B Common Share. If a holder of Class B Common Shares tenders for redemption any Hunters Point Units and the Company elects to acquire such Hunters Point Units in exchange for Class A Common Shares, pursuant to the terms of the limited liability company agreement of Hunters Point, then, concurrently with the exchange of such Hunters Point Units, a number of Class B Common Shares held by such holder equal to the number of Hunters Point Units that are exchanged shall be automatically, without further action by such holder, converted into Class A Common Shares at the rate of 0.0003 Class A Common Shares for each Class B Common Share. All such Class B Common Shares that shall have been automatically converted as herein provided shall be retired, and all rights of the holder with respect to such Class B Common Shares, including the rights, if any, to receive notices and to vote, shall thereupon cease and terminate. No fractional Class A Common Shares shall be issued upon conversion of Class B Common Shares. In lieu of any fractional Class A Common Shares to which the holder would otherwise be entitled, the Company shall pay to the holder cash equal to $3.82, multiplied by the number of such fractional Class A Common Shares.
(e) In addition to the Class A Common Shares and the Class B Common Shares Outstanding on the date hereof, and without the consent or approval of any Members, the Board of Directors may authorize the creation and issuance of additional Shares by the Company in one or more classes or series, with such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be determined by the Board of Directors and reflected in a document approved by the Board of Directors in compliance with Section 5.1 (each, a Share Designation ). Without limiting the generality of the foregoing, a Share Designation of any class or series of Shares may provide that such Shares are (i) subject to redemption and if so, the time, manner and price of such redemption, (ii) entitled to receive distributions (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the distributions payable on any other class or series of Shares, as specified therein, (iii) entitled to rights upon the
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dissolution of the Company or upon any distribution of the assets of the Company, or (iv) convertible into, or exchangeable for, Shares of any other class or series of Shares at such price or prices or at such rates of exchange and with such adjustments, as specified therein. A Share Designation (or any resolution of the Board of Directors amending any Share Designation) shall be effective when a duly executed original of the same is delivered to the Secretary of the Company for inclusion among the permanent records of the Company, and shall be annexed to, and constitute part of, this Agreement. Unless otherwise provided in the applicable Share Designation, the Board of Directors may at any time increase or decrease the amount of Shares of any class or series, but not below the number of Shares of such class or series then Outstanding.
(f) Subject to the rights granted pursuant to the Investor Rights Agreement, the Board of Directors may, without the consent or approval of any Members, amend this Agreement and make any filings under the Delaware Act or otherwise to the extent the Board of Directors determines that it is necessary or desirable in order to effectuate any issuance of Shares pursuant to this Article III .
(g) Subject to the requirements of applicable Law, the Company shall have the power to purchase any class or series of Shares from such Persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of (i) the same number of Shares of such class or series from another Person or (ii) the same number of Shares of another class or series, and as otherwise permitted by Law.
(h) Upon the effectiveness of this Agreement, (i) the membership interests designated as Class A Units under the Existing Agreement are hereby automatically converted into Class A Common Shares, with each Class A Unit converted into one Class A Common Share, and (ii) the membership interests designated as Class B Units under the Existing Agreement are hereby terminated and cancelled.
Section 3.3 Certificates; Treatment Under the UCC .
(a) Upon the Companys issuance of Shares of any class or series to any Person, the Company may, in its sole discretion, issue or cause to be issued one or more Certificates in the name of such Person evidencing the Shares being so issued. Any Certificates shall be executed on behalf of the Company by any two Officers. In the event that a Share is to be represented by a Certificate, no such Certificate shall be valid for any purpose until it has been countersigned by, and registered on the books of, the Transfer Agent; provided , however , that if the Board of Directors elects to issue Shares in global form, the Certificates representing such Shares shall be valid upon receipt of a certificate from the Transfer Agent certifying that such Shares have been duly registered in accordance with the directions of the Company. Any or all of the signatures required on the Certificate may be by facsimile. If any Officer or Transfer Agent who shall have signed or whose facsimile signature shall have been placed upon any such Certificate shall have ceased to be such Officer or Transfer Agent before such Certificate is issued by the Company, such Certificate may nevertheless be issued by the Company with the same effect as if such Person were such Officer or Transfer Agent at the date of issue. Certificates for any class or series of Shares shall be uniquely numbered and shall be entered on the books and records of the Company as they are issued and shall exhibit the Record Holders name and number and type of Shares.
(b) If any mutilated Certificate is surrendered to the Transfer Agent, the appropriate Officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver in exchange therefor, a new Certificate evidencing the same number and class or series of Shares as the Certificate so surrendered. The appropriate Officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver, a new Certificate in place of any Certificate previously issued if the Record Holder of Shares represented by the Certificate: (i) makes proof by affidavit, in form and substance satisfactory to the Company, that a previously issued Certificate has been lost, destroyed or stolen; (ii) requests the issuance of a new Certificate before the Company has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim; (iii) if requested by the Company, delivers to the Company a bond, in form and substance satisfactory to the Company, with surety or sureties and with fixed or open penalty as the Company may direct to indemnify the Company and the Transfer Agent against any claim that may be made on account of the Shares that are represented by the allegedly lost, destroyed or stolen Certificate; and (iv) satisfies any other reasonable requirements imposed by the Company. If a Member fails to notify the Company within a reasonable time after he has notice of the loss, destruction or theft of a Certificate, and a transfer of the Shares represented by the Certificate is registered before the
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Company or the Transfer Agent receives such notification, the Member shall be precluded from making any claim against the Company or the Transfer Agent for such transfer or for a new Certificate. As a condition to the issuance of any new Certificate under this Section 3.3(b) , the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.
(c) The Company may, in its sole discretion, issue one or more uncertificated classes or series of Shares and may, with respect to any class or series of Shares (unless otherwise provided in the applicable Unit Designation), issue Certificates with respect to some Shares of such class or series and issue other Shares of such class or series on an uncertificated basis.
(d) The Company hereby irrevocably elects that all Units shall be securities governed by Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Delaware or analogous provisions in the Uniform Commercial Code as in effect in any other jurisdiction.
Section 3.4 Record Holders . The Company shall be entitled to recognize the Record Holder as the owner of a Share and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share on the part of any other Person, regardless of whether the Company shall have actual or other notice thereof, except as otherwise provided by Law or any rule, regulation, guideline or requirement of any National Securities Exchange on which such Shares are listed for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring or holding Shares, as between the Company, on the one hand, and such other Person, on the other, such representative Person shall be deemed the Record Holder of such Shares.
Section 3.5 Registration and Transfer of Shares .
(a) The Officers shall keep or cause to be kept on behalf of the Company a register that will provide for the registration and transfer of Shares. The Company may from time to time appoint a bank, trust company or other person to act as registrar and transfer agent for the purpose of registering Common Shares and transfers of such Common Shares as herein provided. In the absence of manifest error, the register kept by or on behalf of the Company shall be conclusive as to the identity of the holders of Shares. With respect to certificated Shares issued by the Company, if any, upon surrender of a Certificate for registration of transfer of any Shares evidenced by such Certificate, the Company shall deliver, and in the case of certificated Common Shares, the Transfer Agent shall countersign and deliver, in the name of the Record Holder or the designated transferee or transferees, to the extent and as required pursuant to the Record Holders instructions, one or more new Certificates evidencing the same aggregate number and type of Shares as were evidenced by the Certificate so surrendered, provided that a transferor shall provide the address and facsimile number for each such transferee as contemplated by Section 12.1 .
(b) The Company shall not recognize any transfer of Shares until the transfer is registered on the books of the Transfer Agent; provided , that in the event that any Shares are represented by Certificates, no distributions shall be paid in respect of any such transferred certificated Shares until the Certificates evidencing such Shares are surrendered to the Transfer Agent. No charge shall be imposed by the Company for such transfer; provided , that as a condition to the issuance of any new Certificate or the registration of any transfer, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto.
(c) By acceptance of the transfer of any Share in accordance with this Article III or the issuance of any Share in accordance with this Agreement (including in a merger or consolidation pursuant to Article XI ), each transferee of a Share (including any nominee holder or agent or representative acquiring such Shares for the account of another Person) (i) shall be admitted to the Company as a Substitute Member or Additional Member with respect to the Shares so transferred or issued to such transferee or other recipient when any such transfer or admission is reflected in the books and records of the Company, without execution of this Agreement, (ii) shall be bound by the terms of this Agreement, without execution of this Agreement, (iii) shall become the Record Holder of the Shares so transferred or issued, (iv) grants powers of attorney to the Officers, the Directors and any Liquidator of the Company, as specified herein, and (v) makes the consents, acknowledgements and waivers contained in this Agreement. The transfer of any Shares and the admission of any new Member shall not constitute an amendment to this Agreement.
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(d) No transfer of a Share shall entitle the transferee to receive distributions or to any other rights to which the transferor was entitled until the transferee becomes a Member pursuant to Section 3.5(c) .
Section 3.6 Restrictions on Transfer .
(a) A holder of Class B Common Shares shall not transfer Class B Common Shares to any Person, other than (i) as part of a concurrent transfer of an equal number of OP Units or Hunters Point Units if (A) such transfer is made to the same transferee, and (B) such transfer complies with the limited liability company agreement of the Operating Company or Hunters Point, as applicable, or (ii) with the prior written consent of the Company (which can be withheld in its sole discretion). Any transfer or purported transfer of any Class B Common Shares in violation of this Agreement shall be null and void ab initio. The Company may, as a condition to the transfer or the registration of transfer of Class B Common Shares, require the furnishing of such affidavits or other proof as it deems necessary to establish whether such transfer is permitted under this Agreement.
(b) Nothing contained in this Agreement shall preclude the settlement of any transactions involving Shares entered into through the facilities of any National Securities Exchange on which such Shares are listed for trading.
Section 3.7 Splits and Combinations .
(a) Subject to paragraphs (d) and (e) of this Section 3.7 , the Company may make a pro rata distribution of Shares of any class or series to all Record Holders of such class or series of Shares, or may effect a subdivision or combination of Shares of any class or series.
(b) Whenever such a distribution, subdivision or combination of Shares is declared, the Board of Directors shall select a date (the Effective Date ) as of which the distribution, subdivision or combination shall be effective. Written notice of a distribution, subdivision or combination of Shares shall be given promptly, and in accordance with the rules of the New York Stock Exchange or any other National Securities Exchange on which Shares are then listed for trading, to each Record Holder as of a date selected by the Board of Directors. The Board of Directors also may cause a firm of independent public accountants selected by it to calculate the number of Shares to be held by each Record Holder after giving effect to such distribution, subdivision or combination. The Board of Directors shall be entitled to rely on any certificate provided by such firm as conclusive evidence of the accuracy of such calculation.
(c) In the event that Certificates are issued, promptly following any such distribution, subdivision or combination, the Company may issue new Certificates to the Record Holders of Shares as of the applicable Effective Date representing the new number of Shares held by such Record Holders, or the Board of Directors may adopt such other procedures that it determines to be necessary or appropriate to reflect such changes. If any such combination results in a smaller total number of Shares Outstanding, the Company shall require, as a condition to the delivery to a Record Holder of any such new Certificate, the surrender of any Certificates held by such Record Holder immediately prior to such Effective Date.
(d) The Company shall not issue fractional Shares upon any distribution, subdivision or combination of Shares. If a distribution, subdivision or combination of Shares would otherwise result in the issuance of fractional Shares, each fractional Share shall be rounded to the nearest whole Share (and a 0.5 Share shall be rounded to the next higher Share).
(e) In the case of any subdivision or combination of Class A Common Shares (or Class B Common Shares), the Class B Common Shares (or the Class A Common Shares) shall also be subdivided or combined so that the number of Class A Common Shares and Class B Common Shares outstanding immediately following such subdivision or combination shall bear the same relationship to each other as did the number of Class A Common Shares and Class B Common Shares outstanding immediately prior to such subdivision or combination.
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ARTICLE IV
DISTRIBUTIONS
Section 4.1 Distributions to Record Holders .
(a) Subject to the applicable provisions of the Delaware Act and the terms of any Share Designation, the Board of Directors may, in its sole discretion, at any time and from time to time, declare, make and pay distributions of cash or other assets to the Members.
(b) If, at any time, a distribution of cash or other assets (other than distributions payable in Shares or other voting securities of the Company, or rights, options or warrants to purchase Shares or other voting securities of the Company or securities convertible into or exchangeable for Shares or other voting securities of the Company) is declared or paid on the Class A Common Shares or the Class B Common Shares, then a like distribution of cash or other assets shall also be concurrently declared or paid, as the case may be, on the other class of Common Shares in an amount per Class B Common Share equal to 0.0003 multiplied by the amount per Class A Common Share.
(c) If, at any time, a distribution payable in Class A Common Shares, or rights, options or warrants to purchase Class A Common Shares, or securities convertible into or exchangeable for Class A Common Shares is declared or paid on Class A Common Shares, then a like distribution payable in Class B Common Shares, or rights, options or warrants to purchase Class B Common Shares, or securities convertible into or exchangeable for Class B Common Shares, as the case may be, shall also be declared or paid on the Class B Common Shares in an equal amount per Share. If, at any time, a distribution payable in Class B Common Shares, or rights, options or warrants to purchase Class B Common Shares, or securities convertible into or exchangeable for Class B Common Shares is declared or paid on Class B Common Shares, then a like distribution payable in Class A Common Shares, or rights, options or warrants to purchase Class A Common Shares, or securities convertible into or exchangeable for Class A Common Shares, as the case may be, shall also be declared or paid on the Class A Common Shares in an equal amount per Share.
(d) Notwithstanding Section 4.1(a) , in the event of the dissolution and liquidation of the Company, all distributions shall be made in accordance with, and subject to the terms and conditions of, Section 8.3(a) .
(e) Pursuant to Section 7.3 , the Company is authorized to withhold from payments or other distributions to the Members, and to pay over to any U.S. federal, state or local government or any foreign government, any amounts required to be so withheld pursuant to the Code or any other Law. All amounts withheld with respect to any payment or other distribution by the Company to the Members and paid over to any U.S., federal, state or local government or any non-U.S. taxing authority shall be treated as amounts paid to the Members with respect to which such amounts were withheld pursuant to this Section 4.1(e) or Section 8.3 for all purposes under this Agreement.
(f) Notwithstanding anything to the contrary in this Agreement, each distribution in respect of any Shares shall be made by the Company, directly or through the Transfer Agent or through any other Person, only to the Record Holder of such Shares as of the Record Date set for such distribution. Any distribution in accordance with the foregoing shall constitute full payment and satisfaction of any liability that the Company might have in respect of such distribution, regardless of any claim of any Person who may have an interest in such distribution by reason of an assignment or otherwise.
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ARTICLE V
MANAGEMENT AND OPERATION OF BUSINESS
Section 5.1 Power and Authority of Board of Directors .
(a) Except as otherwise expressly provided in this Agreement, the business and affairs of the Company shall be managed by or under the direction of a board of directors (the Board of Directors ). As provided in Section 5.17 , the Board of Directors shall have the power and authority to appoint Officers. The Directors and Officers shall constitute managers, within the meaning of the Delaware Act. No Member, by virtue of its status as such, shall have any management power over the business and affairs of the Company or actual or apparent authority to enter into, execute or deliver contracts on behalf of, or to otherwise bind, the Company. In addition to the powers that now or hereafter can be granted to managers under the Delaware Act and all other powers granted under any other provision of this Agreement, the Board of Directors shall have full power and authority to do, and to direct the Officers to do, all things and on such terms as it determines to be necessary or appropriate to conduct the business of the Company, to exercise all powers set forth in Section 2.5 and to effectuate the purposes set forth in Section 2.4 , including the following:
(i) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into Shares, and the incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the Company or its assets;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Company or the merger, consolidation or other combination of the Company with or into another Person, or the conversion of the Company into a corporation or other entity (subject, however, to any prior approval of Members that may be required by this Agreement);
(iv) the use of the assets of the Company (including cash on hand) for any purpose consistent with the terms of this Agreement, including the financing of the conduct of the operations of the Company and its Subsidiaries; the lending of funds to other Persons (including other Group Members); the repayment of obligations of the Company and its Subsidiaries; and the making of capital contributions to any Member of the Company or any of its Subsidiaries;
(v) the negotiation, execution and performance of any contracts, conveyances or other instruments (including instruments that limit the liability of the Company under contractual arrangements to all or particular assets of the Company);
(vi) the declaration and payment of distributions of cash or other assets to Members;
(vii) the selection and dismissal of officers, employees, agents, outside attorneys, accountants, advisors, consultants and contractors and the determination of their compensation and other terms of employment or hiring, and the creation and operation of employee benefit plans, employee programs and employee practices;
(viii) the maintenance of insurance for the benefit of the Company Group and the Indemnified Persons;
(ix) the formation of, or acquisition or disposition of an interest in, and the contribution of property and the making of loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity or arrangement;
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(x) the control of any matters affecting the rights and obligations of the Company, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or remediation, and the incurring of legal expense and the settlement of claims and litigation;
(xi) the indemnification of any Person against liabilities and contingencies to the extent permitted by Law;
(xii) the entering into of listing agreements with any National Securities Exchange and the delisting of some or all of the Shares from, or requesting that trading be suspended on, any such National Securities Exchange;
(xiii) the issuance, sale or other disposition, and the purchase or other acquisition, of Shares or options, rights, warrants or appreciation rights relating to Shares;
(xiv) the undertaking of any action in connection with the Companys interest or participation in any Group Member;
(xv) the registration under the Securities Act and any other applicable securities laws of any offer, issuance, sale or resale of Shares or other securities issued or to be issued by the Company (including any resale of Shares or other securities by Members or other securityholders);
(xvi) the filing of a petition under any bankruptcy, insolvency or similar Law;
(xvii) the execution and delivery of agreements with Affiliates of the Company to render services to a Group Member; and
(xviii) the undertaking, without Member approval, of a conversion, merger or conveyance in accordance with Section 10.3(d) .
Section 5.2 Number, Qualification, Term and Election of Directors .
(a) The Board of Directors shall consist of not less than three (3) nor more than thirteen (13) members, the exact number of which shall be determined from time to time by the Board of Directors, subject to the rights granted pursuant to the Investor Rights Agreement.
(b) The Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. The initial Class I Directors shall be Joshua Kirkham and Daniel Pine; the initial Class II Directors shall be Jonathan Jaffe and Michael Winer; and the initial Class III Directors shall be Emile Haddad, Evan Carruthers and Derek Thomas. The term of the initial Class I Directors shall terminate on the date of the first annual meeting of Members following the date of this Agreement; the term of the initial Class II Directors shall terminate on the date of the second annual meeting of Members following the date of this Agreement; and the term of the initial Class III Directors shall terminate on the date of the third annual meeting of Members following the date of this Agreement. At each annual meeting of Members, successors to the class of Directors whose term expires at that annual meeting shall be elected for a term ending on the date of the third succeeding annual meeting. If the number of Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director.
(c) Except as provided in Section 5.3 , Directors shall be elected by a plurality of the votes cast at each annual meeting of Members, and each Director so elected shall hold office until the date of the third succeeding annual meeting of Members and until such Directors successor is duly elected and qualified, or until such Directors earlier death, resignation or removal. Directors need not be Members.
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Section 5.3 Vacancies . Subject to the rights granted pursuant to the Voting and Standstill Agreement, any vacancy on the Board of Directors that results from an increase in the number of Directors may only be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may only be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining Director. Any Director of any class elected to fill a vacancy resulting from an increase in the number of Directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any Director elected to fill a vacancy not resulting from an increase in the number of Directors shall have the same remaining term as that of his or her predecessor.
Section 5.4 Meetings . The Board of Directors and any committee thereof may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors or any committee thereof may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors or such committee, respectively. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, if there be one, the President, or by any Director. Special meetings of any committee of the Board of Directors may be called by the chairman of such committee, if there be one, the President, or any Director serving on such committee. Notice of any special meeting stating the place, date and hour of the meeting shall be given to each Director (or, in the case of a committee, to each member of such committee) either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, telegram or electronic means on twenty-four (24) hours notice, or on such shorter notice as the Person or Persons calling such meeting may deem necessary or appropriate in the circumstances.
Section 5.5 Organization . At each meeting of the Board of Directors or any committee thereof, the Chairman of the Board of Directors or the chairman of such committee, as the case may be, or, in his or her absence or if there be none, a Director chosen by a majority of the Directors present, shall act as chairman. Except as provided below, the Secretary of the Company shall act as secretary at each meeting of the Board of Directors and of each committee thereof. In case the Secretary shall be absent from any meeting of the Board of Directors or of any committee thereof, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the chairman of the meeting may appoint any Person to act as secretary of the meeting. Notwithstanding the foregoing, the members of each committee of the Board of Directors may appoint any Person to act as secretary of any meeting of such committee and the Secretary or any Assistant Secretary of the Company may, but need not if such committee so elects, serve in such capacity.
Section 5.6 Resignations and Removals of Directors . Any Director may resign from the Board of Directors or any committee thereof at any time, by giving notice in writing or by electronic transmission to the Chairman of the Board of Directors, if there be one, the President or the Secretary of the Company and, in the case of a committee, to the chairman of such committee, if there be one. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by applicable Law and subject to the rights of any Share Designation and any rights granted pursuant to the Voting and Standstill Agreement, any Director or the entire Board of Directors may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a Share Majority. Any Director serving on a committee of the Board of Directors may be removed from such committee at any time by the Board of Directors.
Section 5.7 Quorum . Except as otherwise required by applicable Law or any rule, regulation, guideline or requirement of any National Securities Exchange on which Shares are listed for trading, at all meetings of the Board of Directors or any committee thereof, a majority of the total number of Directors in office or a majority of the Directors constituting such committee, as the case may be, shall constitute a quorum for the transaction of business. The act of a majority of the Directors or committee members present at any meeting at which there is a quorum shall be the act of the Board of Directors or such committee, as the case may be. If a quorum shall not be present at any meeting of the Board of Directors or any committee thereof, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for that meeting.
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Section 5.8 Nomination of Directors . Only persons who are nominated in accordance with the procedures set forth in Section 11.13(b) shall be eligible for election as Directors of the Company, except as may be otherwise provided in any Share Designation with respect to the right of Members of any class or series of Shares to nominate and elect a specified number of Directors in certain circumstances.
Section 5.9 Actions of the Board by Written Consent . Any action required or permitted to be taken at any meeting by the Board of Directors or any committee thereof, as the case may be, may be taken without a meeting if all the members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 5.10 Meeting by Means of Conference Telephone . Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee 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 5.10 shall constitute presence in person at such meeting.
Section 5.11 Committees . The Board of Directors may by resolution from time to time designate one (1) or more committees, each committee to consist of one (1) or more Directors of the Company. Each member of a committee must meet the requirements for membership, if any, imposed by applicable Law and any rule, regulation, guideline or requirement of any National Securities Exchange on which Shares are listed for trading. The Board of Directors may designate one (1) or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. Subject to applicable Law and any rule, regulation, guideline or requirement of any National Securities Exchange on which Shares are listed for trading, in the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another qualified member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by applicable Law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company. Each committee shall keep regular minutes of its meetings and proceedings and report the same to the Board of Directors when required. Notwithstanding anything to the contrary contained in this Article V , the resolution of the Board of Directors establishing any committee of the Board of Directors or the charter of any such committee may establish requirements or procedures relating to the governance or operation of such committee that are different from, or in addition to, those set forth in this Agreement and, to the extent that there is any inconsistency between this Agreement and any such resolution or charter, the terms of such resolution or charter shall be controlling.
Section 5.12 Compensation . The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or any committee thereof and may be paid a fixed sum for attendance at each meeting of the Board of Directors or any committee thereof or a stated salary for service as a Director, payable in cash or securities. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. Chairpersons or members of special or standing committees may be allowed like compensation for such service.
Section 5.13 Duties of Officers and Directors .
(a) Except as otherwise expressly provided in this Agreement or required by the Delaware Act, (i) the duties and obligations owed to the Company by the Officers and Directors shall be the duty of care and the duty of loyalty owed to a corporation organized under the DGCL by its officers and directors, respectively, and (ii) the duty of care and the duty of loyalty owed to the Members by the Officers and Directors 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 officers and directors, respectively.
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(b) Except as expressly set forth in this Agreement, including Section 5.13(a) , to the fullest extent permitted by applicable Law, no Director, Officer or other Indemnified Person shall have any liabilities or duties, including fiduciary duties, to the Company, any Member or any other Person bound by this Agreement.
(c) Notwithstanding any other provision of this Agreement or any applicable provision of Law or equity, whenever in this Agreement or any other agreement contemplated hereby or otherwise the Board of Directors, the Company or an Affiliate of the Company is permitted or required to make a decision in its sole discretion or discretion or that it deems necessary or appropriate or necessary or advisable or under a grant of similar authority or latitude, then, to the fullest extent permitted by Law, the Board of Directors, the Company or such Affiliate, as the case may be, may make such decision in its sole discretion (regardless of whether the reference is to sole discretion or to discretion), and shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting the Company or the Members, and shall not be subject to any other or different standards imposed by this Agreement, any other agreement contemplated hereby, under the Delaware Act or under any other Law or in equity, but in all circumstances shall exercise such discretion in good faith. For purposes of this Agreement or any activity related to the business or affairs of the Company, any Person acting on behalf of the Company, or the Board of Directors, as the case may be, shall be conclusively presumed to be acting in good faith if such Person (or, in the case of the Board of Directors, a majority of the Directors participating in the decision) subjectively believe(s) that the decision made or not made is in or not opposed to the best interests of the Company.
(d) The Board of Directors shall have the right to 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 the duly authorized Officers, and the Board of Directors shall not be responsible for the misconduct or negligence on the part of any such Officer.
Section 5.14 Exculpation and Indemnification .
(a) No Director or Officer shall be liable to the Company, the Members, or any other Persons who have acquired interests in Company securities, for monetary damages for breach of duties (including breach of fiduciary duties), except that a Director or Officer may be liable if there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter in question, (i) such Director or Officer breached his or her duty of loyalty to the Company or the Members, or (ii) such Director or Officer committed an act or omission not in good faith or which involved intentional misconduct or a knowing violation of law. No Indemnified Person other than a Director or Officer shall have any duties or obligations hereunder to the Company, the Members, or any other Persons who have acquired interests in Company securities.
(b) All Indemnified Persons shall be indemnified and held harmless by the Company from and 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 Indemnified Person may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnified Person whether arising from acts or omissions to act occurring before or after the date of this Agreement; provided, however, that the Indemnified Person shall not be indemnified and held harmless 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 the Indemnified Person is seeking indemnification pursuant to this Section 5.14 , the Indemnified Person (i) breached his or her duty of loyalty to the Company or the Members, or (ii) did not act in good faith or engaged in intentional misconduct or a knowing violation of law. Notwithstanding the preceding sentence, except as otherwise provided in Section 5.14(d) , the Company shall be required to indemnify a Person described in such sentence in connection with any action, suit or proceeding (or part thereof) commenced by such Person only if the commencement of such action, suit or proceeding (or part thereof) by such Person was authorized by the Board of Directors in its sole discretion.
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(c) Expenses (including legal fees and expenses) incurred by an Indemnified Person in appearing at, participating in or defending any indemnifiable claim, demand, action, suit or proceeding pursuant to Section 5.14(b) shall, from time to time, be advanced by the Company prior to a final and non-appealable determination that the Indemnified Person is not entitled to be indemnified upon receipt by the Company of an undertaking by or on behalf of the Indemnified Peron to repay such amount if it ultimately shall be determined that the Indemnified Person is not entitled to be indemnified pursuant to this Section 5.14 . Notwithstanding the immediately preceding sentence, except as otherwise provided in Section 5.14(d) , the Company shall be required to advance expenses to an Indemnified Person pursuant to the immediately preceding sentence in connection with any action, suit or proceeding (or part thereof) commenced by such Person only if the commencement of such action, suit or proceeding (or part thereof) by such Person was authorized by the Board of Directors in its sole discretion.
(d) If a claim for indemnification (following the final disposition of the action, suit or proceeding for which indemnification is being sought) or advancement of expenses under this Section 5.14 is not paid in full within thirty (30) days after a written claim therefor by an Indemnified Person has been received by the Company, such Indemnified Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expenses of prosecuting such claim, including reasonable attorneys fees.
(e) The indemnification and advancement of expenses provided by or granted pursuant to this Section 5.14 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under this Agreement, or any other agreement, vote of Members or disinterested Directors or otherwise, and shall continue as to an Indemnified Person who has ceased to serve in such capacity.
(f) The Company may, but shall not be obligated to, purchase and maintain insurance on behalf of any Indemnified Person against any liability asserted against such Person and incurred by such Indemnified Person in any capacity in which such Indemnified Person is entitled to indemnification hereunder, or arising out of such Indemnified Persons status as such, whether or not the Company would have the power or the obligation to indemnify such Indemnified Person against such liability under the provisions of this Section 5.14 .
(g) This Section 5.14 shall not limit the right of the Company, to the extent and in the manner permitted by applicable Law, to indemnify and to advance expenses to, and purchase and maintain insurance on behalf of Persons other than Indemnified Persons.
(h) Each Director shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any of the Officers or employees of the Company, or committees of the Board of Directors, or by any other Person (including legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors) as to matters that the Director reasonably believes are within such Persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. Any action taken or omitted to be taken in reliance upon the opinion or advice (including an Opinion of Counsel) of such Persons shall be conclusively presumed to have been taken or omitted in good faith. The Directors and Officers 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 presented to the Board of Directors and believed by such Director or Officer to be genuine and to have been signed or presented by the appropriate party or parties.
(i) An Indemnified Person shall not be denied indemnification in whole or in part under this Section 5.14 because the Indemnified Person had an interest in the transaction with respect to which the indemnification applies if the transaction was not otherwise prohibited by the terms of this Agreement.
(j) The provisions of this Section 5.14 are for the benefit of the Indemnified Persons and their heirs, successors, assigns, executors and administrators and shall not be deemed to create any rights for the benefit of any other Persons.
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(k) Any liabilities which an Indemnified Person 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 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) shall be treated as liabilities indemnifiable under this Section 5.14 , to the maximum extent permitted by Law.
(l) Any indemnification pursuant to this Section 5.14 shall be made only out of the assets of the Company. In no event may an Indemnified Person subject the Members to personal liability by reason of the indemnification provisions set forth in this Agreement.
(m) No amendment, modification or repeal of this Section 5.14 or any other provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitee to receive indemnification and advancement of expenses from the Company, nor the obligations of the Company to indemnify, or advance the expenses of, any such Indemnitee under and in accordance with the provisions of this Section 5.14 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, and provided such Person became an Indemnitee hereunder prior to such amendment, modification or repeal.
Section 5.15 Resolution of Conflicts of Interest; Interested Directors .
(a) Unless otherwise expressly provided in this Agreement, whenever an actual or potential conflict of interest exists or arises between one or more Directors or their respective Affiliates, on the one hand, and the Company or any Group Member, on the other, any resolution or course of action determined or approved by the Board of Directors, or a committee of the Board of Directors, in respect of such conflict of interest shall be permitted and deemed approved by all Members, and shall not constitute a breach of this Agreement, of any agreement contemplated herein or of any duty stated or implied by Law or equity, including any fiduciary duty, if the resolution or course of action in respect of such conflict of interest is (i) approved by Special Approval, (ii) approved by the vote of holders of Outstanding Voting Shares representing a majority of the total votes that may be cast by all Outstanding Voting Shares in the election of Directors that are held by disinterested parties, (iii) on terms no less favorable to the Company or any Group Member, as applicable, than those generally being provided to or available from unrelated third parties or (iv) fair and reasonable to the Company taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Company or Group Member, as applicable). The Board of Directors shall be authorized but not required in connection with its resolution of such conflict of interest to seek Special Approval of such resolution pursuant to clause (i) of the preceding sentence or the approval of the disinterested holders of Outstanding Voting Shares pursuant to clause (ii) of the preceding sentence, and the Board of Directors may also adopt a resolution or course of action that has not received Special Approval or the approval of the disinterested holders of Outstanding Voting Shares. Failure to seek Special Approval or the approval of the disinterested holders of Outstanding Voting Shares shall not be deemed to indicate that a conflict of interest exists or that Special Approval or the approval of the disinterested holders of Outstanding Voting Shares could not have been obtained. If the Board of Directors determines that the resolution or course of action taken with respect to a conflict of interest satisfies either of the standards set forth in clause (iii) or (iv) above, then it shall be presumed that, in making its determination, the Board of Directors acted in good faith, and in any proceeding brought by any Member or by or on behalf of such Member or any other Member or the Company challenging such determination, the Person bringing or prosecuting such proceeding shall have the burden of overcoming such presumption. Notwithstanding anything to the contrary in this Agreement, the existence of the conflicts of interest described in the draft registration statement on Form S-11 submitted by the Company with the Commission on December 18, 2015, or otherwise approved by the Company prior to the date of this Agreement, are hereby approved by the Company and none of them shall constitute a breach of this Agreement or of any duty (fiduciary or other) otherwise existing at law, in equity or otherwise.
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(b) The Members hereby authorize the Board of Directors or a duly authorized committee of the Board of Directors, on behalf of the Company, in its capacity as a partner or member of a Group Member, to approve of actions with respect to such Group Member similar to those actions permitted to be taken by the Board of Directors pursuant to this Section 5.15 .
(c) No contract or transaction between the Company and one or more of its Directors or Officers, or between the Company and any other corporation, partnership, association or other organization in which one or more of its Directors or Officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or Officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such Directors or Officers vote is counted for such purpose if: (i) the material facts as to the Directors or Officers relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (ii) the material facts as to the Directors or Officers relationship or interest and as to the contract or transaction are disclosed or are known to the Members entitled to vote thereon, and the contract or transaction is specifically approved by vote of the Members; or (iii) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the Members. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
Section 5.16 Certificate of Formation . The Certificate of Formation has been filed with the Secretary of State of the State of Delaware as required by the Delaware Act, such filing being hereby confirmed, ratified and approved in all respects. The Board of Directors shall use all reasonable efforts to cause to be filed such other certificates or documents that it determines to be necessary or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Delaware or any other state in which the Company may elect to do business or own property. To the extent that the Board of Directors determines such action to be necessary or appropriate, the Board of Directors shall direct the appropriate Officers to file amendments to and restatements of the Certificate of Formation (including the amendment referred to in the recitals contained in this Agreement) and do all things to maintain the Company as a limited liability company under the laws of the State of Delaware or of any other state in which the Company may elect to do business or own property, and any such Officer so directed shall be an authorized person of the Company within the meaning of the Delaware Act for purposes of filing any such certificate with the Secretary of State of the State of Delaware. The Company shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Formation, any qualification document or any amendment thereto to any Member.
Section 5.17 Officers .
(a) The officers of the Company shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a Director), and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Such Persons so designated by the Board of Directors shall be referred to as Officers . Any number of offices may be held by the same Person, unless otherwise prohibited by the Delaware Act or this Agreement. The Officers need not be Members nor, except in the case of the Chairman of the Board of Directors, need such officers be Directors of the Company.
(b) The Board of Directors, at its first meeting after every annual meeting of Members and as necessary to fill vacancies, shall elect the Officers who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Each Officer shall hold office until such Officers successor is elected and qualified, or until such Officers earlier death, resignation or removal. Any Officer may resign at any time upon written notice to the Company. Any Officer, agent or employee of the Company may be removed at any time with or without cause by the Board of Directors. Any vacancy occurring in any office of the Company shall be filled by the Board of Directors. The salaries of all Officers shall be fixed by the Board of Directors (or an appropriately authorized committee thereof).
(c) The Chairman of the Board of Directors, if there be one, shall preside at all meetings of Members and of the Board of Directors. If so designated by the Board of Directors, the Chairman of the Board of Directors shall be the Chief Executive Officer of the Company and, except where by Law the signature of the
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President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Company which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be designated in accordance with this Agreement or assigned by the Board of Directors.
(d) The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Company and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President is authorized to execute all bonds, mortgages, contracts and other instruments of the Company. In addition to the President, other Officers of the Company may execute documents on behalf of the Company when so authorized by this Agreement, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of Members and, provided the President is also a Director, the Board of Directors. Unless the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Company. The President shall also perform such other duties and may exercise such other powers as may from time to time be designated in accordance with this Agreement or assigned by the Board of Directors. As of the date hereof, Emile Haddad shall be the President, the Chief Executive Officer and the Chairman of the Board of Directors of the Company.
(e) At the request of the President or in the Presidents absence or in the event of the Presidents inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there are more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Company who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
(f) The Treasurer shall have the custody of the Companys funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Company as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Company. If required by the Board of Directors, the Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Company, in case of the Treasurers death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurers possession or under the Treasurers control belonging to the Company.
(g) The Secretary shall attend all meetings of the Board of Directors and all meetings of Members and record all the proceedings thereat in a book or books to be kept for that purpose. The Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of Members and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of Members and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by Law to be kept or filed are properly kept or filed, as the case may be.
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(h) Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurers inability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Company, in case of the Assistant Treasurers death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurers possession or under the Assistant Treasurers control belonging to the Company.
(i) Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretarys inability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
(j) Such other Officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any Officer the power to choose such other Officers and to prescribe their respective duties and powers.
(k) Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Company may be executed in the name of and on behalf of the Company by the Chairman, the President or any Vice President or any other officer authorized to do so by the Board of Directors, and any such officer may, in the name of and on behalf of the Company, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of securityholders of any corporation or other entity in which the Company may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Company might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time, confer like powers upon any other Person or Persons.
Section 5.18 Business Opportunities and Non-Employee Directors .
(a) The Company recognizes and anticipates that members of the Board of Directors who are not Officers or employees of the Company ( Non-Employee Directors ) and their respective Affiliates may now engage and may continue to engage in the same or similar activities or related lines of business as those in which the Company, directly or indirectly, may engage or other business activities that overlap with or compete with those in which the Company, directly or indirectly, may engage.
(b) None of the Non-Employee Directors or their respective Affiliates (collectively, the Identified Persons and, individually, an Identified Person ) shall have any duty to refrain from directly or indirectly (i) engaging in the same or similar business activities or lines of business in which the Company or any of its Affiliates now engages or proposes to engage or (ii) otherwise competing with the Company or any of its Affiliates. The Company hereby renounces any interest or expectancy in, or right to be offered an opportunity to participate in, any business opportunity which may be available to an Identified Person and the Company or any of its Affiliates, except as provided in Section 5.18(c) . Subject to Section 5.18(c) , in the event that any Identified Person acquires knowledge of a potential transaction or other business opportunity which may be available to it, her or him and the Company or any of its Affiliates, such Identified Person shall have no duty to communicate or offer such transaction or other business opportunity to the Company or any of its Affiliates.
(c) The Company does not renounce its interest in any business opportunity offered to any Non-Employee Director if such opportunity is expressly offered to such Person solely in his or her capacity as a Director, and the provisions of the immediately preceding paragraph shall not apply to any such business opportunity.
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(d) Except as set forth in Section 5.18(c) : (i) each Identified Person shall have the right to engage in businesses of every type and description and other activities for profit and to engage in and possess an interest in other business ventures of any and every type or description, whether in businesses engaged in or anticipated to be engaged in by the Company or any Group Member, independently or with others, including business interests and activities in direct competition with the business and activities of the Company or any Group Member, and none of the same shall constitute a breach of this Agreement or any duty otherwise existing at law, in equity or otherwise to the Company or any Group Member or any Member; (ii) the Identified Persons shall have no obligation under this Agreement or as a result of any duty otherwise existing at law, in equity or otherwise to present business opportunities to the Company or any Group Member; and (iii) neither the doctrine of corporate opportunity nor any analogous doctrine shall apply to any Identified Person.
(e) Each Member shall be deemed to have notice of and to have consented to the provisions of this Section 5.18 .
Section 5.19 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 Board of Directors and any Officer authorized by this Agreement, or by the Board of Directors to act on behalf of and in the name of the Company, has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any authorized contracts on behalf of the Company, and such Person shall be entitled to deal with the Board of Directors or any Officer as if the Board of Directors or the Officer 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 any Person to contest, negate or disaffirm any action of the Board of Directors or any Officer in connection with any dealing. In no event shall any Person dealing with the Board of Directors or any Officer 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 Board of Directors or any Officer. Each and every certificate, document or other instrument executed on behalf of the Company by the Board of Directors or any Officer shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) 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 (c) 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.
ARTICLE VI
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 6.1 Records and Accounting . The Board of Directors shall keep or cause to be kept at the principal office of the Company appropriate books and records with respect to the Companys business, including all books and records necessary to provide to the Members any information required to be provided pursuant to this Agreement. Any books and records maintained by or on behalf of the Company in the regular course of its business, including the record of the Members, books of account and records of Company proceedings, may be kept on, or be in the form of, computer disks, hard drives, punch cards, magnetic tape, photographs, micrographics or any other information storage device; provided , that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time. The Company shall maintain books and records, for tax and financial reporting purposes, on an accrual basis in accordance with U.S. GAAP. Section 18-305(a) of the Delaware Act shall not apply to the Company and no Member shall have any rights thereunder.
Section 6.2 Fiscal Year . The fiscal year for tax and financial reporting purposes of the Company shall be a calendar year ending December 31.
Section 6.3 Reports .
(a) The Company shall use its commercially reasonable efforts to mail or make available to each Record Holder of a Share, as of a date selected by the Board of Directors, within 120 days after the close of each fiscal year, an annual report containing financial statements of the Company for such fiscal year, presented in accordance with U.S. GAAP, including a balance sheet and statements of operations, equity and cash flows, such statements to be audited by a registered public accounting firm selected by the Board of Directors or a committee of the Board of Directors that has been delegated such authority by the Board of Directors.
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(b) The Company shall use its commercially reasonable efforts to mail or make available to each Record Holder of a Share, as of a date selected by the Board of Directors, within 90 days after the close of each fiscal quarter except the last fiscal quarter of each fiscal year, a report containing unaudited financial statements of the Company and such other information as may be required by applicable Law or any rule, regulation, guideline or requirement of any National Securities Exchange on which Shares are listed for trading, or as the Board of Directors determines to be necessary or appropriate.
(c) The Company shall be deemed to have made a report available to each Record Holder of a Share as required by this Section 6.3 if it has (i) made such report available on any publicly available website maintained by or on behalf of the Company or (ii) filed such report with the Commission via its Electronic Data Gathering, Analysis and Retrieval system (or any successor system) and such report is publicly available on such system.
ARTICLE VII
TAX MATTERS
Section 7.1 Tax Returns and Information . The Company shall timely file all returns of the Company that are required for federal, state and local income tax purposes on the basis of the accrual method and its fiscal year.
Section 7.2 Tax Elections .
(a) The Company has made an election under Treasury Regulation Section 301.7701-3(c) to be classified as an association taxable as a corporation for U.S. federal tax purposes. The Company shall not revoke or change the Companys election to be classified as an association taxable as a corporation for U.S. federal tax purposes without receiving the affirmative vote or consent of the holders of a Share Majority.
(b) Except as otherwise provided herein, the Board of Directors or the principal financial officer shall determine whether the Company should make any other elections permitted by the Code.
Section 7.3 Withholding . Notwithstanding any other provision of this Agreement, the Board of Directors is authorized to take any action that may be required to cause the Company and other Group Members to comply with any withholding requirements established under the Code or any other U.S. federal, state, local or non-U.S. Law, including pursuant to Sections 1441, 1442 and 1445 of the Code. To the extent that the Company is required or elects to withhold and pay over to any taxing authority any amount resulting from a distribution to any Member, the Board of Directors may treat the amount withheld as having been paid to such Member.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION
Section 8.1 Dissolution . The Company shall not be dissolved by the admission of Substitute Members or Additional Members. The Company shall dissolve, and its affairs shall be wound up:
(a) upon an election to dissolve the Company by the Board of Directors that is approved by the holders of a Share Majority;
(b) upon the entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Delaware Act; or
(c) at any time when there are no Members of the Company, unless the business of the Company is continued in accordance with the Delaware Act.
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Section 8.2 Liquidator . Upon dissolution of the Company, the Board of Directors shall select one or more Persons (which may be the Board of Directors or a Member) to act as Liquidator. The Liquidator (if other than the Board of Directors) shall be entitled to receive such compensation for its services as may be approved by holders of a Share Majority. The Liquidator (if other than the Board of Directors) shall agree not to resign at any time without fifteen (15) days prior notice and may be removed at any time, with or without cause, by notice of removal approved by holders of a Share Majority. Upon dissolution, death, incapacity, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within thirty (30) days thereafter be approved by holders of a Share Majority. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article VIII , the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Board of Directors under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers) necessary or appropriate to carry out the duties and functions of the Liquidator hereunder for and during the period of time required to complete the winding up and liquidation of the Company as provided for herein.
Section 8.3 Liquidation . The Liquidator shall proceed to dispose of the assets of the Company, discharge its liabilities and otherwise wind up its affairs in such manner and over such period as determined by the Liquidator, subject to Section 18-804 of the Delaware Act and the following:
(a) Subject to Section 8.3(c) , the assets may be disposed of by public or private sale or by distribution in kind to one or more Members on such terms as the Liquidator and such Member or Members may agree. If any property is distributed in kind, the Member receiving the property shall be deemed for purposes of Section 8.3(c) to have received cash equal to its fair market value as determined by the Board of Directors or the Liquidator in its sole discretion, and contemporaneously therewith, appropriate cash distributions must be made to the other Members. Notwithstanding anything to the contrary contained in this Agreement, the Members understand and acknowledge that a Member may be compelled to accept a distribution of any asset in kind from the Company despite the fact that the percentage of the asset distributed to such Member exceeds the percentage of that asset which is equal to the percentage in which such Member shares in distributions from the Company. The Liquidator may defer liquidation or distribution of the Companys assets for a reasonable period of time if it determines that an immediate sale or distribution of all or some of the Companys assets would be impractical or would cause undue loss to the Members. The Liquidator may distribute the Companys assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Members.
(b) Liabilities of the Company include amounts owed to the Liquidator as compensation for serving in such capacity (subject to the terms of Section 8.2 ) and amounts owed to Members otherwise than in respect of their distribution rights under Article IV . With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it deems appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be applied to other liabilities or distributed as additional liquidation proceeds.
(c) Subject to the terms of any Share Designation, all property and all cash in excess of that required to discharge liabilities as provided in Section 8.3(b) shall be distributed ratably to the Record Holders of Common Shares, allocated among them in proportion to the number of Shares held by them; provided , however , that the amount distributed with respect to each Class B Common Share shall be equal to 0.0003 multiplied by the amount distributed with respect to each Class A Common Share.
Section 8.4 Cancellation of Certificate of Formation . Upon the completion of the distribution of Company cash and property as provided in Section 8.3 in connection with the liquidation of the Company, the Certificate of Formation and all qualifications of the Company as a foreign limited liability company 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.
Section 8.5 Return of Contributions . Neither any Director nor any Officer shall be personally liable for, or have any obligation to contribute or loan any monies or property to the Company to enable it to effectuate, the return of any capital contributions of the Members, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.
Section 8.6 Waiver of Partition . To the maximum extent permitted by Law, each Member hereby waives any right to partition of the Company property.
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ARTICLE IX
AMENDMENT OF AGREEMENT
Section 9.1 Amendments to be Adopted Solely by the Board of Directors.
(a) Subject to the rights granted pursuant to the Investor Rights Agreement, the Board of Directors, without the approval of any Member or any other Person, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith; provided, however, that:
(i) the affirmative vote of a Share Majority shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Agreement inconsistent with the purpose and intent of, Section 3.1(c) , Section 3.1(f) , Section 3.2(c) , Section 3.2(d) , Section 3.6(a) , Section 3.7(e) , Section 4.1(b) , Section 4.1(c) , Section 5.13(a) , Section 7.2(a), Section 8.1(a) , Section 8.3(c) , Section 9.1 , Section 9.3(c) , Section 10.3(b) , Section 10.3(f) , Section 10.3(g) , Section 11.5(b) and Section 11.5(c) ;
(ii) the affirmative vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of the Outstanding Voting Shares shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Agreement inconsistent with the purpose and intent of, Section 5.2(b) , Section 5.3 , Section 5.6 , Section 11.1(e) , Section 11.10 and Section 12.9 ; and
(iii) the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the Directors present at any meeting at which there is a quorum shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Agreement inconsistent with the purpose and intent of, Section 5.2(a) .
(b) Notwithstanding anything else contained in this Agreement, following the termination of the Investor Rights Agreement or the Voting and Standstill Agreement, the Board of Directors, without the approval of any Member or any other Person, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to remove references to the Investor Rights Agreement or the Voting and Standstill Agreement, as the case may be.
Section 9.2 Amendment Procedures . Amendments to this Agreement may be proposed only by or with the consent of the Board of Directors and, except as provided in Section 9.1 or Section 10.5 , shall be effective upon approval by a Share Majority, unless a greater percentage is required under this Agreement or the Delaware Act. Each proposed amendment that requires the approval of the holders of a Share Majority shall be set forth in a writing that contains the text of the proposed amendment. If such an amendment is proposed, the Board of Directors shall (a) call a special meeting of Members entitled to vote in respect thereof for the consideration of such amendment or (b) direct that the amendment proposed be considered at the next annual meeting of Members. Such special or annual meeting shall be called and held in accordance with Article XI of this Agreement.
Section 9.3 Amendment Requirements .
(a) Notwithstanding the provisions of Sections 9.1 and 9.2 , no provision of this Agreement that provides any Member with the right to approve any action shall be amended, altered, changed, repealed or rescinded in any respect that would have the effect of eliminating or reducing such approval right unless such amendment is approved by the affirmative vote of holders of Outstanding Voting Shares whose aggregate Outstanding Voting Shares constitute not less than the voting requirement for such action.
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(b) Notwithstanding the provisions of Sections 9.1 and 9.2 , no amendment to this Agreement may enlarge the obligations of any Member without its consent, unless such shall be deemed to have occurred as a result of an amendment approved pursuant to Section 9.3(c) .
(c) In addition to any other vote required by this Agreement or by applicable Law, the holders of Class A Common Shares and Class B Common Shares shall each be entitled to vote separately as a class only with respect to amendments to this Agreement that alter or change the relative rights, preferences, qualifications, limitations or restrictions of the shares of such class so as to affect them adversely relative to the other class. The holders of Class A Common Shares and Class B Common Shares shall not be entitled to vote as separate classes with respect to any amendments to this Agreement that have the same effect on both such classes. The issuance by the Company of securities having rights superior to those of Outstanding Shares or Shares having a dilutive effect on Outstanding Shares shall not be deemed to adversely affect the rights, preferences, qualifications, limitations or restrictions of any class or series of Shares relative to other classes or series of Shares.
ARTICLE X
MERGER, CONSOLIDATION OR CONVERSION
Section 10.1 Authority . The Company may merge or consolidate with one or more limited liability companies or other business entities as defined in Section 18-209 of the Delaware Act, or convert into any such 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 (a Merger Agreement ) or a written plan of conversion (a Plan of Conversion ), as the case may be, in accordance with this Article X .
Section 10.2 Procedure for Merger, Consolidation or Conversion . Merger, consolidation or conversion of the Company pursuant to this Article X requires the prior approval of the Board of Directors.
(a) If the Board of Directors shall determine in its sole discretion to consent to a merger or consolidation, the Board of Directors shall approve the Merger Agreement, which shall set forth:
(i) the names and jurisdictions of formation or organization of each of the business entities proposing to merge or consolidate;
(ii) the name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger or consolidation (the Surviving Business Entity );
(iii) the terms and conditions of the proposed merger or consolidation;
(iv) the manner and basis of exchanging or converting the rights or securities of, or interests in, each constituent business entity for, or into, cash, property, rights, or securities of or interests in, the Surviving Business Entity; and if any rights or securities of, or interests in, any constituent business entity are not to be exchanged or converted solely for, or into, cash, property, rights, or securities of or interests in, the Surviving Business Entity, the cash, property, rights, or securities of or interests in, any limited liability company or other business entity which the holders of such rights, securities or interests are to receive, if any;
(v) a statement of any changes in the constituent documents or the adoption of new constituent documents (the certificate of formation, limited liability company agreement, articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger or consolidation;
(vi) the effective time of the merger or consolidation, which may be the date of the filing of the certificate of merger or consolidation pursuant to Section 10.4 or a later date specified in or determinable in accordance with the Merger Agreement; provided , that if the effective time of such transaction is to be later than the date of the filing of such certificate, the effective time shall be fixed no later than the time of the filing of such certificate or the time stated therein; and
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(vii) such other provisions with respect to the proposed merger or consolidation that the Board of Directors determines in its sole discretion to be necessary or appropriate.
(b) If the Board of Directors shall determine to consent to a conversion of the Company into a corporation or other legal entity, the Board of Directors may approve and adopt a Plan of Conversion containing such terms and conditions that the Board of Directors determines to be necessary or appropriate.
Section 10.3 Approval by Members of Merger, Consolidation or Conversion or Sale of All or Substantially All of the Companys Assets .
(a) Except as provided in Section 10.3(d) , the Board of Directors, upon its approval of the Merger Agreement or Plan of Conversion and the merger, consolidation or conversion contemplated thereby shall direct that the Merger Agreement or Plan of Conversion, as applicable, be submitted to a vote of Members, whether at an annual meeting or a special meeting, in either case, in accordance with the requirements of Article IX . A copy or a summary of the Merger Agreement or Plan of Conversion, as applicable, shall be included in or enclosed with the notice of meeting.
(b) Except as provided in Section 10.3(d) , the Merger Agreement or Plan of Conversion and the merger or consolidation contemplated thereby shall be approved upon receiving the affirmative vote of a Share Majority, as well as any other shareholder approval required by the Merger Agreement or Plan of Conversion unless the Merger Agreement or Plan of Conversion, as applicable, contains any provision that, if contained in an amendment to this Agreement, the provisions of this Agreement or the Delaware Act would require for its approval the vote or consent of a greater percentage of the Outstanding Voting Shares or of any class or series of Members, in which case such greater percentage vote or consent shall be required for approval of the Merger Agreement or Plan of Conversion, as applicable, and the merger, consolidation or conversion contemplated thereby.
(c) Except as provided in Section 10.3(d) , after such approval by vote of the Members, and at any time prior to the filing of the certificate of merger, consolidation or conversion pursuant to Section 10.4 , the merger, consolidation or conversion may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement or the Plan of Conversion, as the case may be.
(d) Notwithstanding anything else contained in this Article X or in this Agreement, the Board of Directors is hereby authorized, without Member approval, to (i) convert the Company into a different limited liability entity (which may include a corporation or any other limited liability entity) incorporated or organized under the laws of the United States or any state thereof, or (ii) merge the Company into, or convey all of the Companys assets to, another limited liability entity (which may include a corporation or any other limited liability entity) incorporated or organized under the laws of the United States or any state thereof, which entity, in the case of a merger or conveyance under this clause (ii) shall be newly formed and shall have no material assets, liabilities or operations immediately prior to the effective time of such merger or conveyance if, in either case, (A) the Board of Directors has received an Opinion of Counsel that the conversion, merger or conveyance, as the case may be, would not result in the loss of the limited liability of any Member, (B) the sole purpose of such conversion, merger or conveyance is to effect a mere change in the legal form of the Company into another limited liability entity that is taxable as a corporation for U.S. federal income tax purposes (which may include a corporation or any other limited liability entity) incorporated or organized under the laws of the United States or any state thereof, and (C) the governing instruments of the converted or new entity provide the Members and the Board of Directors with substantially the same rights and obligations as are herein contained.
(e) Members are not entitled to dissenters rights of appraisal in the event of a merger, consolidation or conversion pursuant to this Article X , a sale of all or substantially all of the assets of the Company or the Companys Subsidiaries, or any other similar transaction or event.
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(f) The Board of Directors may not cause the Company to sell, exchange or otherwise dispose of all or substantially all of its assets, in one transaction or a series of related transactions, or approve on behalf of the Company any such sale, exchange or other disposition, without receiving the affirmative vote or consent of the holders of a Share Majority; provided , however , that the foregoing will not limit the ability of the Board of Directors 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.
(g) Each merger, consolidation or conversion approved pursuant to this Article X shall provide that the holders of Class A Common Shares and Class B Common Shares shall be entitled to receive the same type of consideration, and the holders of Class B Common Shares shall be entitled to receive consideration in an amount per Class B Common Share equal to 0.0003 multiplied by the consideration per Class A Common Share.
Section 10.4 Certificate of Merger, Conversion or Consolidation . Upon the required approval by the Board of Directors and the Members of a Merger Agreement or a Plan of Conversion and the merger, consolidation or conversion contemplated thereby, a certificate of merger, conversion or consolidation may be executed and filed with the Secretary of State of the State of Delaware and any other applicable Governmental Entity in conformity with the requirements of the Delaware Act and other applicable Law.
Section 10.5 Amendment of Operating Agreement . Pursuant to Section 18-209(f) of the Delaware Act, and notwithstanding Article IX hereof, an agreement of merger or consolidation approved in accordance with this Article X , including a merger or consolidation approved by the Board of Directors in accordance with Section 10.3(d) , may (a) effect any amendment to this Agreement or (b) effect the adoption of a new limited liability company agreement for a limited liability company if it is the Surviving Business Entity. Any such amendment or adoption made pursuant to this Section 10.5 shall be effective at the effective time or date of the merger or consolidation.
Section 10.6 Effect of Merger or Consolidation .
(a) At the effective time of the merger or consolidation:
(i) all of the rights, privileges and powers of each of the business entities that has merged or consolidated, and all property, real, personal and mixed, and all debts due to any of those business entities shall be vested in the Surviving Business Entity and after the merger or consolidation shall be the property of the Surviving Business Entity and all other things and causes of action belonging to each of those business entities, shall be vested in the Surviving Business Entity to the extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any of those constituent business entities shall not revert and is not in any way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests in property of any of those constituent business entities shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business entities shall attach to the Surviving Business Entity and may be enforced against it to the same extent as if the debts, liabilities and duties had been incurred or contracted by it.
(b) It is the intent of the parties hereto that a merger or consolidation effected pursuant to this Article X shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another.
Section 10.7 Business Combinations With Interested Shareholders . Notwithstanding any other provision of this Agreement, with respect to any Business Combination (as such term is defined in Section 203 of the DGCL), involving the Company, the provisions of Section 203 of the DGCL shall be deemed to apply with respect to the Company as though the Company were a Delaware corporation and as though the Common Shares were voting stock of the Company.
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ARTICLE XI
MEMBER MEETINGS
Section 11.1 Member Meetings .
(a) All acts of Members to be taken hereunder shall be taken in the manner provided in this Article XI . Meetings of the Members for the election of Directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors.
(b) An annual meeting of Members for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held at such time and place as the Board of Directors shall specify. If authorized by the Board of Directors, and subject to such guidelines and procedures as the Board of Directors may adopt, Members and proxyholders not physically present at a meeting of Members may by means of remote communication participate in such meeting and be deemed present in person and vote at such meeting, provided that the Company shall implement reasonable measures to verify that each Person deemed present and permitted to vote at the meeting by means of remote communication is a Member or proxyholder, to provide such Members or proxyholders a reasonable opportunity to participate in the meeting and to record the votes or other action made by such Members or proxyholders.
(c) A failure to hold the annual meeting of Members at the designated time or to elect a sufficient number of Directors to conduct the business of the Company shall not affect otherwise valid acts of the Company or work a forfeiture or dissolution of the Company. If the annual meeting for election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon as is convenient. If there is a failure to hold the annual meeting for a period of thirty (30) days after the date designated for the annual meeting, or if no date has been designated (i) in the case of the first annual meeting after the date of this Agreement, no later than December 31, 2019, or (ii) in the case of any subsequent annual meeting, within thirteen (13) months after the date of the last annual meeting, it is the intent of the parties that the Delaware Court of Chancery may summarily order a meeting to be held upon the application of any Member or Director. The presence at a meeting of holders of a majority of the Outstanding Voting Shares entitled to vote at such meeting, either in person or by proxy, shall constitute a quorum for the purpose of such meeting, notwithstanding any provision of this Agreement to the contrary. The Delaware Court of Chancery may issue such orders as may be appropriate, including orders designating the time and place of such meeting, the Record Date for determination of Members entitled to vote, and the form of notice of such meeting.
(d) The Board of Directors, in its discretion, or the Officer presiding at a meeting of Members, in such Officers discretion, may require that any votes cast at such meeting shall by cast by written ballots.
(e) Unless otherwise required by Law, special meetings of Members, for any purpose or purposes, may be called by either the Chairman of the Board of Directors, if there be one, or the President, and shall be called by any such Officer at the request in writing of (i) holders of at least a Share Majority, (ii) the Board of Directors or (iii) a committee of the Board of Directors that has been duly designated by the Board of Directors and has been authorized by the Board Directors to call such meetings. Such request shall state the purpose or purposes of the proposed meeting. At a special meeting of Members, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).
Section 11.2 Notice . Whenever Members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by Law, written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each Member entitled to notice of and to vote at such meeting
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Section 11.3 Adjournments . Any meeting of Members may be adjourned from time to time by the chairman of the meeting to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new Record Date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 11.2 shall be given to each Record Holder entitled to notice of and to vote at the adjourned meeting.
Section 11.4 Quorum . Unless otherwise required by applicable Law, the holders of a majority of the Outstanding Voting Shares entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of Members for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of Members, the chairman of the meeting shall have power to adjourn the meeting from time to time, in the manner provided in Section 11.3 , until a quorum shall be present or represented.
Section 11.5 Voting .
(a) All matters (other than the election of Directors) submitted to Members for approval shall be determined by a majority of the votes cast affirmatively or negatively by Members holding Outstanding Voting Shares, voting as a single class, unless a greater percentage is required with respect to such matter under the Delaware Act, under any rule, regulation, guideline or requirement of any National Securities Exchange on which Shares are listed for trading, or under the provisions of this Agreement, in which case the approval of Members holding Outstanding Voting Shares that in the aggregate represent at least such greater percentage shall be required. Such votes may be cast in person or by proxy as provided in Section 11.6 . The Board of Directors, in its discretion, or the Officer of the Company presiding at a meeting of Members, in such Officers discretion, may require that any votes cast at such meeting shall be cast by written ballot.
(b) Except as otherwise expressly required by Law or provided in this Agreement, and subject to any voting rights provided in any Share Designation, the holders of any outstanding Class A Common Shares and the holders of any outstanding Class B Common Shares shall vote together as a single class on all matters with respect to which Members are entitled to vote under applicable Law, this Agreement or upon which a vote of Members is otherwise duly called for by the Company.
(c) At each annual or special meeting of Members, (i) each Record Holder of Class A Common Shares on the relevant Record Date shall be entitled to cast one (1) vote in person or by proxy for each Class A Common Share standing in such holders name on the register of the Company, and (ii) each Record Holder of Class B Common Shares on the relevant Record Date shall be entitled to cast one (1) vote in person or by proxy for each Class B Common Share standing in such holders name on the register of the Company; provided, however, that the aggregate number of votes that any Record Holder of Class B Common Shares shall be entitled to cast in respect of their Class B Common Shares shall not exceed the aggregate number of OP Units and Hunters Point Units owned by such Record Holder (as indicated in the register of the Operating Company or Hunters Point, as applicable). Neither the holders of Class A Common Shares nor the holders of Class B Common Shares shall have cumulative voting rights.
(d) Directors shall be elected by a plurality of the votes cast for a particular position.
(e) Notwithstanding anything else contained in this Agreement, no Member shall have a right to vote on or approve a conversion, merger or conveyance approved by the Board of Directors pursuant to Section 10.3(d) , unless the Board of Directors, in its sole discretion, elects to submit the matter to the Members for their approval.
Section 11.6 Proxies .
(a) Each Member entitled to vote at a meeting of Members may authorize another Person or Persons to act for such Member as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a Member may authorize another person or persons to act for such Member as proxy, the following shall constitute a valid means by which a Member may grant such authority:
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(i) A Member may execute a writing authorizing another person or persons to act for such Member as proxy. Execution may be accomplished by the Member or such Members authorized officer, director, employee or agent signing such writing or causing such persons signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.
(ii) A Member may authorize another person or persons to act for such Member as proxy by transmitting or authorizing the transmission of a telegram or cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the Member. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.
(b) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a Member may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
(c) With respect to the use of proxies at any meeting of Members, the Company shall be governed by paragraphs (b), (c), (d) and (e) of Section 212 of the DGCL and other applicable provisions of the DGCL, as though the Company were a Delaware corporation and as though the Members were stockholders of a Delaware corporation.
Section 11.7 List of Members Entitled to Vote . The Officer who has charge of the register of the Company shall prepare and make, at least ten (10) days before every meeting of Members, a complete list of Members entitled to vote at the meeting, arranged in alphabetical order for each class or series of Shares and showing the address of each such Member and the number of Outstanding Voting Shares registered in the name of such Member. Such list shall be open to the examination of any Member, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days before the meeting (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the Company. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to Members. If the meeting is to be held at a place, then the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member who is present.
Section 11.8 Record Date .
(a) In order that the Company may determine the Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, the Board of Directors may fix a Record Date, which Record Date shall not precede the date upon which the resolution fixing the Record Date is adopted by the Board of Directors, and which Record Date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no Record Date is fixed by the Board of Directors, the Record Date for determining Members entitled to notice of or to vote at a meeting of Member shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of Record Holders entitled to notice of or to vote at a meeting of Members shall apply to any adjournment of the meeting; provided , however , that the Board of Directors may fix a new Record Date for the adjourned meeting.
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(b) Only those Record Holders of Outstanding Voting Shares on the Record Date set pursuant to this Section 11.8 shall be entitled to notice of, and to vote at, a meeting of Members or to act with respect to matters as to which the holders of the Outstanding Voting Shares have the right to vote or to act. All references in this Agreement to votes of, or other acts that may be taken by, the Outstanding Voting Shares shall be deemed to be references to the votes or acts of the Record Holders of such Outstanding Voting Shares on such Record Date.
Section 11.9 Register . The register shall be the only evidence as to who are the Members entitled to examine the list required by Section 11.7 , or to vote in person or by proxy at any meeting of the Members.
Section 11.10 No Action By Written Consent . Any action required or permitted to be taken by the Members must be effected at a duly called annual meeting or special meeting of Members, and the ability of the Members to consent in writing to the taking of any action is hereby specifically denied.
Section 11.11 Conduct of Meetings . The Board of Directors may adopt by resolution such rules and regulations for the conduct of any meeting of Members as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of Members shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (c) rules and procedures for maintaining order at the meeting and the safety of those present; (d) limitations on attendance at or participation in the meeting to Record Holders, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (e) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (f) limitations on the time allotted to questions or comments by participants.
Section 11.12 Inspectors of Election . In advance of any meeting of Members, the Board of Directors, by resolution, the Chairman of the Board of Directors or the President shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other Persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of Members, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable Law, inspectors may be officers, employees or agents of the Company. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector shall have the duties prescribed by Law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable Law.
Section 11.13 Nature of Business at Meeting of Members .
(a) Only such business (other than nominations for election to the Board of Directors, which must comply with the provisions of Section 11.14 ) may be transacted at an annual meeting of Members as is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (iii) otherwise properly brought before the annual meeting by any Member (A) who is a Record Holder of Common Shares on the date of the giving of the notice provided for in this Section 11.13 and on the Record Date for the determination of Members entitled to notice of and to vote at such annual meeting and (B) who complies with the notice procedures set forth in this Section 11.13 .
(b) In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a Member, such Member must have given timely notice thereof in proper written form to the Secretary.
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(c) To be timely, a Members notice to the Secretary must be delivered to or be mailed and received at the principal offices of the Company not less than one hundred and twenty (120) days nor more than one hundred and fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of Members; provided , however , that in the event that the annual meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the Member in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an annual meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a Members notice as described above.
(d) To be in proper written form, a Members notice to the Secretary must set forth the following information: (i) as to each matter such Member proposes to bring before the annual meeting, a brief description of the business desired to be brought before the annual meeting and the proposed text of any proposal regarding such business (including the text of any resolutions proposed for consideration and, if such business includes a proposal to amend this Agreement, the text of the proposed amendment), and the reasons for conducting such business at the annual meeting, and (ii) as to the Member giving notice and the beneficial owner, if any, on whose behalf the proposal is being made, (A) the name and address of such Person; (B) (I) the class or series and number of all Shares which are owned beneficially or of record by such Person, or any Affiliates or associates of such Person, (II) the name of each nominee holder of Shares owned beneficially but not of record by such Person or any Affiliates or associates of such Person, and the number of such Shares held by each such nominee holder, (III) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such Person, or any Affiliates or associates of such Person, with respect to Shares and (IV) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of Shares) has been made by or on behalf of such Person, or any Affiliates or associates of such Person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of Share price changes for, such Person, or any Affiliates or associates of such Person, or to increase or decrease the voting power or pecuniary or economic interest of such Person, or any Affiliates or associates of such Person, with respect to Shares; (C) a description of all agreements, arrangements, or understandings (whether written or oral) between or among such Person, or any Affiliates or associates of such Person, and any other Person or Persons (including their names) in connection with or relating to (I) the Company or (II) the proposal, including any material interest in, or anticipated benefit from the proposal to such Person, or any Affiliates or associates of such Person; (D) a representation that the Member giving notice intends to appear in Person or by proxy at the annual meeting to bring such business before the meeting; and (E) any other information relating to such Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies by such Person with respect to the proposed business to be brought by such Person before the annual meeting pursuant to Section 14 of the Exchange Act.
(e) A Member providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 11.13 shall be true and correct as of the Record Date for determining the Members entitled to receive notice of the annual meeting and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal offices of the Company not later than five (5) business days after the Record Date for determining the Members entitled to receive notice of the annual meeting.
(f) No business shall be conducted at the annual meeting of Members except business brought before the annual meeting in accordance with the procedures set forth in this Section 11.13 ; provided , however , that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 11.13 shall be deemed to preclude discussion by any Member of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
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(g) Nothing contained in this Section 11.13 shall be deemed to affect any rights of Members to request inclusion of proposals in the Companys proxy statement pursuant to Rule 14a-8 under the Exchange Act (or any successor provision of Law).
Section 11.14 Nomination of Directors .
(a) Only Persons who are nominated in accordance with the following procedures shall be eligible for election as Directors, except as may be otherwise provided in any Share Designation with respect to the right of holders of Preferred Shares to nominate and elect a specified number of Directors in certain circumstances. Nominations of Persons for election to the Board of Directors may be made at any annual meeting of Members, or at any special meeting of Members called for the purpose of electing Directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any Member (A) who is a Record Holder on the date of the giving of the notice provided for in this Section 11.14 and on the Record Date for the determination of Members entitled to notice of and to vote at such annual meeting or special meeting of Members and (B) who complies with the notice procedures set forth in this Section 11.14 .
(b) In addition to any other applicable requirements, for a nomination to be made by a Member, such Member must have given timely notice thereof in proper written form to the Secretary.
(c) To be timely, a Members notice to the Secretary must be delivered to or be mailed and received at the principal offices of the Company (i) in the case of an annual meeting, not less than one hundred and twenty (120) days nor more than one hundred and fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of Members; provided , however , that in the event that the annual meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the Member in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (ii) in the case of a special meeting of Members called for the purpose of electing Directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an annual meeting or a special meeting called for the purpose of electing Directors, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a Members notice as described above.
(d) To be in proper written form, a Members notice to the Secretary must set forth the following information: (i) as to each Person whom the Member proposes to nominate for election as a Director (A) the name, age, business address and residence address of such Person, (B) the principal occupation or employment of such Person, (C) (I) the class or series and number of all Share which are owned beneficially or of record by such Person, or any Affiliates or associates of such Person, (II) the name of each nominee holder of Shares owned beneficially but not of record by such Person, or any Affiliates or associates of such Person, and the number of such Shares held by each such nominee holder, (III) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such Person, or any Affiliates or associates of such Person, with respect to Shares and (IV) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of Shares) has been made by or on behalf of such Person, or any Affiliates or associates of such Person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of Share price changes for, such Person, or any Affiliates or associates of such Person, or to increase or decrease the voting power or pecuniary or economic interest of such Person, or any Affiliates or associates of such Person, with respect to Shares, (D) such Persons written representation and agreement that such Person (I) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any Person or entity as to how such Person, if elected as a Director, will act or vote on any issue or question, (II) is not and will not become a party to any agreement, arrangement or understanding with any Person or entity other than the Company with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a Director that has not been disclosed to the Company in such representation and agreement and (III) in such Persons individual capacity, would be in compliance, if elected as a Director, and will comply with, all applicable publicly disclosed confidentiality, corporate governance, conflict
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of interest, Regulation FD, code of conduct and ethics, and Share ownership and trading policies and guidelines of the Company and (E) any other information relating to such Person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (ii) as to the Member giving the notice, and the beneficial owner, if any, on whose behalf the nomination is being made, (A) the name and record address of the Member giving the notice and the name and principal place of business of such beneficial owner; (B) (I) the class or series and number of all Shares which are owned beneficially or of record by such Person, or any Affiliates or associates of such Person, (II) the name of each nominee holder of Shares owned beneficially but not of record by such Person or any Affiliates or associates of such Person, and the number of Shares held by each such nominee holder, (III) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such Person, or any Affiliates or associates of such Person, with respect to Shares and (IV) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of Shares) has been made by or on behalf of such Person, or any Affiliates or associates of such Person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of Share price changes for, such Person, or any Affiliates or associates of such Person, or to increase or decrease the voting power or pecuniary or economic interest of such Person, or any Affiliates or associates of such Person, with respect to Shares; (C) a description of (I) all agreements, arrangements, or understandings (whether written or oral) between such Person, or any Affiliates or associates of such Person, and any proposed nominee for election as a Director, or any Affiliates or associates of such proposed nominee, (II) all agreements, arrangements, or understandings (whether written or oral) between such Person, or any Affiliates or associates of such Person, and any other Person or Persons (including their names) pursuant to which the nomination(s) are being made by such Person, or otherwise relating to the Company or their ownership of Shares, and (III) any material interest of such Person, or any Affiliates or associates of such Person, in such nomination, including any anticipated benefit therefrom to such Person, or any Affiliates or associates of such Person; (D) a representation that the Member giving notice intends to appear in person or by proxy at the annual meeting or special meeting to nominate the Persons named in its notice; and (E) any other information relating to such Person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of Directors pursuant to Section 14 of the Exchange Act. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Director if elected.
(e) A Member providing notice of any nomination proposed to be made at an annual meeting or special meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 11.14 shall be true and correct as of the Record Date for determining the Members entitled to receive notice of the annual meeting or special meeting, and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal offices of the Company not later than five (5) business days after the Record Date for determining the Members entitled to receive notice of such annual meeting or special meeting.
(f) No Person shall be eligible for election as a Director unless nominated in accordance with the procedures set forth in this Section 11.14 . If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Notices . Any notice, demand, request, report or proxy materials required or permitted to be given or made to a Member, any Director or member of any committee under this Agreement shall be in writing and may be given by mail, addressed to such Director, member of a committee or Member, at such Persons address as it appears on the records of the Transfer Agent or as otherwise shown on the records of the Company, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Any notice, payment or report to be given or made to a Member hereunder shall be deemed conclusively to have been given or made, and the obligation to give such notice or report or to make such payment shall be deemed conclusively to have been fully satisfied, upon sending of such notice, payment or report to the
36
Record Holder of such Shares at his address as shown on the records of the Transfer Agent or as otherwise shown on the records of the Company, regardless of any claim of any Person who may have an interest in such Shares by reason of any assignment or otherwise. An affidavit or certificate of making of any notice, payment or report in accordance with the provisions of this Section 12.1 executed by the Company, the Transfer Agent or the mailing organization shall be prima facie evidence of the giving or making of such notice, payment or report. If any notice, payment or report addressed to a Record Holder at the address of such Record Holder appearing on the books and records of the Transfer Agent or the Company is returned by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver it, such notice, payment or report and any subsequent notices, payments and reports shall be deemed to have been duly given or made without further mailing (until such time as such Record Holder or another Person notifies the Transfer Agent or the Company of a change in his address) if they are available for the Member at the principal office of the Company for a period of one year from the date of the giving or making of such notice, payment or report to the other Members. Without limiting the manner by which notice otherwise may be given effectively to Members, any notice to Members given by the Company under applicable Law or this Agreement shall be effective if given by a form of electronic transmission if consented to by the Member to whom the notice is given. Any such consent shall be revocable by the Member by written notice to the Company. Any such consent shall be deemed to be revoked if (a) the Company is unable to deliver by electronic transmission two (2) consecutive notices by the Company in accordance with such consent and (b) such inability becomes known to the Secretary or Assistant Secretary of the Company or to the Transfer Agent, or other Person responsible for the giving of notice; provided , however , that the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given by electronic transmission, as described above, shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the Member has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the Member has consented to receive notice; (iii) if by a posting on an electronic network, together with separate notice to the Member of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the Member. Notice to Directors or committee members may be given personally or by telegram, telex, cable or by means of electronic transmission.
Section 12.2 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 12.3 Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Company, the Members and their heirs, executors, administrators, successors, legal representatives and permitted assigns. The Indemnified Persons and their heirs, executors, administrators and successors shall be entitled to receive the benefits of this Agreement.
Section 12.4 Integration . This Agreement constitutes the limited liability company agreement (as such term is defined in the Delaware Act) of the Company, and supersedes all prior written, oral or implied statements, agreements and understandings as to the Companys affairs and the conduct of its business, including, without limitation, the Existing Agreement.
Section 12.5 Creditors . None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Company.
Section 12.6 Waiver . 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 of any other covenant, duty, agreement or condition. Notwithstanding the other provisions of this Agreement, Section 18-305(a) of the Delaware Act shall not apply to the Company and no Member shall have any rights thereunder.
Section 12.7 Counterparts . This Agreement may be executed in counterparts, all of which together shall constitute an 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. Any Person who acquires a Share shall be bound by this Agreement without execution hereof.
37
Section 12.8 Applicable Law . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflict of laws that would apply the laws of any other jurisdiction.
Section 12.9 Exclusive Forum . Unless the Company consents in writing to the selection of an alternative forum (an Alternative Forum Consent ), the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer, employee or agent of the Company or any Member to the Company or the Members, (c) any action asserting a claim against the Company or any Director, officer, employee or agent of the Company or any Member arising out of or relating to any provision of the Delaware Act or this Agreement or (d) any action asserting a claim against the Company, any Director, officer, employee or agent of the Company or any Member governed by the internal affairs doctrine of the State of Delaware; provided , however , that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. Failure to enforce the foregoing provisions would cause the Company irreparable harm and the Company shall be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions. Any Person purchasing or otherwise acquiring any Shares shall be deemed to have notice of and consented to the provisions of this Section 12.9 . The existence of any prior Alternative Forum Consent shall not act as a waiver of the Companys ongoing consent right as set forth above in this Section 12.9 with respect to any current or future actions or claims.
Section 12.10 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 12.11 Consent of Members . Whenever in this Agreement it is specified that an action may be taken by the Board of Directors or upon the affirmative vote of less than all of the Members, such action may be so taken by the Board of Directors or upon the concurrence of less than all of the Members, and each Member shall be bound by the results of such action and deemed to consent to such action.
Section 12.12 Facsimile Signatures . The use of facsimile signatures affixed in the name and on behalf of an Officer or Transfer Agent on Certificates is expressly permitted by this Agreement.
Remainder of page intentionally left blank.
38
IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
FIVE POINT HOLDINGS, LLC | ||
By: |
|
|
Name: | Emile Haddad | |
Title: | Chairman and Chief Executive Officer | |
By: |
|
|
Name: | Mike Alvarado | |
Title: | Secretary |
Signature Page to Second Amended and Restated
Limited Liability Company Agreement
EXHIBIT A
Class A Common Shares | Class A Common Shares |
Five Point Holdings, LLC
Formed under the laws of the State of Delaware
CUSIP
SEE REVERSE FOR DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, NEW YORK
THIS CERTIFIES THAT
is the owner of
Class A Common Shares of Five Point Holdings, LLC
(hereinafter called the Company) transferable on the books of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness, the facsimile signatures of the duly authorized officers of the Company.
Dated
___________________ | ___________________ | |||
Chief Operating Officer | Chief Executive Officer |
Countersigned and registered:
[ ]
(New York, NY)
Transfer Agent & Registrar
Authorized Signature
A-1
Reverse of Certificate
ABBREVIATIONS
The holder of this certificate, by acceptance of this certificate, shall be deemed to have (i) requested admission as, and agreed to become, a member of the Company, (ii) agreed to comply with, and be bound by, the terms of the Second Amended and Restated Limited Liability Company Agreement of the Company, as amended, supplemented or restated from time to time (the Company Agreement), (iii) granted the powers of attorney provided for in the Company Agreement, and (iv) made the waivers and given the consents and approvals contained in the Company Agreement. The Company will furnish without charge to each shareholder who so requests a copy of the Company Agreement.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM as tenants in common | ||
TEN ENT as tenants by the entireties | ||
JT TEN as joint tenants with right of survivorship and not as tenants in common | ||
UNIF GIFT MIN ACT _______________ Custodian __________________ | ||
(Cust) (Minor) |
under Uniform Transfers/Gifts to Minors Act
____________________ (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
Please insert Social Security or other identifying number of Assignee
(Please print or typewrite name and address, including zip code, of Assignee)
shares represented by the Certificate, and do hereby irrevocably constitute and appoint as its attorney-in-fact to transfer the said shares on the books of the Company with full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
A-2
EXHIBIT B
Certificate Evidencing Class B Common Shares
in
Five Point Holdings, LLC
No. B-[ ] | [ ] Shares |
In accordance with the Second Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC, as amended, supplemented or restated from time to time (the Company Agreement ), Five Point Holdings, LLC, a Delaware limited liability company (the Company ), hereby certifies that [ ] (the Holder ) is the registered owner of [ ] Class B Common Shares in the Company (the Shares ) transferable on the books of the Company, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. The rights, preferences and limitations of the Shares are set forth in, and this Certificate and the Shares represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Company Agreement. Copies of the Company Agreement are on file at, and will be furnished without charge on delivery of written request to the Company at, the principal office of the Company located at 25 Enterprise, Suite 300, Aliso Viejo, California 92656 or such other address as may be specified by notice under the Company Agreement. Capitalized terms used herein but not defined shall have the meanings given them in the Company Agreement.
The Holder, by accepting this Certificate, is deemed to have (i) requested admission as, and agreed to become, a Member and to have agreed to comply with and be bound by and to have executed the Company Agreement, (ii) represented and warranted that the Holder has all right, power and authority and, if an individual, the capacity necessary to enter into the Company Agreement, (iii) granted the powers of attorney provided for in the Company Agreement and (iv) made the waivers and given the consents and approvals contained in the Company Agreement.
This Certificate shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws thereof.
This Certificate shall not be valid for any purpose unless it has been countersigned and registered by the Transfer Agent and Registrar.
Dated:
Countersigned and Registered by: | Five Point Holdings, LLC | |||||
|
By: |
|
||||
as Transfer Agent and Registrar | Name: | |||||
Title: |
B-1
Reverse of Certificate
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as follows according to applicable laws or regulations:
TEN COM | as tenants in common | UNIF GIFT/TRANSFERS MIN ACT | ||||
TEN ENT | as tenants by the entireties | Custodian | ||||
(Cust) | (Minor) | |||||
JT TEN | as joint tenants with right of survivorship and not as tenants in common | under Uniform Gifts/Transfers to CD Minors Act ____________________ (State) |
Additional abbreviations, though not in the above list, may also be used.
B-2
ASSIGNMENT OF SHARES
in
FIVE POINT HOLDINGS, LLC
FOR VALUE RECEIVED, hereby assigns, conveys, sells and transfers unto
(Please print or typewrite name and address of Assignee)
(Please insert Social Security or other identifying number of Assignee)
Class B Common Shares evidenced by this Certificate, subject to the Company Agreement, and does hereby irrevocably constitute and appoint as its attorney-in-fact with full power of substitution to transfer the same on the books of Five Point Holdings, LLC.
Date: |
NOTE: The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.
|
|
SIGNATURE(S) MUST BE GUARANTEED BY A MEMBER FIRM OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY SIGNATURE(S) GUARANTEED |
(Signature) |
|
(Signature) |
No transfer of the Shares evidenced hereby will be registered on the books of the Company, unless the Certificate evidencing the Shares to be transferred is surrendered for registration of transfer.
B-3
Exhibit 5.1
April 24, 2017
Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Re: | Five Point Holdings, LLC |
Registration Statement on Form S-11
(File No. 333-217213)
Ladies and Gentlemen:
We have acted as special counsel to Five Point Holdings, LLC, a Delaware limited liability company (the Company ), in connection with the initial public offering by the Company of Class A Common Shares of the Company (including Class A Common Shares subject to an over-allotment option) (the Shares ).
This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the Securities Act ).
In rendering the opinion stated herein, we have examined and relied upon the following:
(a) the registration statement on Form S-11 (File No. 333-217213) of the Company relating to the Shares filed on April 7, 2017 with the Securities and Exchange Commission (the Commission ) under the Securities Act and Pre-Effective Amendment No. 1 thereto (such registration statement, as so amended, being hereinafter referred to as the Registration Statement );
(b) the form of the Underwriting Agreement (the Underwriting Agreement ) proposed to be entered into among the Company and Citigroup Global Markets, Inc. and J.P. Morgan Securities LLC, as representatives of the several Underwriters named therein (the Underwriters ), relating to the sale by the Company to the Underwriters of the Shares, filed as Exhibit 1.1 to the Registration Statement;
(c) an executed copy of a certificate of Michael A. Alvarado, Chief Legal Officer, Vice President and Secretary of the Company, dated the date hereof (the Secretarys Certificate );
Five Point Holdings, LLC
April 24, 2017
Page 2
(d) a copy of the Companys Certificate of Formation certified by the Secretary of State of the State of Delaware as of April 21, 2017 and certified pursuant to the Secretarys Certificate;
(e) a copy of the Companys Amended and Restated Limited Liability Company Agreement among the members of the Company, dated as of May 2, 2016 (the Operating Agreement ), certified pursuant to the Secretarys Certificate; and
(f) a copy of certain resolutions of the Board of Directors of the Company, adopted on March 30, 2017, certified pursuant to the Secretarys Certificate.
We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates and receipts of public officials, certificates of officers or other representatives of the Company and others, and such other documents as we have deemed necessary or appropriate as a basis for the opinion stated below, including the facts and conclusions set forth in the Secretarys Certificate and the factual representations and warranties contained in the Underwriting Agreement.
In our examination, we have assumed the genuineness of all signatures, including endorsements, the legal capacity and competency of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as facsimile, electronic, certified or photostatic copies, and the authenticity of the originals of such copies. We have also assumed that the Operating Agreement is the only limited liability company agreement, as defined under the Delaware Limited Liability Company Act (the DLLCA ), of the Company. As to any facts relevant to the opinion stated herein that we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and others and of public officials, including the factual representations and warranties contained in the Underwriting Agreement.
We do not express any opinion with respect to the laws of any jurisdiction other than the DLLCA.
Based upon the foregoing and subject to the qualifications and assumptions stated herein, we are of the opinion that when (i) the Registration Statement, as finally amended (including all necessary post-effective amendments), has become effective under the Securities Act; (ii) the Underwriting Agreement has been duly executed and delivered by the Company and duly authorized, executed and delivered by the other parties thereto; (iii) the Board of Directors of the Company, or an appropriate committee appointed thereby, has determined the price per share of the Shares; and (iv) the Shares are delivered in accordance with the Underwriting Agreement upon payment of the agreed upon consideration therefor, the Shares will be duly authorized by all requisite limited liability company action on the part of the Company under the DLLCA and validly issued and fully paid, and, under the DLLCA, the holders of the Shares will have no obligation to make further payments for the purchase of such Shares or contributions to the Company solely by reason of their ownership of such Shares except for their obligation to repay any funds wrongfully distributed to them.
We hereby consent to the reference to our firm under the heading Legal Matters in the prospectus forming part of the Registration Statement. We also hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit 10.17
HERITAGE FIELDS LLC,
a Delaware limited liability company
FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
DATED AS OF APRIL 21, 2017
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 OR AN APPLICABLE EXEMPTION, AND COMPLIANCE WITH THE OTHER TERMS OF THIS AGREEMENT.
TABLE OF CONTENTS
Page | ||||||||||
ARTICLE I DEFINED TERMS |
1 | |||||||||
1.1 |
Defined Terms |
1 | ||||||||
1.2 |
Interpretation |
18 | ||||||||
ARTICLE II FORMATION AND NAME |
19 | |||||||||
2.1 |
Formation |
19 | ||||||||
2.2 |
Name |
19 | ||||||||
ARTICLE III TERM |
19 | |||||||||
3.1 |
Term |
19 | ||||||||
ARTICLE IV PURPOSE OF BUSINESS; OTHER BUSINESS AND ACTIVITIES; NO PARTNERSHIP OR JOINT VENTURE |
19 | |||||||||
4.1 |
Purposes of Business |
19 | ||||||||
4.2 |
Other Business and Activities |
20 | ||||||||
4.3 |
No Partnership or Joint Venture |
20 | ||||||||
ARTICLE V PRINCIPAL OFFICE, REGISTERED OFFICE AND RESIDENT AGENT |
20 | |||||||||
5.1 |
Principal Office and Mailing Address |
20 | ||||||||
5.2 |
Resident Agent and Registered Office |
20 | ||||||||
ARTICLE VI NAMES AND ADDRESSES OF MEMBERS |
20 | |||||||||
6.1 |
Names of Members |
20 | ||||||||
ARTICLE VII INVESTED CAPITAL AND LOANS |
20 | |||||||||
7.1 |
Initial Capital Contributions |
20 | ||||||||
7.2 |
Capital Calls |
21 | ||||||||
7.3 |
Failure to Fund a Capital Call |
21 | ||||||||
7.4 |
Reserved |
23 | ||||||||
7.5 |
Rescission of a Contribution Notice |
23 | ||||||||
7.6 |
No Further Obligation to Contribute Capital |
23 | ||||||||
7.7 |
No Interest on Capital Contributions |
23 | ||||||||
7.8 |
Return of Capital Contributions |
23 | ||||||||
ARTICLE VIII COMPENSATION OF AND PAYMENTS TO THE MEMBERS AND THEIR AFFILIATES; AFFILIATE TRANSACTIONS |
24 | |||||||||
8.1 |
Compensation to Members |
24 | ||||||||
8.2 |
Transactions with Members and/or Affiliates |
24 | ||||||||
8.3 |
Standstill/Exclusivity |
24 | ||||||||
8.4 |
Dealings with Development Manager |
25 | ||||||||
ARTICLE IX CAPITAL ACCOUNTS; PROFITS AND LOSSES; DISTRIBUTIONS |
25 | |||||||||
9.1 |
Capital Accounts |
25 | ||||||||
9.2 |
Allocations of Profit and Losses |
26 | ||||||||
9.3 |
Compliance with Section 704(b) |
26 | ||||||||
9.4 |
Compliance with Section 704(c) |
27 | ||||||||
9.5 |
Consent to Allocations |
28 | ||||||||
9.6 |
Potential Revisions to Allocation Provisions |
28 | ||||||||
9.7 |
Distributions |
28 | ||||||||
9.8 |
Distributions in Liquidation |
29 | ||||||||
9.9 |
Priority of Members |
29 |
i
9.10 |
No Restoration of Negative Capital Account |
29 | ||||||
9.11 |
Withheld Amounts |
29 | ||||||
9.12 |
Termination of Legacy Interests |
29 | ||||||
ARTICLE X MANAGEMENT OF THE COMPANY |
29 | |||||||
10.1 |
Management by Members |
29 | ||||||
10.2 |
Matters Requiring 100% Approval |
32 | ||||||
10.3 |
Reserved |
32 | ||||||
10.4 |
Reserved |
32 | ||||||
10.5 |
Reserved |
32 | ||||||
10.6 |
Administrative Member |
32 | ||||||
10.7 |
Executive Committee |
33 | ||||||
10.8 |
Appointment of Initial Members of the Executive Committee |
34 | ||||||
10.9 |
Place of Meetings; Notice |
34 | ||||||
10.10 |
Regular Meetings |
34 | ||||||
10.11 |
Special Meetings; Notice |
34 | ||||||
10.12 |
Quorum; Majority Vote |
34 | ||||||
10.13 |
Procedure; Minutes |
35 | ||||||
10.14 |
Compensation of Executives |
35 | ||||||
10.15 |
Action Without Meeting |
35 | ||||||
10.16 |
Telephone and Similar Meetings |
35 | ||||||
10.17 |
Tax Matters |
35 | ||||||
10.18 |
Financial Records and Reports |
35 | ||||||
10.19 |
Accountants |
37 | ||||||
10.20 |
The Business Plan; Company-Specific Expenses |
37 | ||||||
10.21 |
Financing |
37 | ||||||
10.22 |
Development Bonds |
37 | ||||||
ARTICLE XI TRANSFER OF INTERESTS/BUY-OUT |
38 | |||||||
11.1 |
Restrictions on Transfer |
38 | ||||||
11.2 |
Permitted Dispositions |
38 | ||||||
11.3 |
Conditions |
38 | ||||||
11.4 |
Inter-Member and Third Party Transfers |
38 | ||||||
11.5 |
Buy-Out |
44 | ||||||
11.6 |
Additional Conditions |
47 | ||||||
11.7 |
General Provisions Regarding Assignments |
47 | ||||||
11.8 |
Effect of Noncompliance |
48 | ||||||
ARTICLE XII LIABILITY AND INDEMNIFICATION |
48 | |||||||
12.1 |
Liability of Executives and Members |
48 | ||||||
12.2 |
Indemnification of Executives and Members |
49 | ||||||
12.3 |
Indemnification of Company and Members by a Member |
49 | ||||||
12.4 |
Limited Recourse |
49 | ||||||
ARTICLE XIII DISSOLUTION AND TERMINATION OF THE COMPANY |
49 | |||||||
13.1 |
Dissolution |
49 | ||||||
13.2 |
Winding Up |
50 | ||||||
13.3 |
Termination and Cancellation |
50 | ||||||
ARTICLE XIV NOTICES |
50 | |||||||
14.1 |
Notices |
50 | ||||||
ARTICLE XV FISCAL YEAR |
51 | |||||||
15.1 |
Fiscal Year |
51 |
ii
ARTICLE XVI BANK ACCOUNTS | 51 | |||||||
16.1 |
Bank Accounts |
51 | ||||||
ARTICLE XVII AGREEMENT AND AMENDMENTS | 51 | |||||||
17.1 |
Agreement and Amendments |
51 | ||||||
ARTICLE XVIII BINDING EFFECT | 51 | |||||||
18.1 |
Binding Effect |
51 | ||||||
ARTICLE XIX APPLICABLE LAWS | 51 | |||||||
19.1 |
Applicable Laws |
51 | ||||||
ARTICLE XX DISCLOSURES | 52 | |||||||
20.1 |
Disclosures |
52 | ||||||
20.2 |
Members Indemnity |
52 | ||||||
ARTICLE XXI MISCELLANEOUS | 53 | |||||||
21.1 |
Waiver of Action for Dissolution |
53 | ||||||
21.2 |
Third Party Beneficiaries |
53 | ||||||
21.3 |
Counterparts |
53 | ||||||
21.4 |
Provisions Severable |
53 | ||||||
21.5 |
Titles or Captions |
53 | ||||||
21.6 |
Waiver |
53 | ||||||
21.7 |
Further Assurances |
53 | ||||||
21.8 |
Construction of Agreement |
54 | ||||||
21.9 |
Fees and Costs |
54 | ||||||
21.10 |
Recalculation of Interest |
54 | ||||||
21.11 |
Venue |
54 | ||||||
21.12 |
Waiver of Jury Trial |
54 | ||||||
21.13 |
Confidentiality |
54 | ||||||
21.14 |
Publicity |
55 | ||||||
21.15 |
Cooperation |
55 |
iii
EXHIBITS
EXHIBIT A | Members Names, Percentage Interests and Contribution Percentages | |
EXHIBIT B | Addresses for Notices |
iv
FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
HERITAGE FIELDS LLC
FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF HERITAGE FIELDS LLC (as amended and/or restated from time to time in accordance with the terms hereof, this Agreement ) dated as of April 21, 2017 (the Effective Date ), by and among FIVE POINT HERITAGE FIELDS, LLC, a Delaware limited liability company ( Five Point ), HERITAGE FIELDS CAPITAL CO-INVESTOR MEMBER LLC, a Delaware limited liability company ( Co-Investor ), MSD HERITAGE FIELDS, LLC, a Delaware limited liability company ( MSD ), LENFIVE, LLC, a Delaware limited liability company ( Lennar ), LNR HF II, LLC, a California limited liability company ( LNR ), and FPC-HF VENTURE I, LLC, a Delaware limited liability company ( FPC-HF ). Capitalized terms herein have the respective meanings set forth in Section 1.1 .
RECITALS
A. Heritage Fields LLC, a Delaware limited liability company (the Company ), was formed upon the filing of the Certificate with the Secretary of State of the State of Delaware on January 20, 2005.
B. Five Point, Co-Investor, MSD, Lennar, LNR and FPC-HF entered into that certain Third Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of May 2, 2016 (the Existing LLC Agreement ).
C. Pursuant to Section 17.1 of the Existing LLC Agreement, the Voting Members are authorized to amend the Existing LLC Agreement.
D. The Voting Members desire to enter into this Agreement to amend and restate the Existing LLC Agreement in its entirety as hereinafter provided, effective as of the Effective Date.
AGREEMENT
NOW, THEREFORE , in consideration of the covenants and agreements set forth herein and other good and lawful consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree that the Existing LLC Agreement is hereby amended and restated in its entirety as follows:
ARTICLE I
DEFINED TERMS
1.1 Defined Terms . The capitalized terms used in this Agreement shall have the respective meanings specified in this Article I .
100% Approval is defined in Section 10.2 .
Accountants means any firm of certified public accountants as may be selected by the Members.
Act means Delaware Limited Liability Company Act as enacted in the State of Delaware, as from time to time amended.
Additional Capital Contributions means all contributions, other than Initial Capital Contributions, made to the capital of the Company by the Members pursuant to Section 7.2 , Section 7.3 and Section 7.4 of this Agreement, including 100% of any Deficiency Capital Contribution.
Adjacent Property means any real property located within one quarter (1/4) of a mile of the boundary of the Property.
Adjusted Capital Account Deficit means, with respect to any Member for any taxable year or other period, the deficit balance, if any, in such Partners Capital Account as of the end of such year or other period, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts that such Member is obligated to restore or is deemed obligated to restore as described in the penultimate sentence of Treasury Regulation 1.704-2(g)(1) and in Treasury Regulation Section 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Administrative Member means the Member who, at the time in question, is serving as Administrative Member pursuant to Section 10.6 .
Adverse Interest is defined in Section 8.3(b)(i) .
Affiliate means, with respect to a Person: (a) 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; (b) 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; (c) any Person directly or indirectly Controlling, Controlled by or under common Control with such Person; (d) any officer, director, employee, member or partner of such Person; (e) if such Person is an officer, director, employee, member or partner, any Entity for which such Person acts in any such capacity; and (f) any sibling, direct descendant (including adopted children or grandchildren), parent, grandparent or spouse of such Person, or any trust or limited partnership created solely for the benefit of any such Person. Notwithstanding the foregoing, no Member shall be deemed an 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.
Affiliate Transaction Determination is defined in Section 8.2 .
Agreement is defined in the Preamble.
Allocable Share means, with respect to any Members share of a specific obligation, such Members then Contribution Percentage.
Annual Budget is defined in the definition of Business Plan.
Applicable Projection Period shall be determined as of the last day of a fiscal quarter and means the immediately succeeding three fiscal quarters.
Assigning Member is defined in Section 11.4(a) .
Audited Financial Statements is defined in Section 10.18(b)(i) .
Available Cash means, as of any date, (i) all cash on hand as of such date, less (ii) all amounts due and payable as of such date, less (iii) all other cash expenditures or payments expected to be made during the Applicable Projection Period (net of funds expected to be available during the Applicable Projection Period from any then-existing loans or credit facilities to pay such expenditures or payments), less (iv) additional reserves (if any) that have been approved by the Requisite Vote as of the date a distribution is to be made, plus (v) expected cash receipts and other expected sources of cash, including CFD reimbursements, but excluding loans or credit facilities, during the Applicable Projection Period, in an amount not to exceed the sum of the aggregate amounts in the foregoing clauses (ii), (iii) and (iv), all as determined by the Administrative Member in its commercially reasonable discretion. In calculating Available Cash, the Administrative Member shall take into account all facts and circumstances then known to it, including known or anticipated deviations from the Business Plan and the Annual Budget.
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Bankruptcy means (a) that the Person, as to whom the word Bankruptcy is to apply, shall have commenced any case, proceeding or other action (1) under the Bankruptcy Code or any existing or future Bankruptcy Law, or (2) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for the Person or for all or any substantial part of the assets of the Person, or the Person shall make a general assignment for the benefit of creditors; or (b) there shall be commenced against the Person any case, proceeding or other action of a nature referred to in clause (a) above which (1) results in the entry of an order for relief or any such adjudication or appointment and (2) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (c) there shall be commenced against the Person any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; (d) the Person shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (a) , (b) , or (c) above; (e) the Person shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due or (f) there shall occur with respect to such Person a Bankruptcy as such term is defined in the Financing Documents and the same shall have resulted in an event of default under the Financing.
Blackacre means Blackacre Heritage Fields, L.L.C., a Delaware limited liability company.
Bonds is defined in Section 10.22 .
Book Basis means, with respect to any asset, the assets adjusted basis for federal income tax purposes; provided , however , that (a) if property is contributed to the Company, the initial Book Basis of such property shall equal its fair market value on the date of contribution, and (b) if the Capital Accounts of the Members are adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) to reflect the fair market value of any Company asset, the Book Basis of such asset shall be adjusted to equal its respective fair market value as of the time of such adjustment in accordance with such Treasury Regulation. The Book Basis of all assets shall be adjusted thereafter by depreciation as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(g) and any other adjustment to the basis of assets other than depreciation or amortization.
Breach means (i) the Bankruptcy of a Member or (ii) any of the following when committed by a Member or its Affiliate in connection with the Company, the Property, any Subsidiary or the business of the Company or of any such Subsidiary: (A) willful misconduct, or (B) material breach of any material provision of this Agreement, including taking action beyond the authority granted to such Member under this Agreement which action causes any material damage to any other Member or to the Company, the Property, any Subsidiary or the business of the Company or of any Subsidiary; provided that, in the case of a breach of this Agreement that is reasonably susceptible of cure, such breach shall not constitute a Breach under this clause (B) unless such breach continues for thirty (30) days after receipt by the breaching party of written notice of such breach, provided that if the breaching party is continually and diligently pursuing a cure and such breach is curable but not reasonably within thirty (30) days, then such cure period shall be extended for the period required, with the exercise of reasonable diligence, to cure such breach, provided that the breaching party continues to diligently pursue such cure; and further provided that such breach was not caused by the breaching partys gross negligence or willful misconduct.
Business Day means any day other than Saturday or Sunday on which banks are open for business in California.
Business Plan means, collectively, the business plan for the Company, the Property and the Owner, which includes an annual budget reflecting budgeted cash flow (x) on a monthly basis for the then current Fiscal Year (the Annual Budget ) and (y) on an annual basis for each Fiscal Year thereafter for the Life of the Project, which shall include an allocation of budgeted cash flow for each such Fiscal Year among the applicable Categories, as in effect from time to time as adopted, re-approved, modified and/or revised by the Members pursuant to Section 10.20 .
Buy-Out Arbitrator is defined in the definition of Buy-Out Baseball Arbitration.
Buy-Out Baseball Arbitration shall mean the following procedure: Within fifteen (15) days after the Buying Members delivery of an Election Notice to the Selling Member, the Buying Members shall select a date
3
which is no earlier than thirty (30) days and no later than forty-five (45) days after the Buying Members delivery of an Election Notice (the Buy-Out Exchange Date ). At 12:00 p.m. Eastern Time on the Buy-Out Exchange Date the Buying Members and the Selling Member shall simultaneously exchange with each other at the Companys offices a sealed envelope with a written determination (each, a Determination ) of an assumed aggregate value for all of the directly owned assets of Owner, free and clear of all direct liabilities of Owner (the Owner Value Amount ). Notwithstanding anything to the contrary in this Agreement, in the event that there is more than one Buy-Out Member, no acquisition and sale shall take place pursuant to Section 11.5 unless the Buy-Out Members agree on a single Determination of the Owner Value Amount, which shall be determined based on Majority Approval of the Buy-Out Members. Subject to the preceding sentence, if only one Determination is submitted by the Buy-Out Members and the Selling Member within the requisite time period, the values contained in that Determination shall be the Owner Value Amount, and such Determination shall be final. If both Determinations are timely submitted and they differ by less than five percent (5%) of the lower of the two Determinations, the average of the two Determinations shall be the Owner Value Amount. If the two Determinations differ by more than five percent (5%) of the lower of the two Determinations, the Buying Members and the Selling Member shall select a neutral real property appraiser licensed in the State of California with more than ten (10) years of experience appraising master plan communities in the State of California and unaffiliated with either the Buying Members or the Selling Member or any of their Affiliates (a Buy-Out Arbitrator ) within fifteen (15) days after the Buy-Out Exchange Date. If the parties are unable to agree on a Buy-Out Arbitrator, JAMS procedures shall be followed and a Buy-Out Arbitrator shall be selected within thirty (30) days after the Buy-Out Exchange Date. The Buying Members and the Selling Member shall immediately deliver copies of both Determinations to the Buy-Out Arbitrator upon selection of the Buy-Out Arbitrator. The Buy-Out Arbitrator shall within twenty (20) days after its appointment review and hear such evidence and testimony as the parties may desire to present, and the Buy-Out Arbitrator shall within fifteen (15) days after the conclusion of such review issue his or her independent determination of the Owner Value Amount (for purposes of this definition, the Independent Value Amount ) and also select whichever of the Selling Members Determination and the Buy-Out Members Determination is closer to the Independent Valuation Amount (the Owner Value Amount set forth in the Determination so selected by the Buy-Out Arbitrator shall be deemed to the Owner Value Amount for all purposes of Section 11.5 and be final and conclusive). The Buy-Out Arbitrator shall not have the right to choose any Owner Value Amount other than whichever of the Determinations submitted by the parties is the closer to the Independent Value Amount. The Buy-Out Arbitrator shall not have the power to vary any of the terms of this Agreement. This procedure is modeled on the procedure described in JAMS Comprehensive Arbitration Rules & Procedures, Rule 33, and this procedure shall be construed in accordance with the principles underlying such Rule. The cost of the Buy-Out Arbitrator shall be borne by the Buying Members. A copy of the final determination of the Owner Value Amount shall be delivered to the Accountants who shall, within fifteen (15) calendar days after their receipt of the final determination of the Owner Value Amount, determine and notify the Members as to the amount each Member would receive (for purposes of this definition, the Individual Member Prices ) if all the directly owned assets of the Owner were sold for the Owner Value Amount, all direct liabilities of Owner were fully repaid, any balance was distributed to Mezzanine Subsidiary and such process was repeated until any remaining balance was paid to the Company, the Company paid all its direct liabilities (including any liabilities owed by the Company to any Member or its Affiliate, other than as Distributions) and any remaining proceeds were paid to the Members as Distributions in accordance with Section 9.8 . The Accountants determination shall be limited to determining the Individual Member Prices and, accordingly, the Accountants shall, in making such determination, not make any determination as to the actual value of any assets of the Company or any Subsidiary, including Owner. The determination of the Individual Member Prices by the Accountants shall be conclusive absent manifest error and provided the Accountants have not exceeded their authority under this definition.
Buy-Out Deposit is defined in Section 11.5(b) .
Buy-Out Exchange Date is defined in the definition of Buy-Out Baseball Arbitration.
Buying Members is defined in Section 11.5(a) .
Buying ROFO Members is defined in Section 11.4(d) .
Call Deficiency is defined in Section 7.3(a) .
4
Capital Account means the separate account maintained for each Member under Section 9.1 .
Capital Call Cure is defined in Section 7.3(d) .
Capital Call Members is defined in Section 7.3 .
Capital Commitment means, with respect to any Member and as of any date, (i) such Members Contribution Percentage as of the Effective Date, multiplied by $42.5 million, less (ii) the aggregate amount of Additional Capital Contributions (excluding Deficiency Capital Contributions) made by such Member after the Effective Date and on or prior to the date of determination.
Capital Default means, with respect to any Member, the failure of such Member to fund, prior to the applicable Deadline Date, its then Contribution Percentage of the amount specified in a Contribution Notice as required under the last sentence of Section 7.2(c) .
Cash Flow Participation Agreements has the meaning given such term in the Development Management Agreement.
Castlelake Fund means Castlelake III, L.P., a Delaware limited partnership.
Categories means, collectively, each of the following four (4) categories of revenues and costs within the Business Plan for the Life of the Project and for each Fiscal Year: (i) all hard construction costs and hard cost-related design costs relating to the development of the Property (or any portion thereof) that are required under any development or other agreement between Owner or any of its Affiliates and any governmental authority; (ii) all hard construction costs and hard cost-related design costs relating to the Project (or any portion thereof) other than those described in clause (i) of this definition; (iii) all costs and expenditures not described in clauses (i) or (ii) of this definition; and (iv) revenues from the sale or lease of the Property or any portion thereof.
Certificate means the Certificate of Formation of the Company, filed with the Secretary of State on January 20, 2005 as amended from time to time.
CL Fund means Castlelake Fund or any other fund or account, or any Entity Controlled by any such fund or account, which is Controlled or managed, directly or indirectly, by CL Management.
CL Management means Castlelake, L.P., a Delaware limited partnership.
Closely Controlled Affiliate means, with respect to the Person in question, (i) a Controlled Affiliate of such Person, 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 from time to time (or any corresponding provision or provisions of succeeding law).
Co-Investor is defined in the Preamble.
Co-Investor Affiliate is defined in the definition of Permitted Disposition.
Co-Investor Member means, collectively, (i) Co-Investor and (ii) each Closely Controlled Affiliate of Co-Investor that has acquired 100% of the Interest in the Company owned on the date of Disposition by Co-Investor or by a Closely Controlled Affiliate of Co-Investor that became Co-Investor Member under this clause (ii) after the Effective Date and that has been admitted as a Member of the Company after the Effective Date in accordance with the requirements of this Agreement. For the avoidance of doubt, if a Person that qualifies as a Closely Controlled Affiliate of Co-Investor Member acquires an Interest (or portion thereof) from another Member or the Company, such Person shall not be part of the Co-Investor Member and shall instead be a New Member.
5
Commercial Development Sub-Management Agreement means that certain Commercial Development Sub-Management Agreement, dated as of December 29, 2010, between Owner and LNR, as amended, restated, modified and/or replaced from time to time, which agreement was terminated by Owner effective as of June 30, 2013, subject to LNRs right to receive Incentive Compensation (as defined under and in accordance with the terms thereof).
Commercial Development Sub-Manager means the sub-manager under the Commercial Development Sub-Management Agreement, which, as of the Effective Date, is LNR.
Company is defined in Recital A .
Company Property means, as of any date, all tangible and intangible assets and property and investments of every kind and nature then owned by the Company or any Subsidiary.
Confidential Information is defined in Section 21.13(a) .
Contribution Notice is defined in Section 7.2(c) .
Contribution Percentage means, with respect to any Member: (i) as of the Effective Date, the Contribution Percentage of such Member as set forth on Exhibit A and (ii) as of any subsequent date, the original Contribution Percentage of such Member set forth on Exhibit A as the same may be adjusted from time to time between the Effective Date and such subsequent date as a result of a Disposition of a Percentage Interest (or portion thereof) permitted hereunder. For avoidance of doubt, it is agreed that any dilution of a Members Percentage Interest pursuant to Section 7.3 or Section 7.4 shall not result in any reduction of such Members Contribution Percentage.
Contribution Share is defined in Section 7.3 .
Control as used with respect to any Entity, means the possession, directly or indirectly, of the power to control the management and policies of such Entity. (For avoidance of doubt, an Entity can be said to Control another Entity notwithstanding that there may be other Entities with ownership interests in such Entity that have a veto right over so called Major Decisions of such Entity). Controlling and Controlled have the meanings correlative to such definition.
Controlled Affiliate means, with respect to a Person, any Entity that is (i) an Affiliate of such Person, and (ii) is directly or indirectly Controlled by such Person. Notwithstanding the foregoing, no Member shall be deemed a 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.
Cure Payment is defined in Section 7.3(d) .
Cure Period is defined in Section 7.3(d) .
Deadline Date is defined in Section 7.2(d) .
Default ROFO Determination Meeting is defined in Section 11.4(h)(i) .
Defaulted Buy-Out Interest is defined in Section 11.5(f) .
Defaulted ROFO Interest is defined in Section 11.4(h) .
6
Defaulting Member means any Member that has committed a Breach pursuant to any of clause (i) or clause (ii)(A) of the definition of Breach (including a Capital Default), or a Breach pursuant to clause (ii)(B) of the definition of Breach that is not cured pursuant to such clause (B) , or that has become a Defaulting Member pursuant to Section 11.4(m) or 11.5(h) ; provided , however , that
(i) a Member that is a Defaulting Member solely as a result of having committed a Capital Default shall cease to be a Defaulting Member if and when such Member effectuates a Capital Call Cure pursuant to Section 7.3(d) with respect to such Capital Default (and provided that at the time of such cure such Member is not otherwise a Defaulting Member and such Capital Call Cure does not violate the last sentence of Section 7.3(d) ); and
(ii) a Member that is a Defaulting Member solely as a result of having committed a single Capital Default (in respect of which such Member did not effectuate a Capital Call Cure) shall cease to be a Defaulting Member if and when, and only for so long as, such Member has satisfied and continues to satisfy both of the following conditions (collectively, the Make-Up Contribution Conditions ):
(A) such Member funds, as and when required under Section 7.2 , such Members Contribution Percentage of the funds required pursuant to the immediately subsequent two Contribution Notices given for Additional Capital Contributions pursuant to Section 7.2 (i.e., the two Contribution Notices for Additional Capital Contributions immediately following the Contribution Notice in respect of which the Capital Default in question occurred); and
(B) such Member has not committed and does not commit any other Capital Default (i.e., the cure right under this clause (ii) is available only one time for any Member) or any other Breach. For the avoidance of doubt, if a Defaulting Member ceases to be a Defaulting Member pursuant to clause (i) or (ii)(A) of this definition and subsequently breaches this clause (ii)(B) , such Member shall revert to a Defaulting Member effective upon the date of such breach.
Deficiency Capital Contribution is defined in Section 7.3(a) .
Deficiency Loan is defined in Section 7.3(a)(i) .
Deficiency Notice is defined in Section 7.3 .
Determination is defined in the definition of Buy-Out Baseball Arbitration.
Development Management Agreement means that certain amended and restated development management agreement between the Company and Five Point Management effective as of the Effective Date, as amended, restated, modified and/or replaced from time to time in accordance with this Agreement and such development management agreement.
Development Manager means the development manager under the Development Management Agreement, which, as of the Effective Date, is Five Point Management.
Dilution Formula is defined in Section 7.3(a)(ii) .
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.
Distributions means any Available Cash or other property distributed to a Member by the Company pursuant to Section 9.8 or Section 9.9 . For purposes of calculating the return a Member has received pursuant to Section 9.8 , all Distributions shall be deemed to have been made on the last day of the month (whether or not it is a Business Day) in which a Distribution is made regardless of the day of such month on which such Distribution is actually made.
7
Effective Date is defined in the Preamble.
Electing Buying B/S Member is defined in Section 11.5(f)(i) .
Electing Buying ROFO Member is defined in Section 11.4(h)(i) .
Electing Members is defined in Section 7.3(a) .
Electing Offeree Members is defined in Section 11.4(d) .
Election Notice is defined in Section 11.5(a) .
Emergency Expenses means expenses which in the reasonable opinion of the Administrative Member or the Development Manager or any Member need to be incurred or expended in order to reasonably address imminent physical danger to persons or immediate physical loss or damage to the Property or improvements at the Property, and which, when combined with all other Emergency Expenses incurred during the then Fiscal Year do not exceed $1,000,000.
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.
Exchanging Member is defined in Section 21.15 .
Executive is defined in Section 10.7 .
Executive Committee is defined in Section 10.7 .
Existing LLC Agreement is defined in Recital B.
Failing Member is defined in Section 7.3(a) .
Family Member means each of the spouse, parent, grandparent, child (natural or adopted), and the spouse of any such child, and/or a lineal descendant of any of the foregoing and the spouses of any such lineal descendants.
Final Determination is defined in Section 11.5(b) .
Financing is defined in Section 10.21 .
Financing Documents means, collectively, all documents evidencing, securing or guaranteeing, or otherwise entered into in connection with, a Financing, as the same may be amended from time to time.
Fiscal Year is defined in Section 15.1 .
Five Point is defined in the Preamble.
Five Point Management means Five Point Communities Management, Inc., a Delaware corporation.
Five Point Member means, collectively, (i) Five Point and (ii) each Closely Controlled Affiliate of Five Point that has acquired 100% of the Interest in the Company owned on the date of Disposition by Five Point or by a Closely Controlled Affiliate of Five Point that became Five Point Member under this clause (ii) after the Effective Date and that has been admitted as a Member of the Company after the Effective Date in accordance with the
8
requirements of this Agreement. For the avoidance of doubt, if a Person that qualifies as a Closely Controlled Affiliate of Five Point Member acquires an Interest (or portion thereof) from another Member or the Company, such Person shall not be part of the Five Point Member and shall instead be a New Member.
Five Point Opco means Five Point Operating Company, LLC, a Delaware limited liability company.
FPC -HF means FPC-HF Venture I, LLC, a Delaware limited liability company.
FPC -HF Affiliate is defined in the definition of Permitted Disposition.
FPC -HF Member means, collectively, (i) FPC-HF and (ii) each Closely Controlled Affiliate of FPC-HF that has acquired 100% of the Interest in the Company owned on the date of Disposition by FPC-HF or by a Closely Controlled Affiliate of FPC-HF that became FPC-HF Member under this clause (ii) after the Effective Date and that has been admitted as a Member of the Company after the Effective Date in accordance with the requirements of this Agreement. For the avoidance of doubt, if a Person that qualifies as a Closely Controlled Affiliate of FPC-HF Member acquires an Interest (or portion thereof) from another Member or the Company, such Person shall not be part of the FPC-HF Member and shall instead be a New Member.
Fractions Rule means the requirements of Treasury Regulation Section 1.514(c)-2(b).
Funding Amount is defined in Section 7.3(a) .
Funding Members is defined in Section 7.3(a) .
GAAP means generally accepted accounting principles set forth in the Accounting Standards Codification of the Financial Accounting Standards Board in effect from time to time, consistently applied.
Gross Revenues means for the applicable period all distributions and other payments and amounts of any kind received by the Company from Owner and all other cash revenues derived by the Company from any and all other sources, including contributions of capital, but excluding the proceeds of any Cure Payment.
Indemnified Party is defined in Section 12.2 .
Independent Value Amount is defined in the definition of Buy-Out Baseball Arbitration.
Individual Member Prices is defined in the definition of Buy-Out Baseball Arbitration.
Initial Capital Contribution is defined in Section 7.1 .
Initial Offer Period is defined in Section 11.4(b) .
Interest means the entire ownership interest of a Member in the Company at any particular time, including the right of such Member to vote as provided herein and to any and all benefits, rights, allocations and Distributions to which such Member may be entitled as provided in this Agreement (including as a result of any Deficiency Capital Contribution) and in the Act, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement and of the Act. An Interest may consist of a Percentage Interest and/or a Legacy Interest.
Inter-Member Transfer means:
(a) any assignment or transfer by a Member of 100% of its Interest to another Member or to a Person that qualifies as a Closely Controlled Affiliate of another Member; or
(b) any transfer or assignment of 100% of all direct or indirect ownership interests in the Assigning Member to another Member or to a Person that qualifies as a Closely Controlled Affiliate of another Member;
9
provided that a transfer or assignment that constitutes a Permitted Disposition of the transferring Member or is to a Closely Controlled Affiliate of the transferring Member shall not constitute an Inter-Member Transfer.
Internal B/S Determination Meeting is defined in Section 11.5(f)(i) .
Invested Capital means, with respect to each Member, the total amount of Initial Capital Contributions and Additional Capital Contributions (including Deficiency Capital Contributions, but excluding all capital contributions or loans made by the Members or their Affiliates prior to the Initial Capital Contributions) contributed pursuant to this Agreement by such Member; and means, with respect to the Members, collectively, the total amount of all such capital contributions.
LBHI Participation Agreement means the Option for Cash Flow Participation Agreement (LBHI), dated as of December 29, 2010, between Owner and Lehman Brothers Holdings Inc. ( LBHI ), which LBHI has assigned to the Company.
Legacy Interest means with respect to any Member: (i) as of the Effective Date, the Legacy Interest of such Member as set forth on Exhibit A and (ii) as of any subsequent date, the original Legacy Interest of such Member set forth on Exhibit A as the same may be adjusted from time to time between the Effective Date and such subsequent date as a result of a Disposition or an acquisition of a Legacy Interest (or portion thereof) permitted hereunder. For the avoidance of doubt, a Members Legacy Interest does not include any Percentage Interest.
Legacy Preferred Return means, as of any date, an amount equal to (i) the amount of any payments received by the Company pursuant to the LBHI Participation Agreement, net of amounts attributable thereto that are payable by Owner to (x) Five Point Management pursuant to the Development Management Agreement and (y) LNR pursuant to the Commercial Development Sub-Management Agreement, plus (ii) $476 million.
Lender means any Person that provides Financing.
Lennar is defined in the Preamble.
Lennar Affiliate is defined in the definition of Permitted Disposition.
Lennar Corporation 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 of Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
Lennar Member means, collectively, (i) Lennar and (ii) each Closely Controlled Affiliate of Lennar that has acquired 100% of the Interest in the Company owned on the date of Disposition by Lennar or by a Closely Controlled Affiliate of Lennar that became Lennar Member under this clause (ii) after the Effective Date and that has been admitted as a Member of the Company after the Effective Date in accordance with the requirements of this Agreement. For the avoidance of doubt, if a Person that qualifies as a Closely Controlled Affiliate of Lennar Member acquires an Interest (or portion thereof) from another Member or the Company, such Person shall not be part of the Lennar Member and shall instead be a New Member.
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.
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Life of the Project means, as of any particular date, the period of time from the Effective Date (or any other particular applicable date thereafter) through all of the then-contemplated development and sale of the Property pursuant to the Business Plan.
Litigation means 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.
LNR is defined in the Preamble.
LNR Fund means, collectively, Starwood Distressed Opportunity Fund IX-I U.S., L.P., a Delaware limited partnership, and Starwood Distressed Opportunity Fund IX Global, L.P., a Delaware limited partnership.
LNR Member means, collectively, (i) LNR and (ii) each Closely Controlled Affiliate of LNR that has acquired 100% of the Interest in the Company owned on the date of Disposition by LNR or by a Closely Controlled Affiliate of LNR that became LNR Member under this clause (ii) after the Effective Date and that has been admitted as a Member of the Company after the Effective Date in accordance with the requirements of this Agreement. For the avoidance of doubt, if a Person that qualifies as a Closely Controlled Affiliate of LNR Member acquires an Interest (or portion thereof) from another Member or the Company, such Person shall not be part of the LNR Member and shall instead be a New Member.
Majority Approval is defined in the definition of Requisite Vote.
Make-Up Contribution Conditions is defined in the definition of Defaulting Member.
Management Agreement is defined in Section 10.6(b) .
Member means (i) each of the Five Point Member, the MSD Member, the FPC-HF Member, the Co-Investor Member, the Lennar Member, the LNR Member, and/or (ii) any Person to whom the Company issues an Interest and that is admitted as a member of the Company after the Effective Date and in accordance with the requirements of this Agreement and that would not otherwise be a Member pursuant to the preceding clause (i) , in each case only for so long as such Person is a member of the Company in accordance with this Agreement and the Act.
Member Affiliate Guaranty means the guaranty attached hereto executed by certain Affiliates of the Members holding Percentage Interests.
Member Related Parties is defined in Section 12.1(a) .
Members means all of the Members collectively, unless the context otherwise requires.
Mezzanine Subsidiary means Heritage Fields El Toro Sole Member LLC, a Delaware limited liability company.
MSD is defined in the Preamble.
MSD Affiliate is defined in the definition of Permitted Disposition.
MSD Capital means (i) MSD Capital, L.P., a Delaware limited partnership and the general partner of the MSD Fund, (ii) in the event of the merger of MSD Capital, L.P., 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 MSD Capital, L.P., such acquiring Entity, or (iv) in the event of a conversion of MSD Capital, L.P. into another form of Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
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MSD Fund means (i) MSD Real Estate Investments, L.P., a Delaware limited partnership, (ii) in the event of the merger of MSD Real Estate Investments, L.P., 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 MSD Real Estate Investments, L.P., such acquiring Entity, or (iv) in the event of a conversion of MSD Real Estate Investments, L.P. into another form of Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
MSD Member means, collectively, (i) MSD and (ii) each Closely Controlled Affiliate of MSD that has acquired 100% of the Interest in the Company owned on the date of Disposition by MSD or by a Closely Controlled Affiliate of MSD that became MSD Member under this clause (ii) after the Effective Date and that has been admitted as a Member of the Company after the Effective Date in accordance with the requirements of this Agreement. For the avoidance of doubt, if a Person that qualifies as a Closely Controlled Affiliate of MSD Member acquires an Interest (or portion thereof) from another Member or the Company, such Person shall not be part of the MSD Member and shall instead be a New Member.
New Member is defined in Section 11.4(k) .
Non-Voting Member means, with respect to any matter being voted on, any Member that at the time in question is not a Voting Member generally or that is a Voting Member generally but is precluded from voting on the matter in question pursuant to an express provision of this Agreement.
Nonrecourse Deductions is defined in Treasury Regulation Section 1.704-2, or any successor provision thereto.
Offered Interest is defined in Section 11.4(b)(i) .
Offeree Members is defined in Section 11.4(b) .
Old Capital means the aggregate capital contributions made or deemed to have been made to the Company prior to the making of the Initial Capital Contributions.
Overall Company Income and Overall Company Loss means overall partnership income and overall partnership loss, respectively, as such terms are used in Treasury Regulation § 1.514(c)-2.
Owner means Heritage Fields El Toro LLC, a Delaware limited liability company.
Owner Value Amount is defined in the definition of Buy-Out Baseball Arbitration.
Partially Adjusted Capital Account means, with respect to any Member as of the end of any taxable year or other period of the Company, the Capital Account balance of such Member at the beginning of such year or period, adjusted for all Additional Capital Contributions and all contributions of Invested Capital and Distributions during such year or period and all special allocations pursuant to Section 9.3 with respect to such year or period but before giving effect to any allocations of Profit or Loss pursuant to Section 9.2 .
Partner Minimum Gain means the Companys partner nonrecourse debt minimum gain as defined in Treasury Regulation Section 1.704-2(i)(2), or any successor provision thereto.
Partner Nonrecourse Deductions is defined in Treasury Regulation Section 1.704-2(i)(2), or any successor provision thereto.
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, any successor statutes thereto or regulations promulgated or official guidance issued thereunder.
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Partnership Minimum Gain is defined in Treasury Regulation Section 1.704-2(d), or any successor provision thereto.
PDF is defined in Section 21.3 .
Percentage Interest means, with respect to any Member: (i) as of the Effective Date, the Percentage Interest of such Member as set forth on Exhibit A and (ii) as of any subsequent date, the original Percentage Interest of such Member set forth on Exhibit A as the same may be adjusted from time to time between the Effective Date and such subsequent date pursuant to the application of the Dilution Formula under Article VII or as a result of a Disposition or an acquisition of a Percentage Interest (or portion thereof) permitted hereunder. For the avoidance of doubt, a Members Percentage Interest does not include any Legacy Interest.
Permitted Deviation means, in the case of costs and expenses set forth in the Annual Budget, the incurrence of amounts that exceed any Category by an amount that is five percent (5%) or less (for the Categories described in clauses (i) , (ii) and (iii) of the definition thereof) and the sale or lease of the Property or any portions thereof at a price or rents, as applicable, no less than 95% of the price set forth in the Business Plan (for the Category described in clause (iv) of the definition thereof), in each case, for any Fiscal Year.
Permitted Disposition means,
(a) with respect to Lennar Member, (i) any Disposition of direct or indirect equity interests in Lennar Member to an Entity (any such Entity, a Lennar Affiliate ) (A) Controlled by Lennar Corporation, and (B) of which Lennar Corporation directly or indirectly owns and continues to own more than 40% of the equity interests, (ii) any assignment of all or a portion of the Interest of Lennar Member to a Lennar Affiliate, (iii) any Disposition of a direct or indirect equity or other ownership interest in Lennar Corporation or LenFive, LLC, (iv) provided that Lennar Member remains Controlled and at least 40% owned (directly or indirectly) by Lennar Corporation, one or more direct or indirect Dispositions of up to 60% in the aggregate of the stock, limited partnership, membership or other interests (as the case may be) in the Lennar Member to passive investors, with absolutely no Control, direct or indirect, over the Lennar Member; or (v) any Disposition of direct or indirect equity interests in Lennar Member or assignment of all or a portion of the Interest of Lennar Member that is approved by the Requisite Vote of the Members.
(b) with respect to LNR Member, (i) any direct or indirect Disposition of all or any part of LNR Members Interest to an Entity (or to any Entity owned or Controlled by such Entity) Controlled by Starwood Capital Group or the LNR Fund (or by any successor Entity Controlled by Starwood Capital Group or the LNR Fund), or (ii) provided that LNR Member remains Controlled and at least 40% owned (directly or indirectly) by LNR Fund, one or more direct or indirect Dispositions of up to an aggregate of 60% in the aggregate of the stock, limited partnership, membership or other interests (as the case may be) in the LNR Member to passive investors, with absolutely no Control, direct or indirect, over the LNR Member, or (iii) any transfers of any limited partnership interests or membership interests (other than managing member interests) in LNR Fund and any Disposition of a direct or indirect equity or other ownership interest in the general partner or managing member of LNR Fund;
(c) with respect to FPC-HF Member, (i) any Disposition of direct or indirect equity interests in FPC-HF Member, to any direct or indirect owner of FPC-HF Member or any Affiliate thereof, (ii) any Disposition of a direct or indirect equity or other ownership interest in Lennar Corporation or LenFive, LLC, (iii) any direct or indirect Disposition of all or any part of the Interest of FPC-HF Member to (A) a CL Fund, or (B) any direct or indirect owner of an interest in FPC-HF Member, or any Affiliate thereof, (iv) any Disposition of limited partnership interests or membership interests (other than the interest of a manager or managing member) in the CL Fund that owns equity interests in FPC-HF Member, (v) any Disposition of a direct or indirect interest in the general partner or any managing member of the CL Fund that owns equity interests in FPC-HF Member so long as a CL Fund remains Controlled by CL Management, (vi) any Disposition of a direct or indirect equity or other ownership interest in Castlelake so long as Castlelake continues to be Controlled by a CL Fund, (vii) any Disposition of a direct or indirect equity or other ownership interest in FPC-HF Subventure I, LLC so long as FPC-HF Subventure I, LLC continues to be Controlled by Emile Haddad or Lennar Corporation, (viii) provided that Lennar Corporation, Emile Haddad and/or a CL Fund own and continue to own, in the aggregate, directly or indirectly, more than forty percent (40%) of the equity interests of FPC-HF Member and FPC-HF Member remains
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Controlled by Lennar Corporation, Emile Haddad and/or CL Management, one or more direct or indirect Dispositions of up to sixty percent (60%) in the aggregate of the membership or other equity interests in FPC-HF Member to passive institutional investors, and (ix) any Disposition of any direct or indirect equity interests in FPC-HF Member or any Affiliates thereof or assignment of all or a portion of the Interest of FPC-HF Member that is approved by the Requisite Vote of the Members.
(d) with respect to the MSD Member, (i) any direct or indirect Disposition of all or any part of MSD Members Interest, to an Entity (x) Controlled by Michael S. Dell or Susan Dell (the Dell Principals ) or an MSD Affiliate, and (y) at least 40% owned (directly or indirectly) by the Dell Principals, any of their Family Members or any trusts established for estate planning purposes in the name of any of the foregoing (an MSD Affiliate ), or (ii) provided that MSD Member remains Controlled by a Dell Principal and majority owned (directly or indirectly) by the Dell Principals, any Disposition of up to sixty percent (60%) of the stock, limited partnership, membership or other interests as the case may be in MSD Member to passive investors with absolutely no Control, direct or indirect, over MSD;
(e) with respect to Co-Investor Member, (i) any Disposition, directly or indirectly, in whole or in part, of equity interests in Co-Investor member so long as Co-Investor member continues to be an Entity (a Co-Investor Affiliate ) that is Controlled by any of Rockpoint Principal, Rockpoint, the RP Fund, Cerberus Partners, L.P. or Blackacre, (ii) any assignment of all or a portion of the Interest of Co-Investor Member to a Co-Investor Affiliate, or (iii) any Disposition of a direct or indirect equity or other ownership interest in RP Fund or Cerberus Partners, L.P.;
(f) with respect to Five Point Member, (i) any Disposition of direct or indirect equity interests in Five Point Member to an Entity (any such Entity, a Five Point Affiliate ) (A) Controlled by Five Point Holdings, LLC, and (B) of which Five Point Holdings, LLC directly or indirectly owns and continues to own more than 40% of the equity interests, (ii) any assignment of all or a portion of the Interest of Five Point Member to a Five Point Affiliate, (iii) any Disposition of a direct or indirect equity or other ownership interest in Five Point Opco or Five Point Holdings, LLC, or (iv) provided that Five Point Member remains Controlled and at least 40% owned (directly or indirectly) by Five Point Holdings, LLC, one or more direct or indirect Dispositions of up to 60% in the aggregate of the stock, limited partnership, membership or other interests (as the case may be) in the Five Point Member to passive investors, with absolutely no Control, direct or indirect, over the Five Point Member; and
(g) with respect to any New Member, as part of the admission of such New Member as a member of the Company, the Voting Members (other than the New Member and other than the Member whose Interest is being transferred to such New Member) by Majority Approval shall reasonably cooperate with the transferring Member to amend this Agreement so as to provide Permitted Dispositions for such New Member that provide such New Member with Permitted Disposition rights that (x) are substantially the same as those of any other Members (including the transferring Member) whose ownership structures are similar to that of the New Member or (y) if the New Members ownership structure is not similar to any that of any other Member, achieve a level of protection for the other Members and a level of transfer flexibility for the New Member that is substantially the same as that provided by the Permitted Disposition provisions relating to the other Members.
Notwithstanding the foregoing, with respect to any direct transfer of a Members Interest, such transfer shall constitute a Permitted Disposition solely if such transfer constitutes 100% of such Members Interest to a single Entity that is permitted under this definition so that at any point in time, only one Entity shall constitute a Member.
Permitted Transferee means the assignee of all or part of the Interest of a Member pursuant to a Permitted Disposition.
Person means any individual or Entity and, where the context so permits, the legal representatives, successors in interest (including heirs) and assigns of such Person.
Profit and Loss means, for each taxable year or other period, an amount equal to the Companys taxable income or loss for the year or other period, determined in accordance with Section 703(a) of the Code (including all items of income, gain, loss or deduction required to be stated separately under Section 703(a)(1) of the Code), with the following adjustments:
(a) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profit or Loss will be added to taxable income or loss;
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(b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures under Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profit or Loss, will be subtracted from taxable income or loss;
(c) gain or loss resulting from any disposition of Company Property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Book Basis of such Company Property, notwithstanding that the adjusted tax basis of such Company Property differs from its Book Basis;
(d) in lieu of depreciation, amortization and other cost recovery deductions taken into account in computing taxable income or loss, there will be taken into account depreciation for the taxable year or other period as determined in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g);
(e) any items specifically allocated pursuant to Section 9.3 shall not be considered in determining Profit or Loss; and
(f) any increase or decrease to Capital Accounts as a result of any adjustment to the book value of Company assets pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) shall constitute an item of Profit or Loss as appropriate.
Prohibited Transferee means any of the following:
(a) The Irvine Company and any future owner of any material portion of the real property known as the Irvine Ranch, Irvine, CA, and any Affiliate of any of the foregoing;
(b) Each current owner and any future owner of any material portion of the real property that formerly constituted the Marine Corps Air Station Tustin, California, and any Affiliate of any of the foregoing;
(c) Each current owner and any future owner of any material portion of the real property that is known as Rancho Mission Viejo in Mission Viejo, California, and any Affiliate of any of the foregoing; and
(d) Any holder of any Company indebtedness in excess of Ten Million Dollars ($10,000,000), or any interest therein, excluding any loan to the Company by an existing Member or an Affiliate thereof that is approved by the Requisite Vote of the Members, and any Affiliate of such holder.
Property shall mean, as of any date, the various properties and other assets owned or leased by Owner. For the sake of clarification, the term Property shall be deemed modified from time to time to reflect any property and assets acquired or disposed of by Owner from time to time after December 29, 2010.
Proposed Purchase Agreement is defined in Section 11.4(b)(iv) .
Proposed Transferee is defined in Section 11.4(b)(iv) .
Qualifying Law Partner means an individual who is partner at a law firm with more than 50 partners having an office in New York City and/or California, which firm is not at the time in question representing a client in a Litigation, transaction or other matter in which the Company, any Member or any of their respective Affiliates is adverse (under applicable legal ethical rules) to such client in such Litigation, transaction or other legal matter (unless waived in its sole discretion by the Company, such Member or Affiliate to which it is adverse), which individual has specialized in handling large, complex real estate transactions for at least 15 years. A lawyer that satisfies the foregoing criteria shall not be disqualified from serving as a Qualifying Law Partner under this Agreement by reason of the fact that such lawyer has in the past represented (but is not then currently representing) one or more Members or their Affiliates in negotiating this Agreement or other agreements related to the Property.
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Reasonable Attorneys Fees means the reasonable fees and disbursements of counsel and paraprofessionals for the Person who is entitled to be reimbursed for Reasonable Attorneys Fees pursuant to any provision of this Agreement, including in connection with any investigative, administrative or judicial proceeding commenced or threatened with respect to the matter in question, and through all appeals, and whether or not the Person to be reimbursed has been named as a party in any proceeding.
Recourse Agreement means any guaranty, indemnity or other instrument or agreement pursuant to which a Member or its Affiliate incurs any liability, contingent or otherwise, to a provider of financing or other capital to the Company or to any Subsidiary.
Regulatory Allocations is defined in Section 9.3(f) .
Reimbursement Agreement means (i) any provision of this Agreement wherein a Member or its Affiliate is obligated or required to reimburse or indemnify another Member or its Affiliate or (ii) any reimbursement or indemnity agreement entered into by or among any of the Members and/or their Affiliates requiring a Member or its Affiliate to reimburse or indemnify another Member or its Affiliate.
Requisite Vote means:
(a) as to any matter being voted on, and unless a different voting threshold (or additional voting requirement) is required for such matter under Sections 10.1 and 10.2 , the affirmative written Vote of Voting Members holding more than fifty percent (50%) of the total Votes held by all the Voting Members (a Majority Approval ); provided , however , that at any time there are Voting Members with a total of five (5) Votes, and notwithstanding anything to the contrary in this Agreement, Majority Approval shall be deemed to require at least 75% of the total Votes held by all of the Voting Members; or
(b) as to any matter listed in Section 10.2 , 100% Approval.
Rescission is defined in Section 7.5(a) .
Rockpoint means Rockpoint Land Investments HF, L.L.C., a Delaware limited liability company.
Rockpoint Principal means any of William H. Walton, Keith B. Gelb or Patrick K. Fox.
ROFO Deposit is defined in Section 11.4(d) .
ROFO Determination Meeting is defined in Section 11.4(d) .
ROFO Election Notice is defined in Section 11.4(b) .
ROFO Notice is defined in Section 11.4(b) .
ROFO Price is defined in Section 11.4(b)(ii) .
RP Fund means (i) Rockpoint Real Estate Fund I, L.P., a Delaware limited partnership, (ii) in the event of the merger of Rockpoint Real Estate Fund I, L.P., 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 Rockpoint Real Estate Fund I, L.P., such acquiring Entity, or (iv) in the event of a conversion of Rockpoint Real Estate Fund I, L.P. into another form of Entity or its redomestication to another jurisdiction, the new converted form of Entity or redomesticated Entity.
Secretary of State means the Secretary of State of the State of Delaware.
Securities Act is defined in Section 20.1(a) .
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Selling Member is defined in Section 11.5(a) .
Specified Interest Rate means, with respect to any loan made to a Failing Member to fund a Call Deficiency pursuant to Section 7.3(a)(i) , a rate per annum equal to the lesser of: (i)(a) if the Call Deficiency is less than the Failing Members Capital Commitment, fifteen percent (15%), or (b) otherwise, LIBOR plus seven percent (7%); or (ii) the maximum rate permitted by law.
Standard Assignment Form means, with respect to any Interest or portion thereof being assigned from one Member to another Member or its Affiliate pursuant to Article XI , an assignment and assumption agreement executed and delivered by the assignor and the assignee (i) pursuant to which the assignor shall assign to the assignee the Interest or portion thereof in question without any representation or warranty by, or recourse to, the assignor other than a representation and warranty by the assignor that it owns such Interest or portion thereof, and is conveying same to assignee, free and clear of all liens and encumbrances (but subject to the provisions of this Agreement), and the assignee accepts such assignment and agrees to be bound by the terms of this Agreement and assumes the obligations of the assignee with respect to the assigned Interest or portion thereof first accruing under this Agreement on or after the date of the assignment and (ii) is otherwise in form and substance reasonably satisfactory to the assignor and the assignee.
Starwood Capital Group means Starwood Capital Group Global, L.P., a Delaware limited partnership.
Subject Member is defined in Section 7.3(a)(ii) .
Subsidiary means any Entity that is, directly or indirectly, majority owned by the Company. As of the Effective Date the only existing Subsidiaries are Owner and Mezzanine Subsidiary.
Target Account means, with respect to any Member as of the end of any taxable year of the Company or other period, the excess of (a) an amount equal to the hypothetical distribution such Member would receive if all assets of the Company, including cash, were sold for cash equal to their Book Basis (taking into account any adjustments to Book Basis for such year or other period), all liabilities of the Company were then due and were satisfied according to their terms (limited, with respect to each nonrecourse liability, to the Book Basis of the assets securing such liability) and all remaining proceeds from such sale were distributed pursuant to Section 9.8 over (b) the amount of Partnership Minimum Gain and Partner Minimum Gain that would be charged back to such Member as determined pursuant to Treasury Regulation Section 1.704-2 in connection with such sale.
Tax Matters Member is defined in Section 10.17 .
Third Party means, with respect to a Member proposing to transfer its Interest or any portion thereof (or any direct or indirect ownership interest in such Member) pursuant to Section 11.4 , a proposed transferee that is none of (i) another Member, (ii) a Person that would qualify as a Permitted Transferee of another Member, and (iii) a Person that is an Affiliate of another Member.
Third Party Transfer means (i) any transfer or assignment by the Assigning Member of 100% of its Interest to a Third Party or (ii) any transfer or assignment of 100% of all direct or indirect ownership interests in the Assigning Member to a Third Party.
Third Party Transferee Approval Criteria means that the Member whose approval is being sought (i) has a reasonable basis for concerns about the reputation of the proposed Third Party transferee or any of its Affiliates, (ii) reasonably believes (based on direct dealings with the proposed Third Party transferee or any or its Affiliates or for other reasons) that the working relationship with such proposed Third Party transferee will be materially more difficult than customary joint venture relationships, (iii) reasonably believes the transfer to the proposed Third Party transferee can reasonably be expected to create competitive issues for the Company or any of its Subsidiaries, (iv) reasonably believes, based on its knowledge of the proposed Third Party transferee or any of its Affiliates would espouse views with respect to the Company or any of its Subsidiaries or the conduct of their respective businesses or strategic direction that are materially inconsistent with those of such Member or (v) otherwise believes the sale to such proposed Third Party transferee will have a material adverse impact on the Company or any of its Subsidiaries or any of their businesses or governance.
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Triggering Member is defined in Section 9.6 .
Vote means (as used as a noun or a verb) a decision, determination, approval, consent or vote or otherwise take action by a Voting Member (acting through its Executive(s)) pursuant to this Agreement (or the right to do so). As of the Effective Date, regardless of their respective Percentage Interest, the Co-Investor Member, the MSD Member and the LNR Member each has one (1) Vote, and the Five Point Member has two (2) Votes, for a total of five (5) Votes among the four (4) Voting Members, collectively.
Voting Member means, as of the Effective Date, each of the Five Point Member, the Co-Investor Member, the MSD Member and the LNR Member. Following the Effective Date, a Voting Member may cease to be a Voting Member (i.e., become a non-Voting Member) and a Non-Voting Member may become a Voting Member, as follows:
(i) a Member that is otherwise then a Voting Member shall not have the right to Vote on any matter from which such Member is expressly excluded from voting pursuant to Section 8.2 or any other express provisions of this Agreement (and in such case such Member is considered a Non-Voting Member solely for purposes of such Vote, but is otherwise considered a Voting Member);
(ii) a Member that is otherwise a Voting Member whose Percentage Interest has fallen to 5% or less, shall, so long as such Members Percentage Interest is 5% or less, not be a Voting Member, provided that such Member shall become a Voting Member if and when such Members Percentage Interest rises to more than 5% (unless such Member is then otherwise precluded from being a Voting Member pursuant to one of the other clauses of this definition); and
(iii) any Member that is a Defaulting Member shall not be a Voting Member, provided that a Member that becomes a Defaulting Member due to a Capital Default shall, if such Member qualifies for and cures such default in a timely manner by effecting a Capital Call Cure or satisfying the Make-Up Contribution Conditions, in each case pursuant to the applicable provisions of this Agreement, shall cease to be a Defaulting Member by reason of such Capital Default and shall again become a Voting Member (unless such Member is then otherwise precluded from being a Voting Member pursuant to one of the other clauses of this definition).
Notwithstanding anything to the contrary contained in this Agreement (i) any Defaulting Member may vote on any matter as to which this Agreement expressly provides may be voted on by a Defaulting Member, (ii) any Non-Voting Member may vote on any matter as to which this Agreement expressly provides may be voted on by a Non-Voting Member, and (iii) any Non-Voting Member may vote on any matter that has a materially adverse and disproportionate economic effect on such Member compared with the other Members, other than with respect to a transaction described in the first sentence of Section 8.2 .
Unless otherwise expressly provided, all reference in this Agreement to the Voting Members exercising their Votes, meeting, voting, consenting, approving or otherwise taking any action shall mean the Voting Members exercising their Votes, meeting, voting, consenting, approving or otherwise taking such action through their respective Executives on the Executive Committee in accordance with this Agreement. With respect to the express rights in this Agreement of Non-Voting Members, each Non-Voting Member shall exercise its vote directly (and not through any Executive); provided that such Non-Voting Member shall provide upon request by any other Member reasonable evidence that the individual representative of the Non-Voting Member that is voting on behalf of such Non-Voting Member has been authorized by such Non-Voting Member to do so.
1.2 Interpretation . Accounting terms used but not otherwise defined herein shall have the meanings given to them under GAAP. As used in this Agreement (including exhibits, schedules and amendments), 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 Recitals, Sections, Preamble and Articles refer to recitals, sections,
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the preamble and articles of this Agreement, unless the context requires otherwise. Words such as herein, hereinafter, hereof, hereby and hereunder, and the words of like import refer to this Agreement as a whole, unless the context requires otherwise. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The captions contained herein 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. When calculating the period of time before, within or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and the last day of such period shall be included, provided that if the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day. The Exhibits and Schedules to this Agreement, including those annexed hereto or referred to herein, are incorporated and made a part hereof and are an integral part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.
ARTICLE II
FORMATION AND NAME
2.1 Formation . Philip C. Schroeder, as an authorized person within the meaning of the Act, executed, delivered and filed the Certificate with the Secretary of State on January 20, 2005. His powers as an authorized person have ceased and the Administrative Member is designated as an authorized person within the meaning of the Act, provided that the Administrative Member shall have no authority except as otherwise specifically provided in this Agreement. The Members hereby (i) ratify the formation of the Company under the provisions of the Act, and (ii) agree that the sole purpose of the Company is as indicated in Section 4.1 . The rights and liabilities of the Members shall be as provided for in the Certificate and this Agreement, or the Act if not otherwise provided for in the Certificate or this Agreement. The Members, to the extent required by applicable law, agree to execute and timely file, record and publish such articles, certificates and other documents and to take such other acts as may be necessary or appropriate to comply with the requirements of the Act and any jurisdiction in which the Company is engaged in business for formation and operation of the Company as a limited liability company.
2.2 Name . The name of the Company is Heritage Fields LLC. All of the Companys business and affairs shall be conducted under the name of the Company and title to all real or personal property owned by or leased to the Company shall either be held in such name or in the name of such nominee or trust for the Companys benefit as the Members shall determine. The Members may change the name of the Company as permitted by law. In addition, the Members may adopt such trade or fictitious names as they may deem appropriate as permitted by law. All trade or fictitious names shall be registered as is provided for by the relevant laws of the States of Delaware and California or other applicable jurisdiction, and may be registered or given such other legal protection as may be deemed advisable by the Members.
ARTICLE III
TERM
3.1 Term . The duration of the Company commenced as of the date of filing of the Certificate and, unless sooner terminated as provided in Article XIII or under the Act, shall terminate on December 31, 2035.
ARTICLE IV
PURPOSE OF BUSINESS; OTHER BUSINESS AND ACTIVITIES;
NO PARTNERSHIP OR JOINT VENTURE
4.1 Purposes of Business . The sole purposes for which the Company is organized are to, directly or through one or more Subsidiaries, including Owner and Mezzanine Subsidiary, (a) acquire, own, entitle, lease and develop the Property into homebuilding and commercial sites and conduct such related development as determined by the Members, (b) develop, own, finance, lease, operate and dispose of commercial buildings, recreational properties and other facilities, as determined by the Members, (c) manage, mortgage or otherwise finance, sell, convey or otherwise dispose of any or all of the Property, (d) obtain, maintain and perpetuate entitlements with respect to the Property, and (e) engage in any and all activities relating thereto or arising therefrom or reasonably necessary or incidental thereto, including without limitation, the acquisition of additional real and personal property incidental or related to the foregoing or otherwise approved by the Members.
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4.2 Other Business and Activities . Neither the Company nor any Member shall have any right, solely by virtue of this Agreement or the relationship created hereby, in or to any other ventures or activities in which any Member or any Affiliate of any Member is involved or becomes involved or to the income or proceeds derived therefrom, and the Members and Affiliates of the Members may pursue other ventures and activities even if competitive with the purposes of the Company or any Subsidiary. No Member or Affiliate of a Member shall be obligated to present any particular investment opportunity to the Company even if such opportunity is of a character which, if presented to the Company or any Subsidiary, would be taken by the Company or any Subsidiary, and such Member and each Affiliate of a Member shall have the right to take for its own account, or to recommend to others, any such particular opportunity. Notwithstanding the foregoing, this Section 4.2 is subject to the provisions of Section 8.3 (Standstill/Exclusivity) and to the provisions of Section 3.6 (Prohibited Projects and Non-Competition) of the Development Management Agreement.
4.3 No Partnership or Joint Venture . In no event shall this Agreement be held or construed to imply the existence of a partnership among the Members with regard to any matters, trades, businesses or enterprises outside the scope of the business of the Company or a general partnership or joint venture with regard to any such matters, trades, businesses or enterprises (except for the treatment of the Company as a partnership solely for purposes of income tax), and no Member shall have any power or authority under this Agreement to act as the partner, agent or representative of the other Members with regard to any matters beyond the scope of the business of the Company.
ARTICLE V
PRINCIPAL OFFICE, REGISTERED
OFFICE AND RESIDENT AGENT
5.1 Principal Office and Mailing Address . The principal office and mailing address of the Company shall be 25 Enterprise, Suite 300, Aliso Viejo, California 92656. The principal office and/or mailing address of the Company may be changed from time to time by the Members. Additional places of business and offices for the Company may be established by the Members.
5.2 Resident Agent and Registered Office . The resident agent of the Company in Delaware, shall, until changed by the Members, be CT Corporation System, and the address of the Companys resident agent and the address of the Companys registered office in the State of Delaware shall initially be Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
ARTICLE VI
NAMES AND ADDRESSES OF MEMBERS
6.1 Names of Members . The names of the Members of the Company as of the Effective Date are as set forth in Exhibit A .
ARTICLE VII
INVESTED CAPITAL AND LOANS
7.1 Initial Capital Contributions . In connection with the recapitalization of the Company that occurred on December 29, 2010, each Person that was then a member of the Company contributed cash to the Company (such cash contributions of each member being referred to herein as such members Initial Capital Contribution ; the Initial Capital Contributions include $4,100,000 funded in 2010 prior to December 29, 2010, but which for purposes of this Agreement are deemed to have been contributed as of December 29, 2010). The Initial Capital Contribution of each member solely represents the amount of cash contributed by such member in connection with the recapitalization of the Company on December 29, 2010 and does not include any Old Capital.
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7.2 Capital Calls .
(a) At any time and from time to time, if and to the extent (i) funds are required, in excess of the net proceeds available from any Financing and other Gross Revenues, to operate the business of the Company or any Subsidiary in accordance with the Business Plan, and (ii) the amount of such funds does not exceed the aggregate amount of the Members remaining Capital Commitments, then the Administrative Member may, on behalf of the Company, require Additional Capital Contributions from the Members holding Percentage Interests pursuant to Section 7.2(c) .
(b) At any time and from time to time, if and to the extent (i) funds are required, in excess of the net proceeds available from any Financing and other Gross Revenues, to operate the business of the Company or any Subsidiary in accordance with the Business Plan, and (ii)(A) the Voting Members have approved pursuant to the Requisite Vote a capital call for Additional Capital Contributions in the amount of such required funds, or (B) the Administrative Member determines that funds are needed to pay for Emergency Expenses, then the Administrative Member may, on behalf of the Company, require Additional Capital Contributions from the Members holding Percentage Interests pursuant to Section 7.2(c) .
(c) The Administrative Member shall provide to each Member that owns a Percentage Interest a written notice (each, a Contribution Notice ) of the need for any Additional Capital Contributions (i) at the time determined by the Administrative Member in the case of Section 7.2(a) , (ii) at the time the Requisite Vote is taken to approve such Additional Capital Contribution in the case of clause (ii)(A) of Section 7.2(b) , or (iii) as soon as practicable after the Administrative Member determines that funds are needed to pay for Emergency Expenses in the case of clause (ii)(B) of Section 7.2(b) . Each Contribution Notice that is provided pursuant to this Section 7.2(c) shall provide the reason and amount of the funds required to be funded by Additional Capital Contributions and the portion thereof that each Member is required to fund under this Section 7.2 . Each Member shall fund its Contribution Percentage of the Additional Capital Contribution as specified in such Contribution Notice prior to the Deadline Date. The obligation for each Member to funds its Contribution Percentage of the Additional Capital Contribution shall be guaranteed under its Member Affiliate Guaranty.
(d) As used herein the Deadline Date with respect to any Contribution Notice shall be the due date for the Additional Capital Contributions in question set forth in the Contribution Notice, which date shall be based on the timing of the Companys need for such funding but not be less than ten (10) Business Days after the date the Contribution Notice is given (and if no such date is set forth in the Contribution Notice, the Deadline Date shall be twenty (20) days after the giving of the Contribution Notice to the Members).
7.3 Failure to Fund a Capital Call .
(a) If and to the extent any Member that owns a Percentage Interest fails to fund its share of an Additional Capital Contribution that is the subject of a Contribution Notice given pursuant to Section 7.2 as and when required pursuant to Section 7.2 (such Member, a Failing Member , and the aggregate amount that all Failing Members failed to fund, a Call Deficiency ), then the Administrative Member shall promptly give a written notice (a Deficiency Notice ) to each other Member that owns a Percentage Interest. In such event, each Member that timely funded its share of such Additional Capital Contributions (collectively, the Funding Members ) shall have the option to elect, by written notice to all of the other Members that own a Percentage Interest, within twenty (20) days after delivery of the Deficiency Notice (the Funding Members so electing being referred to as the Electing Members ), to fund to the Company an aggregate amount (the Funding Amount ) equal to the product of (I) such Electing Members pro rata share (being such Electing Members Contribution Percentage divided by the aggregate Contribution Percentages of all Electing Members), multiplied by (II) the amount of the Call Deficiency. An Electing Member that elects to fund a Call Deficiency may do so by either making a loan to the Failing Member in accordance with Section 7.3(a)(i) , or making an Additional Capital Contribution pursuant to Section 7.3(a)(ii) (a Deficiency Capital Contribution ).
(i) An Electing Member may elect to make a loan (a Deficiency Loan ) to the Failing Member in the amount of the Electing Members pro rata share of the Call Deficiency, which loan will bear interest from the date of the loan at a rate per annum equal to the Specified Interest Rate. The Electing Member may pay the amount of such Deficiency Loan directly to the Company, and from and
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after the date of such Deficiency Loan all distributions by the Company to the Failing Member shall be paid by the Company to the Electing Member and applied first to accrued but unpaid interest and then to principal on such Deficiency Loan until such Deficiency Loan has been paid in full. The Deficiency Loan (together with reasonable attorneys fees and expenses incurred by the Electing Member in enforcing the loan) shall be secured by the entire Interest of the Failing Member under the Uniform Commercial Code of the State of Delaware, and the Electing Member shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of Delaware. The Failing Member hereby appoints the Electing Member as its attorney-in-fact for the purpose of signing and filing any financing statements to perfect the Electing Members security interest and agrees to take such other actions as may reasonably be required to perfect or enforce such security interest. If more than one Electing Member makes a Deficiency Loan to a Failing Member, or an Electing Member makes more than one Deficiency Loan to the same Failing Member, pursuant to this Section 7.3(a)(i) , then the amounts payable to such Electing Members in respect thereof shall be apportioned in accordance with the principal amounts of such Deficiency Loans then outstanding.
(ii) An Electing Member may elect to fund its pro rata share of a Call Deficiency by making an Additional Capital Contribution in the amount of its pro rata share of the Call Deficiency, in which case, the Percentage Interest of each Member (a Subject Member ) shall be adjusted to equal the percentage equivalent of the quotient determined as follows (the Dilution Formula ), by dividing:
(A) the positive difference, if any, of (a) the sum of (i) one hundred percent (100%) of the Invested Capital (but excluding all Deficiency Capital Contributions) then or theretofore made by the Subject Member to the Company, plus (ii) two hundred percent (200%) of the aggregate amount of all Deficiency Capital Contributions then or previously made by the Subject Member, minus (b) the aggregate amount of Deficiency Capital Contributions made by any of the other Members that funded a Call Deficiency created as a result of the Subject Member being or having been a Failing Member, by
(B) an amount equal to one hundred percent (100%) of the Invested Capital (including all Deficiency Capital Contributions) then or theretofore made by all of the Members to the Company, including the Subject Member;
provided , however , that if, as a result of any adjustment of a Members Percentage Interest under this Section 7.3(a)(ii) , (I) such Members Percentage Interest is diluted to five percent (5%) or less, then such Member automatically shall become a Non-Voting Member or (II) such Members Percentage Interest is diluted to less than one percent (1%), then such Members Percentage Interest shall automatically become zero percent (0%) and such Member shall be deemed to have withdrawn from the Company as a Member and shall no longer be considered a Member for any purpose hereunder.
(iii) If the Members Interests are adjusted pursuant to Section 7.3(a)(ii) , then the Company shall make one or more special allocations of Profit (or items of income or gain) to the Electing Members and/or Loss (or items of expense or deduction) to the Failing Members equal in aggregate to the amount of the Deficiency Capital Contributions. Such allocations shall initially be made pursuant to Treas. Reg. § 1.704-1(b)(2)(iv)(f)(5)(i) in connection with adjustments to the Members Capital Accounts at the time of the Electing Members contributions to the Company pursuant to Section 7.3(a)(ii) . If the aggregate amounts of such allocations at that time are insufficient to equal the amount of the Deficiency Capital Contributions, then the Company shall make such further special allocations from time to time and, if such aggregate allocations are still insufficient upon dissolution of the Company, shall make a special payment to the Electing Members (which payment shall be treated as guaranteed payment under Section 707(c) of the Code, the expense or deduction from which shall be specially allocated to the Failing Members) as required so that the aggregate amounts of all such special allocations equal to the amount of the Deficiency Capital Contributions.
(b) Notwithstanding the provisions of Section 7.3(a)(ii) , with respect to a Call Deficiency relating to any particular Contribution Notice, all, but not less than all, of the Electing Members may agree, as among themselves, to allocate the funding of the Call Deficiency (to the extent being funded by such Electing
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Members) among them in a proportion different than what is provided in Section 7.3(a) . The Members acknowledge that any such change to the funding proportions of the Electing Members shall change their respective Percentage Interests pursuant to the Dilution Formula.
(c) Every Electing Member shall be obligated to fund its pro rata share of a Call Deficiency within twenty (20) days after delivery of the related Deficiency Notice, provided that such deadline may be extended by the unanimous written consent of all the Electing Members.
(d) For a period not to exceed twenty (20) days following the Deadline Date for which a Failing Member failed to fund an Additional Capital Contribution under Section 7.2 (the Cure Period ), such Failing Member shall have the right, subject to the last sentence of this Section 7.3(d) , to cure such default by funding to the Company, prior to the expiration of the Cure Period, a cash payment in an amount equal to (i) the Call Deficiency (or applicable portion thereof) resulting from such Members failure to fund an Additional Capital Contribution, plus (ii) interest accruing at twenty-five percent (25%) per annum, compounded monthly, on the average daily balance of such Call Deficiency (or applicable portion thereof), plus (iii) liquidated damages (which shall not be deemed to be in the nature of a penalty) in the amount of five percent (5%) of such Call Deficiency (or applicable portion thereof) (the sum of the amounts in clauses (i) , (ii) and (iii) , collectively, the Cure Payment ). If a Failing Member timely makes such Cure Payment pursuant to this Section 7.3(d) (a Capital Call Cure ) then (i) any voting rights or other rights that the Failing Member lost pursuant to this Agreement solely as a result of it having failed to fund such Call Deficiency (or applicable portion thereof) shall be restored effective as of the date of such Capital Call Cure and (ii) if the sole reason that the Failing Member became a Failing Member was its failure to fund the amount that is the subject of such Capital Call Cure, then such Failing Member shall cease to be a Failing Member and shall be deemed for all purposes to have funded when due such Call Deficiency or applicable portion thereof; provided , however , that only the portion of the Cure Payment equal to such Call Deficiency (or applicable portion thereof) shall be deemed to constitute an Additional Capital Contribution to the Company by such Member, and such Member shall not receive any Capital Account, Invested Capital or other credit for the other portions of the Cure Payment paid by such Member. Upon receipt of a Cure Payment, the Company shall, within five (5) Business Days, use the proceeds of the Cure Payment to (x) repay all Deficiency Loans used to fund such Failing Members Call Deficiency, and (y) make a special Distribution (notwithstanding anything in Section 9.7 to the contrary) to all of the Electing Members that made Deficiency Capital Contributions to fund such Failing Members Call Deficiency on a pro rata basis in accordance with their respective Deficiency Capital Contributions. Notwithstanding anything to the contrary contained in this Section 7.3(d) , no Member may exercise a cure right under this Section 7.3(d) to effectuate a Capital Call Cure more than once in any twenty-four (24) month period.
7.4 Res erved .
7.5 Rescission of a Contribution Notice .
(a) Notwithstanding anything to the contrary contained in this Article VII , at any time after a Contribution Notice has been issued pursuant to this Article VII but prior to the Deadline Date with respect thereto, the Administrative Member may rescind such Contribution Notice (a Rescission ) if such Rescission has been approved by a Majority Approval.
(b) Effective upon a timely Rescission of a Contribution Notice pursuant to Section 7.5(a) , the Contribution Notice in question shall automatically become null and void ab initio and no Additional Capital Contribution shall be required in connection therewith. If any Member had made an Additional Capital Contribution in response to a Contribution Notice that is rescinded pursuant to Section 7.5(a) , the Administrative Member shall cause the Company to promptly return such Additional Capital Contribution to such Member.
7.6 No Further Obligation to Contribute Capital . Except as expressly provided in this Agreement or with the prior written consent of the Members, no Member shall be required or entitled to contribute any other or further capital to the Company or to make any loans to the Company.
7.7 No Interest on Capital Contributions . Except as specifically provided in this Agreement, no Member shall be paid interest on any Invested Capital.
7.8 Return of Capital Contributions . Except as specifically provided in this Agreement (including this Article VII , and Sections 9.7 and 9.8 ), no Member shall have the right or be entitled to withdraw, or receive any return of, its Invested Capital.
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ARTICLE VIII
COMPENSATION OF AND PAYMENTS TO THE MEMBERS
AND THEIR AFFILIATES; AFFILIATE TRANSACTIONS
8.1 Compensation to Members . No Member (including Administrative Member) shall be paid a fee by the Company or reimbursed for any out of pocket costs and expenses incurred by it on behalf of the Company, without the express written approval of the Members and the submission by such Member to the Company of reasonable supporting documentation therefor; it being the expectation of the Members that there will be no compensation or reimbursement paid by the Company to any Member (including Administrative Member, except as provided in Section 10.6 ). Any commissions, fees, interest or other compensation, authorized under this Agreement or approved by the Members, to be paid by the Company to a Member or an Affiliate of a Member shall constitute an expense of the Company and shall be payable to such Member or its Affiliate, as the case may be, on the same basis and with the same priority as any other amounts payable by the Company to third party creditors; provided that when dealing with a Member or an Affiliate of a Member, the provisions of Section 8.2 shall apply. With respect to the payment of all such commissions, fees, interest or other compensation, the relationship between the Company and such Member (or its Affiliate, as the case may be) shall be that of debtor and creditor.
8.2 Transactions with Members and/or Affiliates . The validity of any loan, transaction, contract, agreement, payment or arrangement involving the Company and a Member or a Members Affiliate permitted by the terms of this Agreement shall not be affected by reason of the relationship between the Company and such Member or Affiliate; provided , however , that (i) when dealing with a Member or an Affiliate of a Member, only the unaffiliated Members shall have the right to be Voting Members with respect to such matters, and (ii) any determination, consent, or approval required in connection with any such loan, transaction, contract, agreement, payment or arrangement, including any determination to enter into, modify, amend or terminate any such loan, transaction, contract, agreement, payment or arrangement, (each, an Affiliate Transaction Determination ) shall require the Majority Approval of such unaffiliated Members pursuant to Section 10.1 . Notwithstanding anything to the contrary contained in this Agreement, no Member that is otherwise qualified to Vote as a Voting Member shall be excluded from voting with respect to a matter under Section 11.5 by reason of such Member being a party to the transaction being voted upon, subject to Section 11.5(h) . For avoidance of doubt it is agreed that, as of the Effective Date, (x) any transaction between Owner and the Development Manager would be subject to the provisions of this Section 8.2 and for such purpose Five Point Member and Development Manager shall be deemed to be Affiliates and as such Five Point Member would not have the right to be a Voting Member with respect to such transaction and (y) any transaction between Owner and the Commercial Development Sub-Manager would be subject to the provisions of this Section 8.2 and for such purpose LNR Member and Commercial Development Sub-Manager shall be deemed to be Affiliates and as such LNR Member would not have the right to be a Voting Member with respect to such transaction.
8.3 Standstill/Exclusivity .
(a) Each of the Voting Members (as of the Effective Date) agrees, for itself, its Affiliated Guarantor, and the Controlled Affiliates of either (collectively as to each Voting Member, the Restricted Entity ), that, except as otherwise expressly set forth in this Section 8.3 , no such Restricted Entity shall acquire any ownership or economic interest in all or any portion of the Property, any Adjacent Property or any indebtedness of the Company, including the Financing, or participate, directly or indirectly in the acquisition, financing, development and/or disposition of all or any portion of the Property or any Adjacent Property (any such ownership or economic interest or participation is referred to herein as a Specified Investment ), except through the Company; provided , however , that if the Voting Members are presented with an opportunity for the Company to invest or participate in any such Specified Investment, and the Requisite Approval for such investment or participation is not obtained for such Specified Investment, then any Restricted Entity may do so on terms that are not materially more favorable to such Restricted Entity than the terms presented to the Company; provided , further , however, that for purposes of this Section 8.3 only, (i) with respect to MSD Member, the term Affiliated Guarantor shall instead only refer to MSD Real Estate Investments, L.P. and MSD Real Estate Investments II, L.P., and (ii) with respect to Five Point Member, the term Affiliated Guarantor shall include Five Point Holdings, LLC.
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(b) Notwithstanding anything to the contrary in Section 8.3(a) :
(i) a Voting Member shall not be in breach of the provisions of Section 8.3(a) if such breach arises solely as a result of a Restricted Entity having a direct or indirect non-controlling minority interest in an Entity that directly or indirectly holds or acquires a Specified Investment (such non-controlling minority interest, an Adverse Interest ) so long as neither any Parent Company of such Restricted Entity (if the Restricted Entity is a Voting Member) nor such Restricted Entity took affirmative action to vote in favor of or otherwise affirmatively participate in the acquisition of such Specified Investment by such Entity, and provided further that no Restricted Entity (i) takes any affirmative action (including through the Vote of such Voting Member) or (ii) actively encourages or requests the Entity owning such Adverse Interest to take any action with respect to or arising out of the ownership of such Adverse Interest that is adverse in any material respect to the Company, Owner or any Subsidiary of Owner, or to the best interests of the Voting Members, taken as a whole (without regard to the ownership of such Adverse Interest); and
(ii) a Voting Member shall not be in breach of the provisions of Section 8.3(a) if such breach arises solely as a result of a Restricted Entity having a direct or indirect non-controlling minority interest in an Entity (that may also be an Affiliate of such Voting Member) that directly or indirectly enters into a transaction or otherwise does business with Owner, or any of its Subsidiaries or a Parent Company of Owner that Controls Owner, on an arms length basis.
(iii) As used in this Section 8.3(b) , the term Parent Company means, with respect to any Voting Member or Owner (as the case may be), any Person that owns, directly or indirectly, 10% or more of the equity interests of such Voting Member or Owner.
8.4 Dealings with Development Manager . The Members hereby approve Owner entering into the Development Management Agreement with Five Point Management as nominee of Five Point Communities, LP. Without intending to limit the provisions of Section 8.2 , the Members acknowledge that, as of the Effective Date, Five Point Management is an Affiliate of Five Point Member and that, accordingly, Five Point Member shall not have the right to participate as a Voting Member with respect to any matter pertaining to the Development Manager or the Development Management Agreement so long as Five Point Member (or its Affiliate) continues to be an Affiliate of the Development Manager. The Members confirm the continuing obligation of Owner to make incentive compensation payments under the Commercial Development Sub-Management Agreement. Without intending to limit the provisions of Section 8.2 , the Members acknowledge that, as of the Effective Date, LNR is the LNR Member and that, accordingly, LNR Member shall not have the right to participate as a Voting Member with respect to any matter pertaining to the Commercial Development Sub-Manager or the Commercial Development Sub-Management Agreement so long as LNR Member (or its Affiliate) continues to be the Commercial Development Sub-Manager.
ARTICLE IX
CAPITAL ACCOUNTS; PROFITS AND LOSSES; DISTRIBUTIONS
9.1 Capital Accounts . A separate Capital Account shall be maintained for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv). The Capital Account of each Member shall be determined and adjusted as follows:
(a) Credits . Each Members Capital Account shall be credited with:
(i) any contributions of cash made by such Member to the capital of the Company plus the Book Basis of any property contributed by such Member to the capital of the Company (net of any liabilities to which such property is subject or which are assumed by the Company);
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(ii) the Members distributive share of Profit, items thereof, and items of income and gain specially allocated pursuant to Section 9.3 ; and
(iii) any other increases required by Treasury Regulation Section 1.704-1(b)(2)(iv).
(b) Debits . Each Members Capital Account shall be debited with:
(i) any Distribution of cash made from the Company to such Member plus the fair market value of any property distributed in kind to such Member (net of any liabilities to which such property is subject or which are assumed by such Member);
(ii) the Members distributive share of Loss, items thereof and deductions or losses specially allocated to such Member pursuant to Section 9.3 ; and
(iii) any other decreases required by Treasury Regulation Section 1.704-1(b)(2)(iv).
The provisions of this Section 9.1 relating to the maintenance of Capital Accounts have been included in this Agreement to comply with Section 704(b) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted and applied in a manner consistent with those provisions.
9.2 Allocations of Profit and Losses . For each Fiscal Year of the Company, or part thereof, Profit and Loss shall be allocated amongst the Members, after allocations pursuant to Section 9.3 have been made, as follows:
(a) Loss shall be allocated among the Members so as to reduce, proportionately, the differences between their respective Partially Adjusted Capital Accounts and Target Accounts for such year; provided , however , that no portion of the Loss for any taxable year shall be allocated to a Member whose Target Account is greater than or equal to its Partially Adjusted Capital Account for such taxable year, and provided further that in no event shall an allocation under this Section 9.2(a) be made to any Member to the extent it would cause such Member to be allocated a percentage of Overall Company Loss for the taxable year different from its Percentage Interest except to the extent that (i) such allocation is required to reverse a prior allocation of Profit to another Member in excess of such other Members Percentage Interest and is in the same proportion as such prior allocation in a manner consistent with the Fractions Rule, (ii) the result is to allocate losses or deductions to one or more Members who bear a disproportionately large share (relative to each such Members Percentage Interest but in accordance with the distribution provisions of Section 9.8 ) of the economic burden of such losses or deductions if, taking into account all of the facts, circumstances and information (including bona fide financial projections), such losses or deductions had a low likelihood of occurring and such allocation otherwise satisfies the requirements of the Fractions Rule, (iii) such allocation otherwise is disregarded in determining whether a Member satisfies the Fractions Rule or otherwise does not cause the allocations set forth in this Agreement to fail to qualify as permitted allocations within the meaning of Section 514(c)(9)(E) of the Code and the regulations thereunder, or (iv) such allocation is made in respect of Legacy Interests.
(b) Profit shall be allocated among the Members so as to reduce, proportionately, the differences between their respective Target Accounts and Partially Adjusted Capital Accounts for such year; provided , however , that no portion of the Profit for any taxable year shall be allocated to a Member whose Target Account is less than or equal to its Partially Adjusted Capital Account for such taxable year, and provided further that in no event shall an allocation under this Section 9.2(b) be made to a Member to the extent it would cause such Member to be allocated a percentage of Overall Company Income for the taxable year in excess of its Percentage Interest except to the extent such allocation is (i) disregarded in determining whether such Member satisfies the Fractions Rule or otherwise does not cause the allocations set forth in this Agreement to fail to qualify as permitted allocations within the meaning of Section 514(c)(9)(E) of the Code and the regulations thereunder or (ii) made in respect of Legacy Interests.
9.3 Compliance with Section 704(b) . The following special allocations shall, except as otherwise provided, be made in the following order:
(a) Minimum Gain Chargeback . If there is a net decrease in Partnership Minimum Gain or, with respect to any Member, in any Partner Minimum Gain during any Fiscal Year of the Company or other period, prior to any other allocation pursuant hereto, such Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount and manner required by Treasury Regulation Sections 1.704-2(f) or 1.704-2(i)(4) or any successor provisions. The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2 or any successor provision.
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(b) Qualified Income Offset . Any Member who unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes or increases a negative balance in its or his Capital Account (adjusted as provided in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)) shall be allocated items of income and gain sufficient to eliminate such increase or negative balance caused thereby, as quickly as possible, to the extent required by such Treasury Regulation.
(c) Nonrecourse Deductions . Nonrecourse Deductions for any Fiscal Year of the Company or other period shall be allocated (as nearly as possible) amongst the Members under Treasury Regulation Section 1.704-2, or any successor provision in accordance with their respective Percentage Interests.
(d) Partner Nonrecourse Deductions . Any Partner Nonrecourse Deductions for any Fiscal Year or other period shall be allocated to the Member that made, or guaranteed or is otherwise liable with respect to, the loan to which such Partner Nonrecourse Deductions are attributable in accordance with principles under Treasury Regulation Section 1.704-2(i) or any successor provision.
(e) No allocation or loss or deduction shall be made to any Member if, as a result of such allocation, such Member would have an Adjusted Capital Account Deficit while any other member does not have an Adjusted Capital Account Deficit. Any such disallowed allocation shall be made to the Members entitled to receive such allocation under Treasury Regulation Section 1.704-1 in proportion to their respective Percentage Interests (or if such loss or deduction is attributable to Legacy Interests, in proportion to their respective Legacy Interests). If losses or deductions are reallocated under this Section 9.3(e) , subsequent allocations of income and losses (and items thereof) shall be made so that, to the extent possible, the net amount allocated under this Section 9.3(e) equals the amount that would have been allocated to each Member if no reallocation had occurred under this Section 9.3(e) .
(f) The allocations contained in Sections 9.3(a) , 9.3(b) , 9.3(d) and 9.3(e) (the Regulatory Allocations ) are intended to comply with certain requirements of Treasury Regulation Sections 1.704-1 and 1.704-2. The Regulatory Allocations shall be taken into account in allocating Profit, Loss, and other items of income, gain, loss and deduction among the Members so that to the extent possible, the aggregate of (i) the allocations made to each Member under this Agreement other than the Regulatory Allocations and (ii) the Regulatory Allocations made to each Member shall equal the net amount that would have been allocated to each Member had the Regulatory Allocations not occurred. The Members shall take account of the fact that certain of the Regulatory Allocations will occur at a period in the future for purposes of applying this Section 9.3(f) .
(g) To the extent the restrictions on certain allocations set forth in the last proviso in Sections 9.2(a) and 9.2(b) actually affect the allocation of Profit or Loss, such restrictions shall be taken into account in making allocations in future periods so that to the extent possible and subject to such restrictions, the cumulative allocations of Profit and Loss to each Member equal the amount that would have been allocated such Member without such provisos.
(h) The provisions of this Article IX shall be interpreted in a manner consistent with the Members intent that the allocations contained herein are permitted allocations under Section 514(c)(9)(E) of the Code and the regulations thereunder. Notwithstanding anything to the contrary contained in this Article IX , all of the allocations hereunder shall be made only to the extent that, and shall be adjusted insofar as may be required so that, the Companys allocations satisfy the requirements of Section 514(c)(9)(E) of the Code and Treasury Regulations Section 1.514(c)-2, and other applicable Treasury Regulations promulgated thereunder.
9.4 Compliance with Section 704(c) . In accordance with Section 704(c) of the Code and the applicable Treasury Regulations thereunder, income, gain, loss, deduction and tax depreciation with respect to any property contributed to the capital of the Company, or with respect to any property which has a Book Basis different
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than its adjusted tax basis, shall, solely for income tax purposes, be allocated among the Members so as to take into account any variation between the adjusted tax basis of such property to the Company and the Book Basis of such property.
9.5 Consent to Allocations . Each Member, as a condition of becoming a Member, expressly consents to the foregoing allocations as set forth in this Article IX .
9.6 Potential Revisions to Allocation Provisions . If any of the Members that are Voting Members reasonably determines that it would be in the best interests of its direct and indirect owners, the applicable Member(s) (each, a Triggering Member ) may cause the provisions of this Agreement to be amended to the extent, if at all, necessary to cause this Agreement to comply with the provisions of Section 514(c)(9)(E) of the Code, provided that (i) the changes made by any Triggering Members pursuant to this Section 9.6 have no adverse effect whatsoever on any other Member (or, if they do, the Triggering Member(s) causing such change immediately and fully compensate all of the other Members for such adverse effect and indemnify, defend, hold harmless all of the other Members from and against any and all claims, demands, liabilities, losses, costs, damages, expenses, and causes of action of any nature whatsoever arising out of or attributable to such amendments and adverse effect), (ii) the Triggering Member(s) causing such change pay all reasonable attorneys and/or accountants fees incurred by the other Members in connection with the other Members respective review and analysis of such changes and (iii) prior to making any such changes each Triggering Member causing such change shall cause its Affiliated Guarantor to execute a guarantee of such Triggering Members obligations under the preceding clauses (i) and (ii) in a form reasonable acceptable to the other Members.
9.7 Distributions .
(a) Quarterly Distributions of Available Cash . Subject to clause (y) of Section 10.20 , within 30 days after the end of each fiscal quarter (excluding the first three fiscal quarters of 2016 and 2017), the Administrative Member shall cause all Available Cash, determined as of the last day of such fiscal quarter, to be distributed to the Members in the following priority:
(i) First, to the Members or other Persons holding Legacy Interests, pro rata in proportion to their respective Legacy Interests, until cumulative distributions paid with respect to Legacy Interests (under this clause (i) and under Section 9.7(b) ) equal the Legacy Preferred Return as of the date of such distribution; and
(ii) Then, to the Members, pro rata in accordance with their respective Percentage Interests (as they may have then previously been adjusted pursuant to the terms and conditions of this Agreement).
(b) Other Distributions . The Administrative Member may cause the Company to make other distributions at such times and in such amounts as are approved by the Voting Members pursuant to the Requisite Vote; provided, however, that no distribution shall be paid with respect to Percentage Interests if, as of the date of such distribution, the Legacy Preferred Return exceeds the cumulative distributions paid with respect to Legacy Interests (under clause (i) of Section 9.7(a) and this Section 9.7(b) ).
(c) Set Off for Clawback Payments . If, at the time any Distribution is payable hereunder, (i) Five Point Management is obligated to make a Clawback Payment (as defined in the Development Management Agreement), or (ii) LNR is obligated to make a Clawback Payment (as defined in the Commercial Development Sub-Management Agreement), the Administrative Member shall reduce the amount of the distribution otherwise payable to Five Point (in the case of clause (i)) or LNR (in the case of clause (ii)) by the amount of such unpaid Clawback Payment, and apply such amount toward payment of the Clawback Payment. The right of the Administrative Member to reduce the amount of distributions otherwise payable to Five Point or LNR will not affect the obligations of Five Point and LNR to make Clawback Payments when they are due, except to the extent distributions are actually reduced and applied against Clawback Payments.
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9.8 Distributions in Liquidation .
(a) Upon the liquidation of the Company caused other than by the termination of the Company under Section 708(b)(1)(B) of the Code, the Company shall proceed to wind-up its affairs in accordance with Section 13.2 . During such winding up process, Profit, and Loss (and items thereof) shall continue to be allocated among the Members in accordance with Sections 9.2 through and including 9.6 and Distributions shall continue to be made among the Members in accordance with Section 9.7 . The proceeds of sale and other assets of the Company, after giving effect to the provisions of Section 13.2 , shall be first applied to the payment of all debts and liabilities of the Company including debts to any Members who are creditors of the Company, and then distributed not later than the latest time specified for such Distributions pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2), to the Members in accordance with the provisions of Section 9.7 .
(b) The Members believe and intend that the effect of making any and all liquidating Distributions in accordance with the provisions of this Section 9.8 will result in each Member receiving liquidating Distributions equal to the amount of Distributions each such Member would have received if liquidating Distributions were instead distributed in accordance with the positive capital standing in each such Members Capital Account. If for any reason liquidating Distributions would not be so distributed, then the Executive Committee, upon the advice of qualified tax advisor to the Company and approval of the Members pursuant to the Requisite Vote, may make such revisions to the allocation provisions of this Article IX and/or file such amended tax returns for the Company as may be reasonably necessary (determined in good faith and in the manner giving rise to the least adverse economic consequences to the Members) to cause such allocations of Profit and Loss (and items thereof), to be in compliance with Section 704(b) of the Code and the Treasury Regulations promulgated thereunder.
9.9 Priority of Members . Except as otherwise specifically provided herein, no Member shall have any right to demand or receive property other than cash in any Distribution and no Member shall have any priority over any other Member.
9.10 No Restoration of Negative Capital Account . No Member shall be required or obligated to restore or repay to the Company, any Member or any creditor of the Company any negative balance in its Capital Account upon liquidation or dissolution of the Company.
9.11 Withheld Amounts . All amounts withheld from Company revenues or Distributions by or for the Company pursuant to the Code or any provision of any state or local tax law shall be treated for all purposes of this Agreement as Distributions to those Members who receive tax credits with respect to the withheld amounts. In any case where a tax, fee or other assessment is levied upon the Company, the amount of which is determined in whole or part by the status or identity of the Members or is an imputed underpayment, within the meaning of the Partnership Audit Procedures, attributable to a particular Member or Members, the Members shall allocate the expense and withhold from the Distributions to each Member their respective attributable shares of such taxes, fees and assessments. If the Members reasonably determine that the Company has insufficient liquid assets to satisfy such obligation, the Member as to which such obligation applies shall contribute cash to the Company in an amount sufficient to satisfy such obligation. Any such amounts that the Tax Matters Member cannot attribute to a Member shall be treated as an expense of the Company.
9.12 Termination of Legacy Interests . When all payments have been made under the LBHI Participation Agreement, and cumulative Distributions have been paid on the Legacy Preferred Interests in an aggregate amount equal to the Legacy Preferred Return, the Legacy Interests shall no longer be deemed outstanding.
ARTICLE X
MANAGEMENT OF THE COMPANY
10.1 Management by Members .
(a) Unless otherwise provided in this Agreement or in the Certificate, it being intended that the terms of this Agreement and the Certificate are intended to have priority over those of the Act, the powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be
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managed by, the Members (acting through their respective representatives on the Executive Committee as provided in Section 10.7 ). Any matter or thing shall be deemed to have been approved by the Members and be authorized under this Agreement only if such matter or thing has been approved by the Requisite Vote or is included in an Annual Budget that has been approved by the Requisite Vote. Accordingly, wherever this Agreement refers to Members taking a Vote or agreeing upon a matter, the same shall not be construed so as to require all Members to act, but shall be construed in accordance with the preceding sentence. Voting Members shall act through their respective representatives on the Executive Committee.
(b) As of the Effective Date, regardless of their respective Percentage Interest, the Co-Investor Member, the MSD Member and the LNR Member shall each have one (1) Vote and the Five Point Member shall have two (2) Votes, for a total of five (5) Votes among the four (4) Voting Members. The number of votes that any particular Member has at any point in time after the Effective Date shall be subject to the following adjustments, which may result in fractional votes in excess of one vote (which, if applicable, shall be determined to the nearest hundredth of a percent):
(i) If a Voting Member acquires the Percentage Interest (or any fraction thereof) of any other Member that is a Voting Member pursuant to the terms of this Agreement, whether pursuant to Section 11.4 or 11.5 or as otherwise approved by the Members, the acquiring Voting Member shall also acquire the Vote(s) (or fraction thereof if the acquiring Voting Member acquires less than 100% of such Interest) possessed by such transferring Voting Member.
(ii) If more than one Voting Member (but fewer than all of the Voting Members) acquires the Percentage Interest of another Voting Member, the percentage of the Vote(s) acquired by each acquiring Voting Member shall equal a fraction, the numerator of which is one and the denominator is the number of acquiring Voting Members (or as otherwise agreed upon by all of the acquiring Members). Notwithstanding the foregoing, if all of the then Voting Members all acquire all of the Percentage Interest of another Voting Member, then the transferring Member shall no longer be a Voting Member but none of its Vote(s) shall be transferred to the transferee Members.
(iii) If a Voting Member acquires the Percentage Interest (or any fraction thereof) of any Non-Voting Member (other than a Non-Voting Member solely for matters described in clause (ii) of the definition of Voting Member) pursuant to the terms of this Agreement, whether pursuant to Section 11.4 or 11.5 or as otherwise approved by the Members, or if a Third Party acquires the Percentage Interest of any such Non-Voting Member, the acquiring Member or Third Party shall not acquire any Vote(s) (or fraction thereof) as a result of such acquisition.
(iv) If a Members Percentage Interest decreases, for any reason, to five percent (5%) or less, such Member shall become a Non-Voting Member; provided , however , that if such Non-Voting Member subsequently increases its Percentage Interest to more than five percent (5%) pursuant to this Agreement, such Non-Voting Member shall become a Voting Member and have the same number of Votes (and/or fractions thereof, if applicable) that it had immediately prior to losing its Vote(s) as provided in this Section 10.1(b)(iv) ; provided , however , that unless all of the Voting Members unanimously consent in writing, a Non-Voting Member (excluding a Voting Member that becomes a Non-Voting Member under the circumstances described in clause (ii) of the definition of Voting Member and including a Voting Member that becomes a Non-Voting Member under the circumstances described in this Section 10.1(b)(iv) ) shall not have the right to become a Voting Member as a result of any acquisition of all or any part of an Interest of another Member.
(v) If a Defaulting Member commits a Breach described in clause (B) of the definition of Breach and cures such Breach pursuant to the proviso in such clause (B) and thereby becomes a Voting Member (which shall not occur if any other Breaches then exist or if such Member is then a Non-Voting Member by under any other provision of this Agreement), then, effective upon the effective date of such cure, such Member shall have reinstated the number of Votes it had immediately prior to becoming a Non-Voting Member
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(c) Except as otherwise expressly provided in this Article X or elsewhere in this Agreement, the Requisite Vote for all voting, decisions, approvals, consents and determinations by the Members or the Executive Committee pursuant to this Agreement is Majority Approval. Without limiting the generality of the following, the following matters shall be deemed to have been approved by the Members only if Voting Members representing Majority Approval approve such matter in writing:
(i) Except as provided in Section 10.5 , the adoption or modification of any Business Plan or Annual Budget;
(ii) Except as otherwise provided in Section 7.2(a) , Section 10.1(d) or Section 10.5 , any call for Additional Capital Contributions;
(iii) The sale or other disposition of any direct legal or beneficial ownership interest in any Subsidiary;
(iv) The sale or other disposition, directly or indirectly, of all or substantially all of the Property in a transaction or series of related transactions;
(v) Any financing or refinancing of the Property or any portion thereof (including any commercial building) and the terms thereof, including any refinancing or material modification of the Financing, provided that (i) such financing, refinancing or modification does not require the execution and delivery of any Recourse Agreement by any Member (or its Affiliate) that did not vote in writing to approve such, refinancing or modification of such Recourse Agreement, directly or through any Reimbursement Agreement and (ii) if any Recourse Agreement is required, each Member that is (directly or through any Affiliate) obligated thereunder has approved in writing and in its sole discretion such Recourse Agreement;
(vi) The admission of a New Member to the Company and the terms and conditions thereof, other than pursuant to an express provision of this Agreement (including as set forth in Article XI );
(vii) The admission of a New Member or other new equity owner into any Subsidiary and the terms and conditions thereof;
(viii) The Disposition of any direct or indirect interest in a Member other than pursuant to Sections 11.4 or 11.5 or in a Permitted Disposition;
(ix) The Company exercising any right to terminate the Development Management Agreement with or without cause;
(x) Any determination to issue a Rescission as provided in Section 7.5 (except as otherwise provided in clause (i) of Section 7.5 );
(xi) Any Affiliate Transaction Determination, provided that, in accordance with Section 8.2 , only the unaffiliated Voting Members with respect to the underlying loan, transaction, contract, agreement, payment or arrangement shall have the right to vote to consent to and approve any such Affiliate Transaction Determination;
(xii) Any acquisition by a Member or its Affiliate of any direct or indirect interest in any Company Property or in any property of any Entity in which the Company has a direct or indirect equity interest, except as expressly permitted under Section 8.3 ;
(xiii) The development, sale or other disposition of a commercial (i.e., income producing) building; and
(xiv) Leasing parameters for any commercial building, and any leasing activity for a commercial building that is outside previously approved leasing parameters.
(d) Notwithstanding anything to the contrary contained in this Agreement, the Administrative Member may give a Contribution Notice pursuant to Section 7.2(c) without any further vote of the Members.
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10.2 Matters Requiring 100% Approval . Notwithstanding anything to the contrary contained elsewhere in this Agreement, but subject to the provisions of Section 10.5 , the following matters shall be deemed to have been approved by the Members only if Voting Members holding 100% of the total Votes held by all the Voting Members approve such matter in writing (a 100% Approval ):
(a) The commencement of a voluntary Bankruptcy by the Company or by any Subsidiary.
(b) Any dissolution or liquidation of the Company or any Subsidiary other than (i) in connection with a sale or other disposition, directly or indirectly, of all or substantially all of the assets of Owner or equity in Owner that is authorized pursuant to another provision of this Agreement or (ii) the dissolution of any Subsidiary other than Owner that is done to accommodate any new financing or refinancing.
(c) Any merger or consolidation of the Company, or any Subsidiary, with any other Entity.
(d) Except as expressly permitted under Section 8.3(b) , any acquisition by a Member or its Affiliate, directly or indirectly, of any debt of the Company or any debt of any Subsidiary.
(e) Any change in the purpose of the Company set forth in Section 4.1 .
(f) Any Financing that requires a Recourse Agreement unless each Member that is to provide, or whose Affiliate is to provide (or incur any liability under), a Recourse Agreement has approved, in writing, such Recourse Agreement and has agreed, in writing, that no other Member (that has not approved such Financing and Recourse Agreement) is responsible for its Allocable Share (or any other share) of such obligation, whether pursuant to any Reimbursement Agreement or otherwise.
(g) Approving any other matter which expressly pursuant to this Agreement is to be approved under this Section 10.2 or by 100% Approval or the unanimous Vote of the Voting Members (or any similar provision).
10.3 Reserved .
10.4 Reserved .
10.5 Reserved .
10.6 Administrative Member .
(a) The Members shall select one of the Members to act as Administrative Member and the Members shall have the right from time to time to remove the Administrative Member and/or replace the then Administrative Member (with or without cause) with another Member selected by the Members, provided that the Member so selected agrees to serve as Administrative Member (it being agreed, for avoidance of doubt, that the Administrative Member and any Affiliate of the Administrative Member shall not be a Voting Member with respect to any Vote to remove an Administrative Member but shall be a Voting Member with respect to any Vote to select a replacement Administrative Member). Any Administrative Member so replaced shall cooperate with the new Administrative Member and the other Members to assure a smooth transition of responsibilities to the new Administrative Member. The Administrative Member shall have only the rights and responsibilities set forth in this Agreement and those reasonably necessary to carry out such responsibilities. The Members hereby appoint Five Point Member as the Administrative Member. The Administrative Member may execute and deliver, and bind the
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Company to, any contract, agreement, mortgage, loan, lease, note, document, instrument or transaction of any kind or nature whatsoever that has been approved by the Members pursuant to this Agreement. Except as provided in this Agreement, the Administrative Member shall have no independent authority in its capacity as such to act on behalf of the Company and shall be authorized to take only such actions on behalf of the Company as are expressly authorized in this Agreement or by the Members. The Administrative Member shall act as the representative of the Company in its capacity as the sole member of Mezzanine Subsidiary and the indirect owner of Owner, and the Administrative Member is authorized and directed to vote, approve, consent or otherwise take any action on behalf of the Company in the Companys capacity as the sole member of Owner provided that to the extent any such vote, approval, consent or other action relates to an action that requires approval of the Members under this Agreement, that action has been approved by the Requisite Vote. Notwithstanding anything to the contrary contained in this Agreement, if the Development Management Agreement terminates for any reason at a time when the Administrative Member is an Affiliate of the Development Manager (or an Affiliate of any member, shareholder or principal of the Development Manager), the Person serving as Administrative Member shall automatically upon such termination cease to have any rights or authority as Administrative Member. Nothing in this Section 10.6 shall adversely affect any rights or authority granted to the Development Manager pursuant to the Development Management Agreement. Except as provided in Section 10.6(b) , the Member acting as Administrative Member hereunder shall have the right to resign as Administrative Member at any time upon 60 days prior written notice to the other Members.
(b) Notwithstanding anything to the contrary in this Agreement, at any time in which there is a Development Management Agreement in full force and effect or another management or similar agreement pursuant to which one or more Persons are engaged by the Company or any Subsidiary and are compensated for performing duties that include all or substantially all of the duties of the Administrative Member set forth in this Agreement (together with the Development Management Agreement, each, a Management Agreement ), then, with no further action required by the Administrative Member or any other Person, the Administrative Member shall be deemed to have delegated all of the duties of the Administrative Member (except as otherwise agreed to in writing by the Administrative Member, including the last sentence of this Section 10.6(b) ) to the Development Manager (if the Development Management Agreement is in effect) or, if the Development Management Agreement has been terminated, the manager under such other Management Agreement; provided , however , that in no event shall the Development Manager or any other manager under a Management Agreement have any liability whatsoever, including to the Company or any Member, under this Agreement, unless it is a party hereto. In such event, which the Members acknowledge is the case as of the Effective Date, (i) all references to any duties of the Administrative Member shall be deemed to be duties of the Development Manager or manager (as the case may be), and (ii) the Administrative Member shall have absolutely no obligations or liability whatsoever, including any liability or obligation with respect to supervising or monitoring the Development Manager or manager (as the case may be), in connection with any of the duties of the Administrative Member set forth in this Agreement notwithstanding Five Points affiliation with Five Point Management. At any time in which there is no Management Agreement in effect, (i) the Administrative Member shall receive a monthly fee, in an amount as reasonably determined from time to time by Requisite Vote of the Executive Committee, that reimburses the Administrative Member for its administrative and overhead costs allocable to its performance of the duties hereunder, and (ii) the Administrative Member at the time the Management Agreement terminates may resign its position immediately upon written notice to the Executive Committee.
10.7 Executive Committee . An executive committee (the Executive Committee ), consisting of individuals (each, an Executive ) appointed by the Voting Members as provided herein, shall hold meetings as more particularly set forth in this Article X . Each Voting Member shall vote and otherwise act under this Agreement solely through its Executive(s) on the Executive Committee; it being agreed that an Executive shall have no independent consent rights or voting powers under this Agreement, but shall vote and otherwise act solely in accordance with the authority granted and the directions given by the Voting Member that appointed it. All Members shall be entitled to assume that an act of an Executive has been authorized by the Voting Member who appointed such Executive. The initial number of individuals comprising the Executive Committee shall be not less than four (4) and not more than twelve (12), which number may be increased or decreased from time to time by a unanimous determination of the Voting Members, provided that at all times each Voting Member shall have the right to appoint at least one Executive. One or two Executives may be appointed by each of the Voting Members. Each Executive may name an alternate to serve in his or her stead in the event he or she is unavailable to attend a meeting of the Executive Committee or subcommittees thereof. Each Voting Member shall cause at least one of its
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Executives to attend each quarterly meeting of the Executive Committee. An Executive may be removed and replaced at any time without cause by the Voting Member that originally appointed such Executive, provided that such removal or replacement shall not be binding on the other Members until notice thereof has been given to the other Members, and such replacement shall hold office until such time as his or her successor shall have been appointed and become duly qualified. Any vacancy occurring on the Executive Committee shall be filled by the Voting Member that originally appointed the Executive with respect to which such vacancy exists. The Executive Committee may appoint one or more subcommittees of the Executive Committee to conduct such investigations and make such reports and recommendations as the Executive Committee may direct; provided that, unless otherwise unanimously approved by the Voting Members, no such subcommittee shall have any power or authority to vote on, approve, bind the Company to or implement any matter. In no event shall any Executive have any authority to execute agreements or other documents (other than a written consent or certificate (or similar document) evidencing or confirming its voting) on behalf of the Company or otherwise bind the Company (except through his or her votes).
10.8 Appointment of Initial Members of the Executive Committee . The following Members hereby appoint the following respective Executives to the Executive Committee:
Co-Investor Member: Ron Hoyl and Aric Shalev
MSD Member: Barry Sholem and Alan Epstein
LNR Member: Daniel Schwaegler and Mark Deason
Five Point Member: Emile Haddad
10.9 Place of Meetings; Notice . All meetings of the Executive Committee or subcommittees thereof may be held in such place or places within or without the State of Delaware as the Executive Committee or such subcommittee may from time to time determine, and may be held telephonically as provided in Section 10.16 . Each Voting Member shall be given advance notice of, and an opportunity to have its Executive(s) attend, all meetings of the Executive Committee and shall be given at least five (5) days written notice of the date and time of any special meetings of the Executive Committee (which period shall be reduced to two (2) Business Days in the case of a meeting to be held by conference call).
10.10 Regular Meetings . Regular meetings of the Executive Committee may be held without notice at such times and places as may be determined from time to time by the Voting Members.
10.11 Special Meetings; Notice . Any Voting Member may call a special meeting of the Executive Committee by providing to the other Voting Members written notice requesting such special meeting and specifically setting forth the matters to be placed on the agenda for such meeting. Such requesting Voting Member shall give the other Members at least five (5) days written notice of the date and time of such special meeting (which period shall be reduced to two (2) Business Days in the case of a meeting to be held by conference call). Such notice shall be accompanied by an agenda prepared by the Voting Member requesting such meeting, which shall include the matter requested by the Voting Member calling such special meeting and such supplemental information as such Voting Member deems necessary or advisable. At such special meeting, all items on the agenda shall be considered by the Voting Members unless the Voting Members determine otherwise. Notwithstanding the foregoing, other than the matter requested by the Voting Member calling such special meeting, neither the business to be transacted at, nor any other purpose of, any special meeting of the Executive Committee need be specified in the notice or waiver of notice of any special meeting.
10.12 Quorum; Majority Vote . At all meetings of the Executive Committee, at least one Executive appointed by each of the Voting Members holding in the aggregate sufficient number of Votes to constitute the Requisite Vote for the matters to be determined at such meeting, shall be necessary and sufficient to constitute a quorum for the transaction of business. If a quorum is not present at a meeting, the Members present at the meeting may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum is present. An Executive appointed by a Member shall have the right to bind such Member with respect to any Vote, and the other Members shall have the right to rely on such Vote by such Executive as being the Vote of such Member. Except as otherwise provided in this Agreement, if pursuant to the provisions of this Agreement a Member ceases to be a Voting Member, no Executive appointed by such Member, whether an Executive at the time of such cessation or appointed to the Executive Committee by such Member at any time thereafter, shall have the
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right to Vote on any matter, consent to or otherwise make decisions on the Executive Committee from and after the date that such Member ceased to be a Voting Member, unless and until such Member again becomes a Voting Member as expressly provided in this Agreement, if applicable. The fact that a Member may be represented by more than one Executive at a meeting shall not affect such Members Vote, it being agreed that if a Member is represented by more than one Executive at a meeting, all Executives appointed by such Member shall collectively have and may exercise the number of Votes of such Member.
10.13 Procedure; Minutes . At meetings of the Executive Committee, business shall be transacted in such order as the Voting Members may determine from time to time. At each meeting of the Executive Committee, one of the Executives who has been appointed by the Voting Member who called the meeting, or, alternatively, a person jointly appointed by the Executive Committee, shall preside at the meeting. Such person presiding at the meeting shall appoint an individual to act as secretary of the meeting. The secretary of the meeting shall prepare minutes of the meeting which shall be delivered to the Administrative Member for placement in the minute book of the Company. All communications to and from the Executive Committee shall be directed to all of the Members.
10.14 Compensation of Executives . Executives, as such, shall not receive any salary for their services; provided , however , that nothing contained in this Agreement shall preclude any Executive from serving the Company in any other capacity and receiving compensation for services if and to the extent retained pursuant to this Agreement. The Company shall reimburse the Executives for any reasonable expenses incurred by the Executives in attending meetings of the Executive Committee.
10.15 Action Without Meeting . Any action which may be taken, or which is required by law, the Certificate, or this Agreement to be taken, at a meeting of the Members or the Executive Committee may be taken without a meeting if a consent in writing, setting forth the action so taken, shall have been signed by at least one Executive appointed by each of the Voting Members that together hold the Requisite Vote that is required under this Agreement to take such action. The consent may be in one or more counterparts so long as at least one Executive of each of the requisite Voting Members signs one of the counterparts. The signed consent shall be delivered to the Administrative Member for placement in the minute book of the Company and a copy thereof shall be delivered by the Administrative Member to each Member.
10.16 Telephone and Similar Meetings . Executives may participate in and hold Executive Committee meetings by means of conference telephone or similar communications equipment by means of which all Executives participating in the meeting can simultaneously hear each other. Participation in a meeting so conducted shall constitute attendance and presence in person at such meeting, except where an Executive participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
10.17 Tax Matters . The Administrative Member shall act as the tax matters partner and the partnership representative of the Company for income tax purposes (collectively, the Tax Matters Member ). The Tax Matters Member shall not make any material election pursuant to the Code without the prior approval of the Members (such approval not to be unreasonably withheld, delayed or condition); provided, however, that if the Company is eligible to elect out of the Partnership Audit Procedures, the Tax Matters Member shall be permitted to make such an election without the prior approval of the Members.
10.18 Financial Records and Reports .
(a) The Administrative Member shall maintain, or cause to be maintained, at the expense of the Company, in a manner customary and consistent with good accounting principles, practices and procedures, a comprehensive system of office records, books and accounts (which records, books and accounts shall be and remain the property of the Company) in which shall be entered fully and accurately each and every financial transaction with respect to the Company. Bills, receipts and vouchers shall be maintained on file by the Administrative Member. The Administrative Member shall maintain or cause to be maintained said books and accounts in a safe manner and separate from any records not having to do directly with the Company. Each Member or its duly authorized representative shall have the right to inspect, examine and copy such books and records of account at the Companys office during reasonable business hours. The Administrative Member will prepare and furnish to each Member, at the expense of the Company, copies of all reports required to be furnished to any lender of the Company. The Administrative Member shall keep the financial records of the Company on the accrual basis for financial statement and tax purposes.
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(b) Financial Statements.
(i) The Administrative Member shall deliver or shall cause to be delivered to the Members (and to the extent required under any applicable loan documents or the Cash Flow Participation Agreements (as defined in the Development Management Agreement), to the lender or the parties thereto, respectively), within ninety (90) days after the expiration of each Fiscal Year, (i) audited financial statements for the Company and its Subsidiaries on a consolidated basis (the Audited Financial Statements ) for the immediately prior Fiscal Year, and (ii) any other items required under Financing Documents, Cash Flow Participation Agreements and/or reasonably requested by Owner. The Audited Financial Statements shall include an audited balance sheet, an audited profit and loss statement showing the results of operations for such Fiscal Year, together with an unaudited comparison of such results to the Annual Budget, an audited statement of cash flows, an audited statement of the Members capital and Capital Accounts and an audited summary of Distributions. The Audited Financial Statements shall contain an opinion of the Companys or the applicable Subsidiarys accountant to the effect that, subject to any qualifications contained therein, the financial statements fairly present, in conformity with GAAP, the results of operations, and cash flows of the Company for the Fiscal Year then ended. The Administrative Member shall deliver (or shall cause to be delivered) to the other Members drafts of the Audited Financial Statements for review by the Members prior to finalization.
(ii) The Administrative Member shall deliver or shall cause to be delivered to the Members (and to the extent required under the applicable loan documents or the Cash Flow Participation Agreements, to the lender or the parties thereto, respectively), within forty-five (45) days after the end of each quarter during a Fiscal Year, the following unaudited financial statements of the Company and its Subsidiaries (on a consolidated basis): (i) a balance sheet as of the end of such quarter, (ii) an income and expense statement as of the end of such quarter, (iii) a cash flow statement showing the results of operations for such quarter, together with the results of operations for the period from the beginning of the Fiscal Year to the end of such quarter with a comparison of such results to the Annual Budget, (iv) a summary of the Members capital and Capital Accounts, (v) a summary of Distributions, and (vi) any other items required under any loan documents, any Cash Flow Participation Agreements or reasonably requested by the Company or any of its Subsidiaries.
(iii) The Administrative Member shall deliver (or shall cause to be delivered) to the Members (and to the extent required under the loan documents or the Cash Flow Participation Agreements, to lender or the parties thereto, respectively), within thirty (30) days after the end of each month, the following unaudited financial statements of the Company and its Subsidiaries (on a consolidated basis): (i) an unaudited balance sheet as of the end of such month, (ii) an income and expense statement as of the end of such month, (iii) a cash flow statement showing the results of operations for such month, together with the results of operations for the period from the beginning of the Fiscal Year to the end of such month, (iv) a reconciliation of actual expenses and revenues during such month and year-to-date compared with the amounts therefor in the Annual Budget, together with an explanation of material variances in actual costs versus budgeted costs, (v) a summary of the Members capital and Capital Accounts, (vi) an executive summary of the progress of the planning, entitlement, development, public relations and sales and marketing, including an updated construction schedule, (vii) any other significant developments, which reports shall include copies of all reports, requisitions and other informational items that shall be furnished by any Subsidiary during such month to the lender, and (viii) any other items reasonably requested by the Company.
(iv) The Administrative Member shall deliver (or shall cause to be delivered) to the Members (and to the extent required under the loan documents or the Cash Flow Participation Agreements, to the parties thereto) copies of the items Development Manager delivers pursuant to Section 5.3(d) of the Development Management Agreement.
(v) All financial statements required under this Section 10.18(b) shall be prepared in accordance with GAAP.
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(c) The Administrative Member shall arrange for the preparation and timely filing of (or cause to be prepared and timely filed) all tax and information returns of income, gains, deductions, losses and other items required to be filed by the Company or any of its Subsidiaries for federal, state and local income tax purposes and shall submit (or cause to be submitted) to the Members for their approval (not to be unreasonably withheld, delayed or conditioned) a draft of all such tax returns at least fifteen (15) days in advance of the due date (taking into account extensions). If the Members do not object to the treatment of any item set forth on the draft return within fifteen (15) days after delivery thereof, the Administrative Member shall timely file (or cause to be timely filed) all such tax returns with the appropriate authorities. The Administrative Member shall provide (or cause to be provided) or retain (or cause to be retained) copies of such tax and information returns at a location where they shall be available for inspection by the Members and their respective representatives during normal business hours. The Administrative Member shall cause the Companys accountants to furnish, within seventy-five (75) days of the close of each taxable year of the Company, the tax information reasonably required by them and their respective members, including Form K-ls, for federal and state income tax reporting purposes. The Members agree to promptly provide the Administrative Member with information relevant to tax status or tax reporting of the Company or its Subsidiaries as may be reasonably requested by the Administrative Member from time to time. The Administrative Member may rely on services provided by an Affiliate of the Lennar Member in connection with the performance of its responsibilities hereunder.
(d) The Administrative Member shall receive no additional compensation for performing its responsibilities under this Section 10.18 ; provided that nothing in this Agreement shall affect in any manner the right of the Development Manager to receive all remuneration, compensation and reimbursements under the Development Management Agreement, including to the extent its duties overlap with any of those of the Administrative Member hereunder.
10.19 Accountants . The Administrative Member shall engage the Accountants on behalf of the Company. The costs and expenses of the Accountants services and any and all other professionals involved in preparing the financial statements and reports required hereunder shall be borne by the Company or its Subsidiaries.
10.20 The Business Plan; Company-Specific Expenses . The Members and the Company have previously adopted (i) a business plan with respect to the Company, the Property and the Owner which, as of the Effective Date, constitutes the Business Plan for Fiscal Year 2017, and (ii) as part of the Business Plan, an annual budget with respect to the Company, the Property and the Owner which are attached as exhibits to the Business Plan and which, as of the Effective Date, constitutes the Annual Budget for the Fiscal Year 2017. For each Fiscal Year commencing with the 2018 Fiscal Year, the Development Manager (or if the Development Management Agreement has been terminated, the Administrative Member) shall prepare a Business Plan (including the Annual Budget) for the Fiscal Year and submit it to the Executive Committee for consideration at least thirty (30) days prior to January 1 of such Fiscal Year. If the Executive Committee fails to approve a new Business Plan for a Fiscal Year prior to January 1 of such Fiscal Year, then (x) the Business Plan (and Annual Budget) from the preceding Fiscal Year shall remain in effect with respect to committed expenditures (including committed capital expenditures) and general overhead expenses (but not new, uncommitted capital expenditures), and (y) the Administrative Member shall not make any distribution of Available Cash until a new Business Plan for the Fiscal Year has been approved by the Executive Committee. The Business Plan (including the Annual Budget) shall be reviewed and, if necessary, modified by the Executive Committee at each quarterly meeting. Unless otherwise determined by the Executive Committee, the Company, the Property and the Owner shall each be operated in strict accordance with the Business Plan (including the Annual Budget), and any determination to deviate therefrom in any respect shall require the approval of the Members as provided elsewhere in this Agreement, unless such deviation is a Permitted Deviation.
10.21 Financing . The Administrative Member is authorized to execute and deliver on behalf of the Company the Financing Documents necessary to consummate any debt financing (a Financing ) that has been approved by the Requisite Vote.
10.22 Development Bonds . No Member shall be required to obtain any Bonds in its own name or in the name of any of its Affiliates. As used herein Bonds means any development, improvement and/or related surety bonds required in connection with the acquisition, improvement and/or development of the Property.
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ARTICLE XI
TRANSFER OF INTERESTS/BUY-OUT
11.1 Restrictions on Transfer . Except as provided in this Article XI , (i) no Disposition (by operation of law or otherwise) shall be made by a Member, directly or indirectly of the whole or any part of such Members Interest (including the pledge of any constituent members interest in a Member and/or any other Disposition of any direct or indirect beneficial ownership interest in a Member or in a Members interest in the capital or profits of or Distributions by the Company), and (ii) no Person shall be issued any Interest and/or be admitted as a Member of the Company. In connection with considering whether to approve the admission of a New Member or the transfer of an Interest (or any portion thereof) or of a direct or indirect interest in a Member, the Voting Members may at the time consider changing the Requisite Vote required for approvals under Article X as a condition to granting such approval; provided that any such revision shall constitute an amendment to this Agreement and shall require the 100% Approval of the Voting Members.
11.2 Permitted Dispositions . Subject to the provisions of Sections 11.3 , a Member may effect a Permitted Disposition without the consent of any other Member provided that the Member effecting such Permitted Disposition gives each of the other Members ten (10) Business Days prior written notice of such Permitted Disposition, provided further that (i) where such prior written notice is not feasible (e.g., where the Permitted Disposition results from a transfer by will or intestacy), such notice shall be given no later than ten (10) Business Days after such Permitted Disposition and (ii) no such notice shall be required where the Permitted Disposition is neither a direct transfer of an Interest nor results in a change in Control or in the majority ownership of the Member effecting such Permitted Disposition.
11.3 Conditions . No assignee or transferee of an Interest or of any interest in the capital or profits of or Distributions by the Company (whether such assignee or transferee has become an assignee or transferee by direct assignment or transfer, operation of law or other reason or cause) shall be admitted as a substituted Member of the Company unless, in the case of an assignee or transferee of an Interest, all of the following conditions are satisfied (it being agreed that an assignee or a transferee of a mere interest in the capital of or Distributions by the Company shall never be admitted as a substituted Member of the Company without 100% Approval of the Members):
(a) such transfer or assignment is a Permitted Disposition, or the written consent of the Voting Members to such transfer or assignment was obtained pursuant to Section 10.2 , or such transfer or assignment is permitted pursuant to Section 11.4 or Section 11.5 ;
(b) the transferee shall have executed and delivered to the Members an agreement in which such transferee assumes and agrees to be bound by all of the terms and conditions of this Agreement, whether first accruing before or after the date of the transferees admission as a Member; provided , however , that, unless otherwise agreed to by the Members pursuant to Section 10.2 or otherwise expressly provided in this Agreement, the transferring Member shall remain liable for all obligations and liabilities of such Member or its Affiliates that arise out of any acts, omissions, events or circumstances that took place prior to the effective date of such Disposition; and
(c) all the conditions set forth in Section 11.6 .
11.4 Inter-Member and Third Party Transfers .
(a) A Member, including any Non-Voting Member or Defaulting Member (each, an Assigning Member ), may not effect an Inter-Member Transfer or a Third Party Transfer (other than a Permitted Disposition) unless (i) the Voting Members (and no Assigning Member shall be a Voting Member for this determination) approve such Inter-Member Transfer or Third Party Transfer pursuant to Section 10.1 or (ii) the Assigning Member has complied with the provisions of this Section 11.4 . For avoidance of doubt, it is agreed that a
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Member may not assign less than all of its Interest (or less than 100% of the direct or indirect interests in such Member) pursuant to this Section 11.4 without the approval of the Voting Members pursuant to Section 10.1 (excluding the vote of the Assigning Member pursuant to Section 8.2 ).
(b) The Assigning Member(s) shall give written notice (the ROFO Notice ) to each of the other Members other than any Member that does not have a Percentage Interest, any Defaulting Member or a Non-Voting Member pursuant to Section 10.1(b)(iv) (such other Members to whom notice is given are, collectively, the Offeree Members ) of:
(i) the Assigning Members desire to sell all of its Percentage Interest in the Company (or 100% of all direct or indirect equity interest in the Assigning Member) (the Percentage Interest of the Assigning Member or, if more than one, all of the Assigning Members, is collectively referred to as the Offered Interest ); and if there is more than one Assigning Member, all of the aggregate Offered Interest of the Assigning Members must be acquired and sold together pursuant to such ROFO Notice,
(ii) the sales price for the Offered Interest (the ROFO Price ), including the fair market value of any non-cash consideration and a description thereof,
(iii) the other material terms of the proposed transfer or assignment, including the extent, if any, to which the transferee shall assume any then-existing obligations or liability, whether contingent or then payable, of such Assigning Member (which, at the option of the Assigning Member, may be in the form of a draft purchase and sale agreement), and
(iv) in the case of a proposed Inter-Member Transfer only, the identity of the other Member (or the Person that would qualify as a Permitted Transferee or Controlled Affiliate of such other Member) that is the proposed transferee of the Offered Interest (each, a Proposed Transferee ), including a description of the ownership, affiliation and Control between such Member and such Proposed Transferee together with a copy of a fully-executed purchase and sale agreement pursuant to which each Proposed Transferee identified in the ROFO Notice has agreed, in writing, to acquire the Offered Interest (or portion thereof) pursuant to the terms and conditions in the ROFO Notice, but subject to the terms and conditions in this Section 11.4 (the Proposed Purchase Agreement ), it being agreed that delivery of a copy of the Proposed Purchase Agreement shall be a material requirement for each Assigning Members compliance with this clause (iv) .
The ROFO Notice shall constitute an offer that is irrevocable, subject to the terms and conditions of this Section 11.4 , to sell the Offered Interest to each of the Offeree Members in accordance with the terms and conditions set forth in this Section 11.4 . Each Offeree Member shall have fifteen (15) Business Days (the Initial Offer Period ) from the giving of the ROFO Notice to elect to purchase its pro rata share (based on the Percentage Interest of such Offeree Member as a percentage of the aggregate Percentage Interest of all Offeree Members) of the Offered Interest by giving written notice of such election (a ROFO Election Notice ) to the Assigning Member(s) and all of the other Offeree Members. Any Offeree Member failing to give a ROFO Election Notice (electing to purchase its pro rata share of the Offered Interest) to the Assigning Member(s) and all of the other Offeree Members prior to the expiration of the Initial Offer Period shall be deemed to have elected not to purchase any of the Offered Interest.
(c) If all of the Offeree Members give a ROFO Election Notice (electing to purchase their respective pro rata shares of the Offered Interest) to the Assigning Member(s) and all of the other Offeree Members prior to the expiration of the Initial Offer Period, then (i) all of the Offeree Members shall be deemed to be Buying ROFO Members pursuant to Section 11.4(d) and shall make the ROFO Deposit required by Section 11.4(d) within five (5) Business Days after the expiration of the Initial Offer Period, and (ii) the Assigning Member(s) and the Offeree Members shall proceed in accordance with Section 11.4(e) . If no Offeree Member gives a ROFO Election Notice (electing to purchase its pro rata share of the Offered Interest) to the Assigning Member(s) and all of the other Offeree Members prior to the expiration of the Initial Offer Period, the provisions of Section 11.4(i) shall apply.
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(d) If one or more, but fewer than all, of the Offeree Members give a timely ROFO Election Notice, then at least one Executive appointed by each of the Offeree Members that gave a ROFO Election Notice electing to purchase its pro rata share of the Offered Interest (collectively, the Electing Offeree Members ) shall meet (which may include telephonic participation pursuant to Section 10.16 ) at the offices of the Company, or such other location as agreed to by the Assigning Member(s) and the Electing Offeree Members, not later than seven (7) Business Days after the expiration of the Initial Offer Period (or such other date as agreed to by the Electing Offeree Members). Such meeting (the ROFO Determination Meeting ) shall be conducted by a Qualifying Law Partner selected by the Assigning Member(s), notice of which selection shall be given to the Electing Offeree Members at least two (2) Business Days prior to such meeting. At the ROFO Determination Meeting, each of the Executives representing the Electing Offeree Members shall make one of the following elections by giving written notice thereof at such meeting (which in the case of any Executive participating by telephone may be made by email or fax) to the Executives appointed by the other Electing Offeree Members present at such meeting: (i) revoke its ROFO Election Notice or (ii) increase the portion of the Offered Interest that such Electing Offeree Member is offering to purchase so as to equal such Electing Offeree Members pro rata share based on the Percentage Interest of such Electing Offeree Member as a percentage of the aggregate Percentage Interest of all Electing Offeree Members (or such other share as may be agreed to unanimously by the Executives representing the Electing Offeree Members). Any Electing Offeree Member that fails to make such written election at the ROFO Determination Meeting shall be deemed to have revoked its ROFO Election Notice. If any Electing Offeree Members revokes (or is deemed to have revoked) its ROFO Election Notice at the ROFO Determination Meeting, then the process described in this Section 11.4(d) shall repeat at such meeting until either (x) all Electing Offeree Members have revoked (or are deemed to have revoked) their ROFO Election Notices or (y) there are one or more remaining Electing Offeree Members who have elected, collectively, to purchase the entire Offered Interest from the Assigning Member(s) (such Electing Offeree Member(s), the Buying ROFO Members ). At the close of the ROFO Determination Meeting the Qualifying Law Partner shall announce the results of such meeting and confirm such results in writing (which may be by email or fax) to all the Assigning Member(s) and all the Offeree Members by no later 5:00 PM (local time in California) on the first Business Day following the meeting. Such announced results shall include whether there are any Buying ROFO Members and if so their identities and the respective share of the Offered Interest to be purchased by each. On the fifth (5th) Business Day after the ROFO Determination Meeting, each Buying ROFO Member shall deposit ten percent (10%) of its share (based on such Buying ROFO Members Percentage Interest as a percentage of the aggregate Percentage Interest of all Buying ROFO Members) of the ROFO Price (the ROFO Deposit ) with a national title insurance company selected by Assigning Member(s) (or another escrow agent agreed to in writing by the Assigning Member(s) and all the Buying ROFO Members) pursuant to an escrow agreement reasonably satisfactory to the escrow agent, the Assigning Member(s) and the Buying ROFO Members. The fees and disbursements of the Qualifying Law Partner incurred in connection with preparing for, conducting and confirming the results of the ROFO Determination Meeting shall be a Company expense.
(e) Subject to Sections 11.4(f) , (g) , (h) and (j) , if there is one or more Buying ROFO Member pursuant to Section 11.4(c) , Section 11.4(d) or Section 11.4(h) that has agreed to buy the entire Offered Interest, the Assigning Member(s) and all such Buying ROFO Members shall proceed to close on all purchases and sales pursuant to this Section 11.4 at the principal office of the Company (or at such other location as all the Assigning Member(s) and the Buying ROFO Members agree to in writing) on or before the 45th day after either (i) the day on which the Initial Offer Period expired (if all of the Offeree Members give a ROFO Election Notice as described in Section 11.4(c) ) or (ii) the day on which the ROFO Determination Meeting occurred (or on the next Business Day thereafter if such 45th day is not a Business Day), as applicable, or on such other date as the Assigning Member(s) and all of the Buying ROFO Members may agree to in writing. The Assigning Member(s) shall transfer to each Buying ROFO Member the Offered Interest (or applicable portion thereof) free and clear of all liens, encumbrances and adverse claims. At the closing, (I) each Assigning Member shall execute and deliver (or cause to be executed and delivered) to each Buying ROFO Member an assignment of the Offered Interest in the Standard Assignment Form and any other instruments that the Buying ROFO Member may reasonably require (with such other instruments to be in a form reasonably satisfactory to each of the Buying ROFO Members and such Assigning Member) to give each Buying ROFO Member good and clear title, free and clear of all liens, claims and other encumbrances, to the Offered Interest (or applicable portion thereof), and each Buying ROFO Member shall execute and deliver such assignment and, to the extent appropriate, such other instruments, (II) each Assigning Member(s) shall pay any transfer or similar taxes arising out of or in connection with the sale and transfer of such Offered Interest (or applicable portion thereof) to each Buying ROFO Member; (III) each Buying ROFO Member shall pay
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its share (as determined as set forth in the next sentence) of the ROFO Price (net of the amount of the ROFO Deposit funded by such Buying ROFO Member) by delivery of immediately available funds to the Assigning Member(s) in the amount of such price (and each Buying ROFO Member shall direct the escrow agent holding the portion of the ROFO Deposit funded by such Buying ROFO Member to pay the same to the Assigning Member), and (IV) all amounts then payable by any Assigning Member to the Company or to any other Member shall be repaid in full to the extent of the net cash proceeds received by such Assigning Member after payment of the expenses set forth in this Section 11.4(e) . If there is more than one Buying ROFO Member, each Buying ROFO Member shall purchase its pro rata share (based on such Buying ROFO Members Percentage Interest as a percentage of the aggregate Percentage Interest of all Buying ROFO Members) of the Offered Interest (or such other share as all the Buying ROFO Members shall agree to unanimously in writing, provided that the total amount being paid for the entire Offered Interest is equal to the ROFO Price). If there is more than one Assigning Member, the Assigning Members shall allocate the ROFO Price between or among them as determined by the Assigning Members, which shall be disclosed in the ROFO Notice, and all actions required by the Assigning Member(s) pursuant to this Section 11.4 shall be agreed upon by all of the Assigning Members so that they act in a single, unified manner. The Buying ROFO Members shall pay the ROFO Price only in immediately available funds, notwithstanding any non-cash consideration described in the Assigning Members ROFO Notice.
(f) If any Assigning Member fails to fulfill its obligation to sell the Offered Interest under this Section 11.4 and such failure continues for ten (10) days after written notice to such Assigning Member, then each Buying ROFO Member shall be entitled to obtain specific performance of the defaulting Assigning Members obligation to sell the Offered Interest (or applicable portion thereof), in which case the purchase price for the Offered Interest (or applicable portion thereof) shall be reduced so as to be eighty-five percent (85%) of the price that would have otherwise applied under this Section 11.4 if the defaulting Assigning Member had not defaulted and shall otherwise be on the same terms and conditions that apply to a purchase under this Section 11.4 . The Members acknowledge that such discount from one hundred percent (100%) to eighty-five (85%) in any of the circumstances described in this Section represents a fair and agreed to measurement of liquidated damages and is not a penalty.
(g) If all of the Buying ROFO Members fail to fulfill their obligation to buy the Offered Interest under this Section 11.4 and such failure continues for ten (10) days after written notice to all of the Buying ROFO Members, then the Assigning Member(s) shall have the right to cancel the sale to the Buying ROFO Members, in which case (i) the Assigning Member(s) shall receive the ROFO Deposits paid by the defaulting Buying ROFO Members as liquidated damages (and, if there is more than one Assigning Member, the ROFO Deposits shall be allocated between or among them in accordance with their relative allocations of the ROFO Price); and (ii) the Assigning Member(s) shall have the right to sell the Offered Interest to the Proposed Transferee(s) pursuant to Section 11.4(i) .
(h) If there is more than one Buying ROFO Member and one or more but less than all of the Buying ROFO Members fail to fulfill its or their obligation to buy the Offered Interest (or applicable portion thereof) under this Section 11.4 (such Offered Interest or portion thereof as to which a Buying ROFO Member has defaulted, the Defaulted ROFO Interest ) and such failure continues for ten (10) days after written notice to all of the Buying ROFO Members, including each defaulting Buying ROFO Member, then:
(i) Within five (5) Business Days after the expiration of such 10-day period, at least one Executive appointed by each of the non-defaulting Buying ROFO Members shall meet (which may include telephonic participation pursuant to Section 10.16 ) with at least one Executive appointed by the Assigning Member at the offices of the Company, or such other location as agreed to by such participants to determine whether, in addition to the pro rata share of the Offered Interest that each such Buying ROFO Member previously agreed to purchase pursuant to Section 11.4(c) or Section 11.4(d) , any one or more of the Buying ROFO Members (each, an Electing Buying ROFO Member ) will elect to acquire the Defaulted ROFO Interest at the same price that would have otherwise applied to such Defaulted ROFO Interest under this Section 11.4 if the defaulting Buying ROFO Member(s) had not defaulted. If there is more than one Electing Buying ROFO Member, each will purchase its pro rata share of the Defaulted ROFO Interest based on the Percentage Interest of each Electing Buying ROFO Member as a percentage of the aggregate Percentage Interest of all Electing Buying ROFO Members (or as otherwise unanimously agreed upon by the Electing Buying ROFO Members). Such meeting (the Default ROFO Determination Meeting ) shall be conducted by the Qualifying Law Partner that conducted the ROFO Determination
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Meeting (unless either (i) there was no ROFO Determination Meeting because the purchase of the Defaulted ROFO Interest was proposed to be by all of the Offeree Members under Section 11.4(c) , in which case, the Default ROFO Determination Meeting shall be conducted by a Qualifying Law Partner selected by the Assigning Member(s), notice of which selection shall be given to the non-defaulting Buying ROFO Members at least two (2) Business Days prior to such meeting or (ii) the Assigning Member(s) has (or have) selected a different Qualifying Law Partner and notified the non-defaulting Buying ROFO Members thereof at least one (1) Business Day prior to such meeting). At such meeting, each non-defaulting Buying ROFO Member shall have the right to become an Electing Buying ROFO Member by electing by written notice (which in the case of any Executive participating by telephone may be made by email or fax) to the Assigning Member(s) and the other non-defaulting Buying ROFO Members to acquire its pro rata portion (or such other share as may be agreed upon unanimously by all the Electing Buying ROFO Members) of the Defaulted ROFO Interest; provided , however , that such election shall not affect such Electing Buying ROFO Members obligation to purchase the Offered Interest (or applicable portion thereof) that such Electing Buying ROFO Member had previously agreed to buy pursuant to Section 11.4(c) or Section 11.4(d) . At the close of the ROFO Determination Meeting, the Qualifying Law Partner shall announce the results of such meeting and confirm such results in writing (which may be by email or fax) to the Assigning Member(s) and all of the Offeree Members by no later 5:00 PM (local time in California) on the first Business Day following the meeting. The fees and disbursements of the Qualifying Law Partner incurred in connection with preparing for, conducting and confirming the results of the Default ROFO Determination Meeting shall be borne solely by the defaulting Buying ROFO Member, provided that if the defaulting Buying ROFO Member does not pay such fees and disbursements when due, the Company shall pay the same and the defaulting Member shall reimburse the Company for the full amount thereof paid by the Company within ten days after written demand by the Company (and if the defaulting Member fails to so reimburse the Company, the Company may, without limitation of any other rights and remedies that the Company or any Member may have as a result of such failure), reimburse itself for all such fees and disbursements, together with interest thereon at the lower of (i) 25% per annum, compounded monthly, and (ii) the highest interest rate permitted by applicable law, from the date such amounts were paid by the Company until so reimbursed, out of Distributions and all other amounts that are otherwise payable by the Company to the Defaulting Member.
(ii) If the Default ROFO Determination Meeting results in there being non-defaulting Buying ROFO Members, including the Electing Buying ROFO Members, who collectively agree to acquire the entire Offered Interest (including the Defaulted ROFO Interest), the closing on the purchase and sale of the Offered Interest shall take place on the fifth (5th) Business Day following the Default ROFO Determination Meeting. The closing shall be in accordance with Section 11.4(e) , provided that (A) the portion of the Offered Interest to be acquired by each of the Buying ROFO Members, including the Electing Buying ROFO Members, but excluding each defaulting Buying ROFO Member, and the related portion of the purchase price, shall be determined pursuant to Section 11.4(h)(i) , and (B) the Electing Buying ROFO Members shall receive the ROFO Deposit of each of the defaulting Buying ROFO Members as liquidated damages; and if there is more than one Electing Buying ROFO Member, such ROFO Deposit of the defaulting Buying ROFO Members shall be apportioned among them in the same proportion as each of the Electing Buying ROFO Members pay for the purchase price of the Defaulted ROFO Interest. In the event of a default by any of the Buying ROFO Members or any Assigning Member at such closing, the provision of Sections 11.4(f) , 11.4(g) and this Section 11.4(h) shall again apply.
(iii) If the Default ROFO Determination Meeting does not result in there being one or more non-defaulting Buying ROFO Members, including the Electing Buying ROFO Members, who collectively agree to acquire the entire Offered Interest (including the Defaulted ROFO Interest), or if the non-defaulting Buying ROFO Members notify the Assigning Member(s) that there are no Electing Buying ROFO Members, then, with no further action required, the sale to Buying ROFO Members shall be deemed to be cancelled, in which case (1) the ROFO Deposits paid by the non-defaulting Buying ROFO Members shall be returned to them; (2) the Assigning Members(s) shall receive the ROFO Deposit paid by each defaulting Buying ROFO Member as liquidated damages; and (3) the Assigning Members(s) shall:
(A) in the case of a ROFO Notice given pursuant to clause (iv) of Section 11.4(b) , sell the Offered Interest pursuant to Section 11.4(i) to such Member, Controlled Affiliate of a Member or Person that qualifies as a Permitted Transferee of a Member, or
(B) in the case of ROFO Notice given in connection with a proposed Third Party Transfer, have the right to sell the Offered Interest to a Third Party that is not a Prohibited Transferee pursuant to Section 11.4(j) .
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(i) If the ROFO Notice given by the Assigning Member was given pursuant to Section 11.4(b)(iv) and (i) no Offeree Member gives a ROFO Election Notice (electing to purchase its pro rata share of the Offered Interest) to the Assigning Member(s) and all of the other Offeree Members prior to the expiration of the Initial Offer Period, or (ii) pursuant to the terms of this Section 11.4 , there are no Buying ROFO Members, or (iii) there is one or more Buying ROFO Member but pursuant to Section 11.4(g) or (h) there is no closing of the sale of the Offered Interest due to a default on the part of one or more of the Buying ROFO Members, then, in any such case, the Assigning Member(s) may sell the Offered Interest to the Proposed Transferee at any time within ninety (90) days after the latest of (A) the expiration of the Initial Offer Period without any Offeree Members having timely provided a ROFO Election Notice (electing to purchase their pro rata share of the Offered Interest) as provided in Section 11.4(b) , (B) the date of the ROFO Determination Meeting, if any, (C) the date of the last Default ROFO Determination Meeting, if any, and (D) the date on which it is determined that each Assigning Member has the right to sell the Offered Interest pursuant to this Section 11.4(i) ; provided , however , that such sale shall be at 100% or more of the ROFO Price and otherwise in all material respects on the terms and subject to the conditions not more favorable to the buyer than as set forth in the Proposed Purchase Agreement. Each of the other Members (other than any defaulting Buying ROFO Members and any Defaulting Members) shall have the right to request and receive supporting documentation from the Assigning Member(s) and any purchasers of the Offered Interest or any portion thereof evidencing compliance with the terms and conditions of this Section 11.4(i) . If the Assigning Member(s) has (or have) not sold the Offered Interest in compliance with this Section 11.4(i) prior to the expiration of such 90-day period, the Assigning Member(s) shall not have the right to sell the Offered Interest pursuant to this Section 11.4 without again complying de novo with the provisions of this Section 11.4 .
(j) If the ROFO Notice given by the Assigning Member(s) was given in connection with a proposed Third Party Transfer and (i) no Offeree Member gives a ROFO Election Notice (electing to purchase its pro rata share of the Offered Interest) to the Assigning Member(s) and all of the other Offeree Members prior to the expiration of the Initial Offer Period, or (ii) pursuant to the terms of this Section 11.4 , there are no Buying ROFO Members, or (iii) there are one or more Buying ROFO Members but pursuant to Section 11.4(g) or (h) there is no closing of the sale of the Offered Interest due to a default on the part of one or more of the Buying ROFO Members, then, in any such case, the Assigning Member(s) may sell the Offered Interest to any Third Party that is not a Prohibited Transferee, at any time within six (6) months after the latest of (A) the expiration of the Initial Offer Period without any Offeree Members having timely provided a ROFO Election Notice (electing to purchase their pro rata share of the Offered Interest) as provided in Section 11.4(b) , (B) the date of the ROFO Determination Meeting, if any, (C) the date of the last Default ROFO Determination Meeting, if any, and (D) the date on which it is determined that Assigning Member has the right to sell the Offered Interest pursuant to this Section 11.4(j) ; provided , however , that such sale shall be at 100% or more of the ROFO Price and otherwise in all material respects on the terms not more favorable to the buyer than those set forth in the ROFO Notice. Each of the other Members (other than any defaulting Buying ROFO Members and any Defaulting Members) shall have the right to request and receive supporting documentation from the Assigning Member(s) and any purchasers of the Offered Interest or any portion thereof evidencing compliance with the terms and conditions of this Section 11.4(j) . If the Assigning Member has not sold the Offered Interest in compliance with this Section 11.4(j) prior to the expiration of such six month period, the Assigning Member shall not have the right to sell the Offered Interest pursuant to this Section 11.4 without again complying de novo with the provisions of this Section 11.4 .
(k) If (i) a Person that is not a Member (including a Third Party and a Person that qualifies as a Permitted Transferee, or is a Controlled Affiliate, of a Member other than the Assigning Member) acquires an Interest from the Assigning Member(s) pursuant to clause (i) of Section 11.4(a) or the terms of Section 11.4(i) or 11.4(j) , respectively, and such transfer and transferee meets all of the conditions in Section 11.3 , then such transferee shall become a new Member (a New Member ) with the same number of Votes as it received from the Assigning Member as a result of such acquisition; provided that the Assigning Member was a Voting Member at the time of the transfer of Interest.
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(l) Reserved.
(m) Notwithstanding anything to the contrary contained in this Agreement, a Voting Member that becomes a defaulting Buying ROFO Member or a defaulting Assigning Member under this Section 11.4 (which default continues after the expiration of any applicable notice and grace periods set forth in this Section 11.4 ) shall (A) permanently become a Defaulting Member and cease to be a Voting Member, and (B) not have any right to thereafter give a ROFO Election Notice or to give an Election Notice under Section 11.5 .
(n) Notwithstanding anything to the contrary contained on this Section 11.4 , in the event of a transfer of Interest pursuant to this Section 11.4 , the provisions of Section 10.1(b) shall apply with respect to the Members rights to Vote.
(o) Notwithstanding anything to the contrary contained on this Section 11.4 :
(i) no Member may give a ROFO Notice if:
(A) a ROFO Notice was previously given unless either (1) it has been determined that there will be no sale of the Offered Interest that was the subject of the previous Offer Notice pursuant to this Section 11.4 or (2) a sale of the Offered Interest that was the subject of the previous Offer Notice has closed pursuant thereto; or
(B) an Election Notice was previously given pursuant to Section 11.5 unless the closing pursuant to such Election Notice has occurred or such transaction has been terminated prior to the closing thereof pursuant to Section 11.5 .
11.5 Buy-Out .
(a) At any time and from time to time, the Voting Members, by Majority Approval (collectively, the Buying Members ), shall have the right to implement the buy-out procedures set forth in this Section 11.5 to buy the Percentage Interest of a Defaulting Member by giving written notice thereof (the Election Notice ) to such Defaulting Member (the Selling Member ). Such Election Notice shall state that the Buying Members shall buy the Percentage Interest of the Selling Member for a purchase price equal to the Individual Member Price of the Selling Member as determined pursuant to a Buy-Out Baseball Arbitration and as set forth in this Section 11.5 . Notwithstanding anything to the contrary contained in this Section 11.5(a) , an Election Notice may not be given if an Election Notice shall have previously been given (unless the closing pursuant to such Election Notice has occurred or such transaction has been terminated prior to the closing thereof pursuant to this Section 11.5 ).
(b) Each Buying Member, within five (5) Business Days after the final determination of the Individual Member Prices (the Final Determination ), shall deposit ten percent (10%) of its pro rata share (based on such Buying Members Percentage Interest as a percentage of the aggregate Percentage Interest of all Buying Members) of the Individual Member Price of the Selling Member (or based on such other method of allocating such Individual Member Prices as agreed upon unanimously by all of the Buying Members) to be paid to the Selling Member (the Buy-Out Deposit ) with a national title insurance company, or other escrow agent acceptable to the parties, pursuant to an escrow agreement reasonably satisfactory to it, the Buying Members and the Selling Member.
(c) The closing of any purchase and sale pursuant to this Section 11.5 shall be held at the principal office of the Company on or before the 30th day after the Final Determination (or on the next Business Day thereafter if such 30th day is not a Business Day) or on such other date and/or place as may be agreed to in writing by the Buying Members and the Selling Member. At the closing, (i) the Selling Member shall execute and deliver to each Buying Member an assignment of the Percentage Interest of such Selling Member (or applicable portion thereof) in the Standard Assignment Form and any other instruments that the Buying Member may
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reasonably require (with such other instruments to be in a form reasonably satisfactory to each of the Buying Members and the Selling Member) to give each Buying Member good and clear title to such Selling Members Percentage Interest (or applicable portion thereof), and each Buying Member shall execute and deliver such assignment and, to the extent appropriate, such other instruments, (ii) the Selling Member shall pay any transfer or similar taxes arising out of or in connection with the sale and transfer of its Percentage Interest (or applicable portion thereof) to each Buying Member; (iii) the Buying Member shall pay the purchase price (or, if there is more than one Buying Member, each Buying Member shall pay its pro rata share of the purchase price) determined as provided in Section 11.5(a) , after application of the Buy-Out Deposit paid by such Buying Member, by delivery of immediately available funds, such that the Selling Member receives an amount (including its share of the Buy-Out Deposit) equal to its Individual Member Price as determined by the Buy-Out Baseball Arbitration, and (iv) all amounts then payable by the Selling Member to the Company or to any other Member that is owed by the Selling Member pursuant to this Agreement shall be paid out of (and to the extent of) the Individual Member Price payable to such Selling Member. Each Buying Member shall purchase its pro rata share (based on such Buying Members Percentage Interest as a percentage of the aggregate Percentage Interest of all Buying Members) of the Percentage Interest of the Selling Member (or in such other proportion as all the Buying Members shall agree to unanimously in writing, provided that the total amount being paid for the Selling Members Percentage Interest does not change). Notwithstanding anything to the contrary contained in this Section 11.5 , the Buying Members may offset against amounts due to the Selling Member any amounts due from the Selling Member to the Company or to any Buying Members or their Affiliated Guarantors pursuant to this Agreement or any Reimbursement Agreement.
(d) If the Selling Member fails to fulfill its obligation to sell its Percentage Interest under this Section 11.5 and such failure continues for ten (10) days after written notice to such Selling Member, then the provisions of Section 11.5(h) shall apply and, in addition, the Buying Member(s) shall be entitled to obtain specific performance of the defaulting Selling Members obligation to sell its Percentage Interest (or applicable portion thereof), in which case the purchase price for the Percentage Interest of the defaulting Selling Member (or applicable portion thereof) shall be reduced so as to be eighty-five percent (85%) of the Individual Member Price that would have otherwise applied under Section 11.5(a) if the defaulting Selling Member had not defaulted and shall otherwise be on the same terms and conditions that apply to a purchase under this Section 11.5 . The Members agree that such discount from 100% to 85% represents a fair and agreed to measurement of liquidated damages and is not a penalty.
(e) If all of the Buying Members fail to fulfill their obligation to buy the Percentage Interests of the Selling Member under this Section 11.5 and such failure continues for ten (10) days after written notice to the defaulting Buying Member, then the provisions of Section 11.5(h) shall apply and, without any further action by any party, such purchase and sale shall be deemed to have been cancelled, in which case the Selling Member shall receive the Buy-Out Deposit paid by the defaulting Buying Member as liquidated damages.
(f) If one or more but less than all of the Buying Members fail to fulfill its or their obligation to buy the applicable portion of the Percentage Interest of the Selling Member under this Section 11.5 (such portion of the Interest, the Defaulted Buy-Out Interest ) and such failure continues for ten (10) days after written notice to all of the Buying Members, including each defaulting Buying Member, then each defaulting Buying Member shall be subject to the provisions of Section 11.5(h) and, in addition:
(i) Within five (5) Business Days after the expiration of such 10-day period, at least one Executive appointed by each of the non-defaulting Buying Members shall meet (which may include telephonic participation pursuant to Section 10.16 ) with at least one Executive appointed by the Selling Member at the offices of the Company, or such other location as agreed to by such participants to determine whether, in addition to the pro rata share of the Selling Members Percentage Interest that each such Buying Member is obligated to buy pursuant to this Section 11.5 , any one or more of the Buying Members (each, an Electing Buying B/S Member ) will elect to acquire the Defaulted Buy-Out Interest at the same price that would have otherwise applied to such Defaulted Buy-Out Interest under this Section 11.5 if the defaulting Buying Member(s) had not defaulted. If there is more than one Electing Buying B/S Member, each will purchase its pro rata share of the Defaulted Buy-Out Interest based on the Percentage Interest of each Electing Buying B/S Member as a percentage of the aggregate Percentage Interest of all Electing Buying B/S Members (or as otherwise unanimously agreed upon by the Electing Buying B/S Members). Such meeting (the Internal B/S Determination Meeting ) shall be conducted by a Qualifying Law Partner selected by the Selling Member, notice of which selection shall be given to all the
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Buying Members at least one (1) Business Day prior to such meeting. At such meeting, each non-defaulting Buying Member shall have the right to become an Electing Buying B/S Member by electing by written notice (which in the case of any Executive participating by telephone may be made by email or fax) to the Selling Member and the other non-defaulting Buying Members to acquire its pro rata portion of the Defaulted Buy-Out Interest; provided , however , that such election shall not affect such Electing Buying B/S Members obligation to purchase the Interest (or applicable portion thereof) of the Selling Member that such Electing Buying B/S Member was already obligated to buy pursuant to this Section 11.5 . At the close of the Internal B/S Determination Meeting the Qualifying Law Partner shall announce the results of such meeting and confirm such results in writing (which may be by email or fax) to all the Members by no later 5:00 PM (local time in California) on the first Business Day following the meeting. The fees and disbursements of the Qualifying Law Partner incurred in connection with preparing for, conducting and confirming the results of the Internal B/S Determination Meeting shall be a Company expense.
(ii) If the Internal B/S Determination Meeting results in there being one or more non-defaulting Buying Members, including the Electing Buying B/S Members, who collectively agree to acquire the entire Percentage Interest (including the Defaulted Buy-Out Interest) of the Selling Member, the closing on the purchase and sale of such Percentage Interest shall take place on the fifth (5th) Business Day following the Internal B/S Determination Meeting. The closing shall be in accordance with Section 11.5(c) ; provided that (A) the portion of the Percentage Interest of the Selling Member to be acquired by each of the Buying Members, including the Electing Buying B/S Members, but excluding each defaulting Electing Buying B/S Member, and the related portion of the purchase price, shall be determined pursuant to Section 11.5(f)(i) and (b) the Electing Buying B/S Members may elect to receive the Buy-Out Deposit of each of the defaulting Buying Members as liquidated damages (and if there is more than one Electing Buying B/S Member, such Buy-Out Deposit of the defaulting Buying Members shall be apportioned among the Electing Buying B/S Members in the same proportion as each of the Electing Buying B/S Members pay for the purchase price of the Defaulted Buy-Out Interest). In the event of a default by any of the Buying Members or the Selling Member at such closing, the provision of Sections 11.5(d) , 11.5(e) and this Section 11.5(f) shall again apply.
(iii) If the Internal B/S Determination Meeting does not result in there being at least one non-defaulting Buying Member (including any Electing Buying B/S Members) who collectively agree to acquire the entire Percentage Interest (including the Defaulted Buy-Out Interest) of the Selling Member, or if the non-defaulting Buying Members notify the Selling Member that there are no Electing Buying B/S Members, then, with no further action by any party, the sale to the Buying Members shall be deemed to have been cancelled. Upon such cancellation, the Selling Member shall have the right to elect (A) to receive the Buy-Out Deposits paid by the defaulting Buying Members as liquidated damages, or (B) to pursue all rights and remedies that may be available to the Selling Member at law, in equity or otherwise against such defaulting Buying Members, including any claims for losses, damages and expenses (including attorneys fees) resulting from the failure of such defaulting Buying Members to close under this Section 11.5 as and when required.
(g) Reserved.
(h) Notwithstanding anything to the contrary contained in this Agreement, a Voting Member that becomes a defaulting Buying Member or a defaulting Selling Member under this Section 11.5 (which default continues after the expiration of any applicable notice and grace periods set forth in this Section 11.5 ) shall (A) permanently become a Defaulting Member and cease to be a Voting Member and (B) not have any right to thereafter give a ROFO Election Notice under Section 11.4 .
(i) Distributions of Available Cash and the making of Additional Capital Contributions may be made in accordance with the provisions of this Agreement during the period from the issuance of an Election Notice to the closing of a purchase and sale pursuant to such notice, provided that if during such period any Distributions (excluding Distributions pursuant to Section 9.7(a)(i) ) and/or Additional Capital Contributions are made or there is any change in any Members Percentage Interest or if on the date of any closing pursuant to an Election Notice there is any undistributed Available Cash, then, on the written request of any Member provided before the later of (x) ten (10) days prior to the closing date or (y) five (5) Business Days after the requesting Member obtains actual notice of the matter in question, the Accountants shall re-determine the Individual Member Prices as follows:
(i) if any Distributions (excluding Distributions pursuant to Section 9.7(a)(i) ) are made during such period, then the Selling Members Individual Member Price shall be reduced by one dollar for each dollar of such Distributions received by such Selling Member during such period;
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(ii) if on the closing date there is any Available Cash that has not been distributed pursuant to Section 9.7 (or, if applicable, Section 9.8 ), such Available Cash shall not be distributed to the Selling Member and there shall be no increase or decrease in any Selling Members Individual Member Price by reason thereof; and
(iii) if any Additional Capital Contributions are made during such period or if there is any change in any Members Percentage Interest during such period, the Individual Member Prices shall be re-calculated taking the same into account.
Any redetermination by the Accountants pursuant to this Section 11.5(i) shall be completed on or immediately prior to the scheduled closing date of the purchase and sale of the Percentage Interests under this Section 11.5 . If the Accountants cannot complete such redetermination prior to the scheduled closing date, such closing date shall be postponed until the Accountants have completed the calculation, which shall be binding on the Members absent manifest error and provided the Accountants have not exceeded their authority under this Section 11.5 . In such event, such re-determined Individual Member Prices as computed by the Accountants shall be used to determine the Individual Member Price(s) of the Selling Member(s).
(j) Notwithstanding anything to the contrary contained in this Section 11.5 , the Votes of the Members after a purchase and sale of a Percentage Interest pursuant to this Section 11.5 shall be governed by Section 10.1(b) .
(k) The terms and provisions of this Section 11.5 shall be self-operative without the need to enter into any further agreements with respect to the matters set forth herein, except as otherwise provided in this Section 11.5 .
11.6 Additional Conditions . Notwithstanding anything to the contrary contained in this Agreement, each of the Members agrees that it shall not, unless approved in writing by all Members, directly or indirectly Dispose of its Interest, or any portion thereof or direct or indirect interest therein (and any attempted Disposition shall be ineffective and void ab initio), if such Disposition would (i) create a default under the terms of any indebtedness or other contractual obligation of the Company or any Subsidiary then outstanding to any third party, (ii) cause a technical or other termination of the Company for federal income tax purposes that results, directly or indirectly, in a materially adverse tax effect on any other Member.
11.7 General Provisions Regarding Assignments .
(a) A transferee who has been admitted as a substituted Member in accordance with this Article XI or a New Member that has been issued an Interest by the Company and is admitted as a Member in accordance with Section 10.1(c) shall have all the rights and powers and be subject to all the restrictions and liabilities of a Member under this Agreement, and shall be subject to all of the provisions of this Agreement.
(b) Upon admission of a substituted Member or New Member, the Company shall amend and/or restate this Agreement in order to document such admission (including, without limitation, by amending Exhibit A to reflect the name, address, Percentage Interest and Legacy Interest of such Member). No Person shall be admitted as a substituted Member or a New Member unless such Person shall have executed and delivered to the Members this Agreement, as so amended and/or restated, or an agreement as described in Section 11.3(b) . In such event, the Company shall not be dissolved or wound up, but instead shall continue as before with, however, the substitution of such New Member or addition of such New Member. Except as expressly provided in this Agreement, no such Disposition of an Interest by a Member shall relieve the transferor Member from any of its
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obligations under this Agreement arising from any acts, omissions, facts or circumstances occurring prior to such Disposition (it being understood that, except as otherwise expressly provided herein, the transferor Member shall be relieved of such obligations to the extent that the same arise from acts, omissions, facts or circumstances first occurring after such Disposition and the same are assumed in writing by the transferee, but the transferor Member and its Affiliated Guarantor of the transferor Member shall remain liable to the extent set forth in Section 11.5(g) ).
(c) A transferee Member or a New Member shall be admitted pursuant to the terms of this Agreement as of the first day of the month following the month in which such Member has acquired the Interest and been so admitted as a Member and, for purposes of allocating Profit, Loss and Distributions, such Member shall be treated as having become a substituted or New Member (as the case may be) with respect to the Interest acquired on such date, unless, with respect to a transferee Member, the transferor and transferee agree to another method of allocation that is approved by the Members pursuant to Section 10.1 .
(d) The Members shall cause the Certificate to be amended if and to the extent necessary and required by the Act to add a substituted or New Member.
11.8 Effect of Noncompliance . Any direct or indirect Disposition of an Interest or portion thereof or direct or indirect interest therein in contravention of any of the provisions of this Article XI shall be of no force or effect and shall be void ab initio, and accordingly shall not bind or be recognized by the Company.
ARTICLE XII
LIABILITY AND INDEMNIFICATION
12.1 Liability of Executives and Members .
(a) No Member, Executive or Affiliate of either an Executive or a Member, and no trustee or designee, officer, director, partner, employee, agent, successor or assign of an Executive, a Member or an Affiliate of an Executive or a Member (all of the foregoing collectively, Member Related Parties ), shall be liable to the Company or another Member for any loss or damage incurred by reason of any act performed or omitted by such Member Related Party in connection with the activities of the Company or in dealing with third parties on behalf of the Company provided such act or omission was (i) taken in good faith, (ii) reasonably believed to be in the best interests of the Company, (iii) within the scope of authority granted to the Person in question, and (iv) was not attributable to the fraud, bad faith, willful misconduct or gross negligence on the part of the Member Related Party. No Executive or Member shall owe any duty whatsoever (fiduciary or otherwise) to any assignee or transferee of a Member or a Members Interest (whether such assignee or transferee has become an assignee or transferee of such Member or such Members Interest by direct or indirect assignment or transfer, operation of law or other reason or cause), and no such assignee or transferee shall have any right or standing to bring any action (derivative or otherwise) against the Executives, the Members or the Company relating to the Executives or the Members conduct concerning the Company or this Agreement, unless, in each such case, such assignee or transferee has become a substituted Member of the Company in the manner provided in this Agreement and then only in accordance with the terms of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, in no event shall any Member have any liability to the Company or to any other Member for any act or omission concerning the Company, its Subsidiaries or any of their respective assets that occurred prior to December 29, 2010.
(b) Notwithstanding anything to the contrary in this Agreement, each Executive will be entitled to act with regard to the business and affairs of the Company in the manner it believes in its sole discretion is in the best interests of its appointing Member, and each Member will be entitled to cause its appointed Executives (who will be acting as the Members agents) to vote for or against any matter submitted to a vote or for consent pursuant to this Agreement in the Members sole discretion as it deems to be in its best interests. No Executive or Member, nor any Affiliate, stockholder, partner, member, officer, director, employee or agent of any Member will be liable to the Company or any other Member or any Affiliate of any other Member for any conduct permitted by the first sentence of this paragraph. Without limiting the foregoing, each Executive is entitled to exercise his or her voting rights on the Executive Committee in the interests of, and as agent for, the Member which appointed that Executive, even if that is not in the interests of the other Members, or the Company or any of the Subsidiaries as a whole, and no Executive will be liable to the Company or any of the Subsidiaries, or to any other Member or any Affiliate of any Member, for doing so.
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12.2 Indemnification of Executives and Members . To the fullest extent permitted under the Act, the Company, its receiver or its trustee shall indemnify, defend and hold harmless each Executive and Member (and any Affiliate of an Executive or a Member) and the trustees, designees, managers, officers, directors, members, former member, partners, employees, agents, successors and assigns of an Executive, a Member or an Affiliate of an Executive or a Member or former member (each an Indemnified Party ) from and against any and all claims, demands, liabilities, costs, damages, expenses, and causes of action of any nature whatsoever suffered or incurred by an Indemnified Party and arising out of or attributable to any act performed or omitted to be performed in connection with the activities of the Company or in dealing with third parties on behalf of the Company, (including costs and expenses of attorneys and paralegals fees before and at trial and at all appellate levels, whether or not suit is instituted (which attorneys costs and fees shall be paid as incurred)), and the settlement of any and all claims, demands, liabilities, costs, damages, expenses, and causes of action of any nature; provided that such act or omission was (i) taken in good faith, (ii) reasonably believed to be in the best interests of the Company, (iii) within the scope of authority granted to the Person in question, and (iv) was not attributable to fraud, bad faith, willful misconduct or gross negligence on the part such Indemnified Party or its Affiliate. To the extent permitted by law, each Member hereby waives any fiduciary or similar duty that the other Members may owe to it under applicable law. For purposes of this Section 12.2 only, the term Member shall be deemed to include any Person who was at any time a member in the Company, including members in the Company prior to December 29, 2010. All Indemnified Parties are intended third party beneficiaries, and accordingly may enforce the provisions of, this Section 12.2 .
12.3 Indemnification of Company and Members by a Member . Each Member shall indemnify, defend and hold harmless the Company and the other Members from and against any and all claims, demands, liabilities, costs, damages, expenses, and causes of action of any nature whatsoever arising out of or attributable to (i) any act performed by or on behalf of such Member in its capacity as such (including acts performed by or on behalf of a Member in its capacity as the Administrative Member) or its designated Executive, acting in its capacity as such, on or after December 29, 2010 which is not performed in good faith or is not reasonably believed by such Member or its designated Executive to be in the best interest of the Company and within the scope of authority conferred upon such Member or its designated Executive under this Agreement, (ii) any fraud, bad faith, willful misconduct or gross negligence of such Member or its designated Executive committed on or after December 29, 2010, (iii) the breach by the Company of any of its representations and warranties made under any purchase, loan or other agreement entered into in connection with the acquisition of the Property or any portion thereof, which breach was the result of information or matters relating to such Member and not to the Company or the Property, or (iv) any denial of an insurance claim by the Company based on an intentional misstatement or intentional withholding of information by such Member.
12.4 Limited Recourse . Except as expressly otherwise set forth in this Agreement, no Member or the Company shall have any recourse against any Member for any liability of such Member arising under this Agreement beyond such Members Interest and the proceeds thereof. Except as expressly otherwise set forth in this Agreement, no officer, director, partner, member, employee, agent, trustee, Executive or principal of a Member shall have any personal liability for the obligations of such Member under this Agreement.
ARTICLE XIII
DISSOLUTION AND TERMINATION OF THE COMPANY
13.1 Dissolution .
(a) The happening of any one of the following events shall work an immediate dissolution of the Company:
(i) Decision of Members . Upon the unanimous agreement in writing of the Voting Members (and, if any Legacy Interests are then outstanding, the Members holding Legacy Interests) to dissolve the Company; or
(ii) No Remaining Members . Any time that there is no remaining Member of the Company.
(b) Except as otherwise specifically provided in this Agreement, each Member agrees that, without the unanimous consent of all of the Voting Members, a Member may not withdraw from or cause a voluntary dissolution of the Company. In the event that any Member withdraws from or causes a voluntary dissolution of the Company in contravention of this Agreement, such withdrawal or the causing of a voluntary dissolution shall not affect such Members liability for obligations of the Company and such Member shall be liable for all damages attributable to its breach of this Agreement.
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13.2 Winding Up .
(a) Commencement . In the event of the dissolution of the Company in accordance with Section 3.1 or Section 13.1 , the Administrative Member, on behalf of the Company and with the consent of the requisite Voting Members, shall commence to wind up the affairs of the Company and to liquidate its assets. The Members shall have full right and unlimited discretion to determine in good faith and in a reasonable manner the time, manner and terms of any sale or sales of the Company Property or any part thereof pursuant to such liquidation having due regard to the activity and condition of the relevant market and general financial and economic conditions.
(b) Distributions . Following the payment of all liabilities of the Company to third parties and all costs of liquidation and termination, and subject to the right of the Members to set up such reasonable cash Reserves as and for so long as is reasonably necessary in the good faith judgment of the Members for any contingent or unforeseen liabilities or obligations of the Company, the Administrative Member shall, with the consent of the requisite Voting Members, distribute the proceeds of the liquidation and any other funds of the Company in accordance with Section 9.8 (after deducting from amounts to which a Member is entitled any sum such Member owes the Company pursuant to this Agreement).
13.3 Termination and Cancellation . Upon the completion of the liquidation of the Company and the distribution of all Company funds, the Company shall terminate and the Members shall cause to be executed and recorded articles of dissolution of the Company as well as any and all other documents required to effectuate the dissolution and termination of the Company.
ARTICLE XIV
NOTICES
14.1 Notices . Whenever any notice, any of the reports specified in Article X or any other communication is required or permitted to be given under any provision of this Agreement, such notice, report or other communication shall be in writing, signed by or on behalf of the Person 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 nationally recognized overnight courier service, 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 sends a copy of such notice by another method of delivery described in clause (b) or (c) of this Section 14.1 ), to the respective address(es) or fax number(s) of the Member (and any designated representatives provided on Exhibit B ) or Members to whom such notice is to be given as set forth in Exhibit B , or at such other address of which such Member shall have given written notice to the other Members as provided in this Section 14.1 . Any notice, report or other communication required or permitted to be given under any provision of this Agreement to the Company shall be sent as provided in this Section 14.1 to the attention of the Administrative Member, with a copy to the other Members. Legal counsel for any Member of the Company may provide notice on behalf of such Member or the Company.
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ARTICLE XV
FISCAL YEAR
15.1 Fiscal Year . The fiscal year of the Company (a Fiscal Year ) shall end as of December 31 of each year.
ARTICLE XVI
BANK ACCOUNTS
16.1 Bank Accounts . The Members shall cause there to be opened and maintained in the name of the Company one or more bank or money market account or accounts, as the Members shall deem necessary, into which account(s) shall be deposited all Gross Revenues of the Company. Withdrawals from such accounts shall be made upon the authorized signature or signatures of such person or persons as shall be designated by the Members.
ARTICLE XVII
AGREEMENT AND AMENDMENTS
17.1 Agreement and Amendments . This Agreement contains the entire understanding among the parties hereto concerning the operation of the Company and the rights and obligations of the Members, and supersedes any prior agreement and understanding between or among them, whether written or oral, respecting the subject matters addressed herein. Except as otherwise expressly permitted by the terms of this Agreement, this Agreement may be modified, amended or restated only by a written instrument signed by all of the Voting Members. Each of the Voting Members agrees to execute and deliver any amendment of this Agreement the sole purpose of which is to implement a Disposition that is permitted pursuant to Article XI . Each Non-Voting Member may vote on any amendment (i) that has a materially adverse and disproportionate economic effect on such Member compared with the other Members, other than with respect to a transaction described in the first sentence of Section 8.2 or (ii) any amendment that removes or otherwise adversely affects a right of such Non-Voting Member to Vote on any particular matter. Notwithstanding anything to the contrary in this Agreement, no amendment of this Agreement may modify the method of making Company allocations or distributions, modify any provision of this Agreement pertaining to limitations on the liability of the Members, or change the restrictions contained in this Section 17.1 unless each Member materially and adversely affected thereby has expressly consented in writing to such amendment.
ARTICLE XVIII
BINDING EFFECT
18.1 Binding Effect . Except as otherwise provided herein to the contrary, this Agreement shall be binding upon and inure to the benefit of the Members, their legal representatives, heirs, successors and permitted assigns.
ARTICLE XIX
APPLICABLE LAWS
19.1 Applicable Laws . This Agreement and the rights of the Members hereunder shall be governed by and interpreted and construed in accordance with the laws of the State of Delaware, without regard to any such laws that would result in the application of the laws of another jurisdiction; provided , however , that the substantive laws of the State of New York (other than any such laws that would result in the application of the laws of another jurisdiction) shall govern any limitation on interest rates hereunder.
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ARTICLE XX
DISCLOSURES
20.1 Disclosures . Each of the Members hereby acknowledges, represents, warrants and/or agrees as follows:
(a) THAT SUCH MEMBER UNDERSTANDS THAT, TO THE EXTENT THAT IT IS LEGALLY DETERMINED THAT THERE IS AN ACQUISITION OF A SECURITY (WITHOUT CONCEDING SUCH HEREUNDER), THE INTEREST BEING ACQUIRED BY SUCH MEMBER HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS, IN RELIANCE ON EXEMPTIONS THEREFROM FOR NON PUBLIC OFFERINGS OR OTHER EXCEPTIONS AND FURTHER UNDERSTANDS THAT SUCH INTEREST HAS NOT BEEN FILED WITH OR REVIEWED OR APPROVED OR DISAPPROVED BY THE SECURITIES EXCHANGE COMMISSION, ANY STATE SECURITIES ADMINISTRATOR OR ANY OTHER FEDERAL OR STATE AGENCY, AND NO SUCH AGENCY, ADMINISTRATOR OR AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF ACQUIRING AN INTEREST OR THE ACCURACY OR ADEQUACY OF ANY INFORMATION PROVIDED BY THE COMPANY TO SUCH MEMBER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(b) THAT, TO THE EXTENT THAT IT IS LEGALLY DETERMINED THAT THERE IS AN ACQUISITION OF A SECURITY (WITHOUT CONCEDING SUCH HEREUNDER), THE INTEREST OF SUCH MEMBER HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN (NOR WILL IT BE) REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAWS BY REASON OF AND IN RELIANCE UPON SPECIFIC EXEMPTIONS THEREUNDER RELATED TO THE LIMITED AVAILABILITY OF THE INTERESTS (IN ADDITION TO THE OTHER SUBSTANTIAL LIMITATIONS, RESTRICTIONS AND REQUIREMENTS SET FORTH IN THIS AGREEMENT).
(c) THAT SUCH MEMBER, OR THE SIGNATORY FOR SUCH MEMBER, IF THIS AGREEMENT IS BEING EXECUTED BY SUCH SIGNATORY IN A REPRESENTATIVE OR FIDUCIARY CAPACITY, HAS FULL POWER AND AUTHORITY TO EXECUTE AND DELIVER THIS AGREEMENT FOR ITSELF OR IN SUCH CAPACITY AND ON BEHALF OF SUCH MEMBER FOR WHOM SUCH SIGNATORY IS EXECUTING THIS AGREEMENT, AS THE CASE MAY BE, AND SUCH MEMBER HAS FULL RIGHT, POWER AND AUTHORITY TO PERFORM ALL OBLIGATIONS UNDER THIS AGREEMENT. IF THE SIGNATORY HERETO IS EXECUTING THIS AGREEMENT IN A REPRESENTATIVE OR FIDUCIARY CAPACITY, THE REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITIES SET FORTH IN THIS ARTICLE XX SHALL BE DEEMED TO HAVE BEEN MADE ON BEHALF OF THE MEMBER FOR WHOM SUCH SIGNATORY IS ACTING IN A REPRESENTATIVE OR FIDUCIARY CAPACITY.
(d) SUCH MEMBER IS ACQUIRING AN INTEREST IN THE COMPANY FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE SALE OR OTHER DISTRIBUTION THEREOF, IN WHOLE OR IN PART OR DIRECTLY OR INDIRECTLY, AND SUCH MEMBER IS NOT AN UNDERWRITER, BROKER OR DEALER WITH RESPECT TO SECURITIES OF ANY KIND, AS SUCH TERMS ARE DEFINED IN THE SECURITIES ACT.
(e) THAT, TO THE EXTENT THAT A COURT OF COMPETENT JURISDICTION DETERMINES THAT THERE IS AN ACQUISITION OF A SECURITY (WITHOUT CONCEDING SUCH HEREUNDER), SUCH MEMBER IS FULLY FAMILIAR WITH ALL FACTS AND CIRCUMSTANCES ATTENDANT TO ITS INVESTMENT IN THE COMPANY, HAS BEEN OFFERED ACCESS TO ALL BOOKS, RECORDS, DOCUMENTS AND OTHER INFORMATION RELATED TO THE COMPANY AND ITS BUSINESS, AFFAIRS AND PLANS, AND HAS HAD AN OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, REPRESENTATIVES OF THE COMPANY, AND THAT ALL INVESTIGATIONS, DUE DILIGENCE AND QUESTIONS HAVE BEEN COMPLETED OR ANSWERED TO SUCH MEMBERS SATISFACTION.
(f) THAT SUCH MEMBER (AND ITS OFFICERS, PARTNERS, MEMBERS, MANAGERS, OWNERS, TRUSTEES AND/OR ATTORNEYS IN FACT, IF ANY, WHO ARE ACTING ON ITS BEHALF) HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS SO AS TO BE CAPABLE OF EVALUATING, ALONE OR TOGETHER, THE MERITS AND RISKS OF A POTENTIAL INVESTMENT IN THE COMPANY.
20.2 Member s Indemnity . Each Member shall indemnify, defend and hold harmless the Company, its agents and employees, and the other Members from and against any and all claims, demands, liabilities, costs, damages, expenses, and causes of action of any nature whatsoever (including reasonable attorneys and paralegals fees and costs before and at trial and at all appellate levels) arising out of or attributable to any inaccuracy in, or breach of, any representation, warranty or covenant of such Member contained in this Article XX subject to the limitation on recourse set forth in Section 12.4 .
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ARTICLE XXI
MISCELLANEOUS
21.1 Waiver of Action for Dissolution . Each of the Members irrevocably waives, to the fullest extent permitted by law, during the duration of the Company, (i) any right that such Member may have to force a judicial dissolution of the Company or to maintain any action or make application for the judicial dissolution of the Company and, upon any breach of this Agreement by a Member, the other Members, in addition to all rights and remedies available at law or in equity, shall be entitled to a decree or order restraining and enjoining such action or application; (ii) any right under Section 18-604 of the Delaware Act to withdraw or resign and receive the fair value of their Company Interests, and (iii) any right to demand or receive any Distribution from the Company in any form other than cash and in accordance with the provisions of this Agreement concerning Distributions.
21.2 Third Party Beneficiaries . Nothing contained in this Agreement is intended to benefit any third parties not specifically herein enumerated, and no Person is entitled to any benefits as a third party beneficiary hereunder on account of any obligation of the Members to contribute Invested Capital or other contributions or loans hereunder or to make payments of any nature or to perform any other obligation as required hereunder; it being expressly understood that the benefits, duties and obligations of each Member hereunder is solely and exclusively the rights and obligations of such Member and is not intended to benefit any third parties unless expressly stated to the contrary herein
21.3 Counterparts . This Agreement may be executed in several counterparts, and/or by the execution of counterpart signature pages that may be attached to one or more counterparts of this Agreement, and all so executed shall constitute one agreement binding on all of the Members, notwithstanding that all of the Members are not signatory to the original or the same counterpart. In addition, any counterpart signature page may be executed by any Member wherever such Member is located, and may be delivered by telephone facsimile transmission or by portable document format ( PDF ), and any such facsimile or PDF transmitted signature pages may be attached to one or more counterparts of this Agreement, and such signature(s) sent by facsimile or by PDF shall have the same force and effect, and be as binding, as if original signatures had been executed and delivered in person.
21.4 Provisions Severable . In the event that any sentence, paragraph, provision, section or article of this Agreement is declared by a court of competent jurisdiction to be void, such sentence, paragraph, provision, section or article shall be deemed severed from the remainder of this Agreement and the balance of this Agreement shall remain in effect.
21.5 Titles or Captions . Titles or captions in this Agreement are inserted only as a matter of convenience and are for reference only. Such titles and captions shall not be construed to define, limit, extend or describe the scope of this Agreement or the intent of any provision.
21.6 Waiver . Any waiver by any Member of any of its rights or remedies under this Agreement or of any breach or violation of or default under this Agreement must be in writing and signed by the party to be charged thereunder and shall not constitute a waiver of any of its other rights or remedies or of any other or future breach, violation or default hereunder.
21.7 Further Assurances . The Members agree from time to time to execute and deliver such further and other documents, certificates, instruments and amendments and to do all matters and things which may be convenient or necessary to more effectively and completely to carry out the intentions and purposes of this Agreement.
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21.8 Construction of Agreement . Each of the Members agrees that it has been represented by counsel during, and each has been active in, the negotiation, preparation and execution of this Agreement and, therefore, waives the application of any law or rule of construction providing that ambiguities in an agreement or other document will be construed against the Person drafting such agreement or document.
21.9 Fees and Costs . In any suit, arbitration or other proceeding by any Member or the Company to enforce the terms and provisions of this Agreement, the prevailing party shall be entitled to all reasonable costs and expenses incurred by it or him in connection therewith (including reasonable attorneys and paralegals fees and costs incurred before and at any trial or arbitration and at all appellate levels), as well as all other relief granted or awarded in such suit, arbitration or other proceeding.
21.10 Recalculation of Interest . If any applicable law is ever judicially interpreted so as to deem any distribution, contribution, payment or other amount received by any Member or the Company under this Agreement as interest and so as to render any such amount in excess of the maximum rate or amount of interest permitted by applicable law, then it is the express intent of the Members and the Company that all amounts in excess of the highest lawful rate or amount theretofore collected be credited against any other distributions, contributions, payments or other amounts to be paid by the recipient of the excess amount or refunded to the appropriate Person, and the provisions of this Agreement immediately be deemed reformed, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the payment of the fullest amount otherwise required hereunder. All sums paid or agreed to be paid that are judicially determined to be interest shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the term of such obligation so that the rate or amount of interest on account of such obligation does not exceed the maximum rate or amount of interest permitted under applicable law.
21.11 Venue . Each of the Members consents and submits to the jurisdiction of any Federal or State court in Wilmington, Delaware for any action arising out of any matters related to this Agreement. Each of the Members waives the right to commence an action in connection with this Agreement in any court outside of Wilmington, Delaware.
21.12 Waiver of Jury Trial . TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE COMPANY, OWNER OR ANY SUBSIDIARY, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OR CONDUCT, COURSE OR DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS AGREEMENT; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF THE PARTIES HERETO FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, EACH OF THE PARTIES HERETO HEREBY CERTIFIES THAT NONE OF ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO THE ACCEPTANCE OF THIS AGREEMENT BY THE OTHER PARTIES HERETO.
21.13 Confidentiality .
(a) The terms of this Agreement and all other business, financial or other information relating directly to the conduct of the business and affairs of the Company or the relative or absolute rights or interests of any of the Members that is not publicly available (collectively, the Confidential Information ) is confidential and proprietary information of the Company and the Members, the disclosure of which would cause irreparable harm to the Company and the Members. Accordingly, each Member (i) represents and warrants that it has not disclosed, and agrees that it will not disclose, to any Person any Confidential Information or confirm any
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statement made by third Persons regarding Confidential Information until (in the case of Confidential Information about the Company and/or the Members) the Company has publicly disclosed the Confidential Information pursuant to authorization by the Members and has notified each Member that it has done so and (in the case of Confidential Information about a Member (and no other Member or the Company)) such Member has publicly disclosed the Confidential Information and (ii) agrees to direct its shareholders, partners, members directors, officers, agents, lenders, accountants, attorneys, advisors and Affiliates to whom Confidential Information is disclosed not to disclose to any Person any Confidential Information or confirm any statement made by third Persons regarding Confidential Information until (in the case of Confidential Information about the Company and/or the Members) the Company has publicly disclosed the Confidential Information pursuant to authorization by the Members and has notified each Member that it has done so and (in the case of Confidential Information about a Member (and no other Member or the Company)) such Member has publicly disclosed the Confidential Information; provided , however , that any Member (and its Affiliates) may disclose Confidential Information (a) if required by law (it being specifically understood and agreed that anything set forth in a registration statement, report or any other document filed with the Securities and Exchange Commission or any securities exchange or otherwise pursuant to law will be deemed required by law) or judicial proceedings, (b) to its direct and indirect shareholders, partners and members, its directors, officers, agents (and the directors officers and agents of its direct and indirect shareholders, partners and members), its lenders, its accountants, its attorneys, its advisors and its Affiliates, provided that it directs any of such foregoing parties to maintain a similar confidence with respect thereto and (c) to any other Person(s) if necessary for it to perform any of its duties or obligations hereunder or under any property management agreement or other agreement to which it or the Company is a party, provided that it directs such other Person(s) to maintain a similar confidence.
(b) Notwithstanding anything to the contrary in Section 21.13(a) , each Member hereby consents in advance to any motion for any protective order brought by any other Member represented as being intended by the movant to implement the purposes of this Section, provided that if a Member receives a request to disclose any Confidential Information under the terms of a valid and effective order issued by a court or governmental agency and the order was not sought by or on behalf of or consented to by such Member, then such Member may disclose the Confidential Information to the extent required if the Member as promptly as practicable (i) notifies each of the other Members of the existence, terms and circumstances of the order, (ii) consults in good faith with each of the other Members on the advisability of taking legally available steps to resist or to narrow the order, and (iii) if disclosure of the Confidential Information is required, exercises its diligent efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to the portion of the disclosed Confidential Information that any other Member designates. The cost (including attorneys fees and expenses) of obtaining a protective order covering Confidential Information designated by such other Member will be borne by the Company. The covenants contained in this Section will survive the transfer of the Interest of any Member and the termination or dissolution of the Company.
(c) Notwithstanding anything to the contrary herein, a Member may disclose to any and all Persons, without limitation, the tax treatment of the transactions entered into by the Company and of being a Member of the Company; provided , however , that a Member may not disclose other information not relevant to understanding such tax treatment (including the identity of any Member or any information that could lead any Person to determine the identity of any Member).
21.14 Publicity . The parties agree that no Member shall issue any press release or otherwise publicize the terms of this Agreement or the terms of the acquisition of the Property or any portion thereof or the proposed terms of the acquisition of any portion of the Property, without the consent of each of the other Voting Members, except as such disclosure may be made in the course of normal reporting practices by any Member or an Affiliate of a Member to its shareholders, partners, members, directors, officers, members or as otherwise required by law, including as necessary or appropriate for any Member or its Affiliate to comply with its obligations under applicable securities laws or the rules of any securities exchange.
21.15 Cooperation . In connection with the sale of the Property or any portion thereof or any direct or indirect interest therein, each Member agrees to reasonably cooperate with any other Member (the Exchanging Member ) desiring to structure such disposition in a manner that will afford the Exchanging Member an opportunity to take advantage of provisions of the Code governing tax free exchanges or reorganizations; provided that such structuring does not have an adverse effect on any such sale (including with respect to timing), and provided that the
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Exchanging Member shall bear all costs and expenses associated with such structuring, the other Members shall not be required to take title to any property or interest or assume or be subject to any obligations, and the Exchanging Member shall indemnify, defend and hold the other Members and the Company harmless from and against any and all claims, demands, liabilities, costs, damages, expenses, and causes of action of any nature whatsoever that they may incur by reason of their participation or cooperation in such exchange or reorganization transaction. The parties will reasonably cooperate in a connection with a Members request to facilitate a tax-free exchange including, where appropriate, the Exchanging Member providing credit support for its indemnification obligations pursuant to this Section 21.15 .
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF , the Voting Members have executed and adopted this Agreement as of the date first above written.
FIVE POINT : | ||
FIVE POINT HERITAGE FIELDS, LLC , a Delaware limited liability company | ||
By: Five Point Operating Company, LLC, its sole member |
By: |
/s/ Emile Haddad |
|
Name: | Emile Haddad | |
Its: |
CO-INVESTOR : | ||
HERITAGE FIELDS CAPITAL CO-INVESTOR MEMBER, LLC , a Delaware limited liability company |
By: |
/s/ Ron J. Hoyl |
|
Name: | Ron J. Hoyl | |
Its: | Vice President |
MSD : | ||
MSD HERITAGE FIELDS, LLC , a Delaware limited liability company |
By: |
/s/ Marcello Liguori |
|
Name: | Marcello Liguori | |
Its: | Vice President |
LNR : | ||
LNR HF II, LLC , a California limited liability company, |
By: |
/s/ Daniel Schwaegler |
|
Name: | Daniel Schwaegler | |
Its: | Senior Vice President |
[Signature Page to Fourth Amended and Restated Limited
Liability Company Agreement of Heritage Fields LLC]
MEMBER AFFILIATE GUARANTY
Each of the undersigned (sometimes referred to herein as an Affiliated Guarantor or Guarantor ), by this Member Affiliate Guaranty (this Guaranty ) assumes and agrees to be bound by the obligations (collectively, the Obligations ) of the Member holding a Percentage Interest that is an Affiliate of such Guarantor to make Additional Capital Contributions pursuant to Section 7.2(a) of the Fourth Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as April 21, 2017 (the Agreement ), and agrees that this guaranty obligation is absolute, unconditional and irrevocable (except as otherwise expressly provided in the Agreement) and that such guaranty constitutes a guaranty of payment and not merely a guaranty of collection. Each Affiliated Guarantor further agrees as follows:
1. | Nothing herein shall require any Member or Affiliated Guarantor that is a beneficiary of this Guaranty (a Beneficiary ) to first seek or exhaust any remedy against any Member or any other person obligated with respect to the Obligations, or to first foreclose, exhaust or otherwise proceed against any collateral, security or other guaranty, if any, which may be given at any time in connection with the Obligations. |
2. | The Guarantor agrees that its obligations under this Guaranty shall be primary, absolute, continuing and unconditional, irrespective of and unaffected by any of the following actions or circumstances (regardless of any notice to or consent of Affiliated Guarantor): (a) the genuineness, validity, regularity and enforceability of any provision of this Agreement or any other agreement, instrument, certificate, notice or other document; (b) any extension, renewal, amendment, change, waiver or other modification of this Agreement or any other agreement, instrument, certificate, notice or other document; (c) the absence of, or delay in, any action to enforce this Agreement, this Guaranty or any other agreement, instrument, certificate, notice or other document; (d) the release of, extension of time for payment or performance by or any other indulgence granted to any Member or any other person with respect to the Obligations by operation of law, in equity or otherwise; (e) any Members Bankruptcy; or (f) any other action or circumstance which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, other than an Obligation having been paid or performed. Notwithstanding the foregoing, Guarantors obligations under this Guaranty shall be subject to any applicable statute of limitation and defenses available to any Member against the specific guaranteed claims made by the relevant Beneficiary under this Agreement, other than Bankruptcy of any Member or defenses relating to the absence or lack of power, authority or authorization, or lack of due execution and delivery of this Agreement by any Member or defenses related to non-substantive procedural matters. |
3. | This Guaranty shall continue and remain undischarged until all of the Obligations are indefeasibly paid and performed in full. The Guarantor agrees that this Guaranty shall remain in full force and effect or be reinstated (as the case may be) if at any time payment or performance of any of the Obligations (or any part thereof) is rescinded, reduced or must otherwise be restored or returned by any Beneficiary, all as though such payment or performance had not been made or performed. If, by reason of any Bankruptcy or similar laws affecting the rights of creditors, a Beneficiary shall be prohibited from exercising any of its rights or remedies against any Member or any other person or against any property, then, as between the Beneficiary and Affiliated Guarantor, such prohibition shall be of no force or effect, and the Beneficiary shall have the right to make demand upon, and receive payment from Affiliated Guarantor of all amounts and other sums that would be due to the Beneficiary upon a breach or default with respect to the Obligations. |
4. | Notice of acceptance of this Guaranty and of any breach or default by any Member or any other person is hereby waived. Presentment, protest, demand and notice of protest, demand and dishonor of any of the Obligations, and the exercise of possessory, collection or other remedies for the Obligations, are hereby waived. |
5. | The Guarantor hereby represents and warrants (all of which representations and warranties shall survive until all Obligations are indefeasibly satisfied in full), that: |
(a) | The Guarantor has full the power and authority to execute and deliver this Guaranty and to perform the obligations of Affiliated Guarantor under this Guaranty. |
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(b) | This Guaranty constitutes the legal, valid and binding obligation of Affiliated Guarantor enforceable in accordance with its terms. |
(c) | No consent of any other person or entity (including, without limitation, any creditor of Affiliated Guarantor) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of this Guaranty. |
6. | TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, AFFILIATED GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY RELATED DOCUMENTS, ANY DEALINGS BETWEEN OR AMONG AFFILIATED GUARANTOR, PURCHASER, SELLER, AND THE OTHER BENEFICIARIES RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN OR AMONG SUCH PARTIES WITH RESPECT THERETO; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. AFFILIATED GUARANTOR FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, AFFILIATED GUARANTOR HEREBY CERTIFIES THAT NONE OF ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. AFFILIATED GUARANTOR ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO THE ACCEPTANCE BY PURCHASER OF THIS GUARANTY. |
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY AND ALL SUBSEQUENT AMENDMENT(S), RENEWAL(S), SUPPLEMENT(S) AND/OR MODIFICATION(S) TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, AND ANY RELATED AGREEMENTS, INSTRUMENTS AND DOCUMENTS. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court.
7. | THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS SET FORTH HEREIN SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO SUCH LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. Guarantor hereby irrevocably submits to the exclusive jurisdiction of the State or Federal courts of the Wilmington, Delaware (each, a Delaware Court ) in any action, suit or proceeding arising out of or related to this Guaranty. All claims relating to such suits, actions or proceedings shall be brought, heard and determined in such Delaware Court. Guarantor and, by its acceptance of this Guaranty, Purchaser hereby (i) waives (a) any objection that it may now or hereafter have to the venue of any such suit, action or proceeding in any such Delaware Court and (b) any right to assert that such suit, action or proceeding was brought in an inconvenient forum and (ii) agrees not to plead or claim the same. Guarantor and, by its acceptance of this Guaranty, Purchaser, agrees that any final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. |
8. | Any notice, demand, request or other communication which may or is required to be given to an Affiliated Guarantor shall be given to such Affiliated Guarantor at the address of its Affiliated Member as set forth in, and otherwise pursuant to, the notice provisions of the Agreement. |
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9. | Guarantor further agrees as follows: |
(a) | To the fullest extent permitted by applicable law, Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any financial accommodations made or extended under this Agreement, or the creation or existence of any Obligations; (iii) notice of the amount of the Obligations, subject, however, to Guarantors right to make inquiry of Purchaser to ascertain the amount of the Obligations at any reasonable time; (iv) notice of any adverse change in the financial condition of any Member or of any other fact that might increase Guarantors risk hereunder; (v) notice of presentment for payment, demand, protest, and notice thereof as to this Agreement; (vi) notice of any unmatured breach of default under this Agreement; and (vii) all other notices (except if such notice is specifically required to be given to Guarantor under this Guaranty or any other related agreement to which Guarantor is a party) and demands to which Guarantor might otherwise be entitled. |
(b) | To the fullest extent permitted by applicable law, Guarantor waives the right by statute or otherwise to require a Beneficiary to institute suit against any Member or to exhaust any rights and remedies which a Beneficiary has or may have against any Member. In this regard, Guarantor agrees that it is bound to the payment of each and all Obligations, whether now existing or hereafter arising, as fully as if such Obligations were directly owing to a Beneficiary by Guarantor. |
(c) | Until such time as all of the Obligations have been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby waives and postpones any right of subrogation Guarantor has or may have as against any Member with respect to the Obligations; (ii) in addition, Guarantor hereby waives and postpones any right to proceed against any Member for contribution, indemnity, reimbursement, or any other suretyship rights and claims (irrespective of whether direct or indirect, liquidated or contingent), with respect to the Obligations; and (iii) in addition, Guarantor also hereby waives and postpones any right to proceed or to seek recourse against or with respect to any property or asset of any Member. |
(d) | If, notwithstanding the provisions of Section 7 of this Guaranty and the intent of the parties that Delaware law govern this Guaranty, any court shall determine that this Guaranty shall be governed by the laws of the State of California, then: WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE §§ 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848, 2849, AND 2850, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE. |
10. | The Obligations shall constitute a Reimbursement Agreement. |
[Signature Pages Follow]
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GUARANTOR JOINDER SIGNATURE PAGE
FIVE POINT OPERATING COMPANY, LLC , a Delaware limited liability company |
By: |
/s/ Emile Haddad |
|
Name: |
Emile Haddad |
|
Its: |
President and Chief Executive Officer |
[Signature Page to Joinder to Fourth Amended And Restated Limited
Liability Company Agreement of Heritage Fields LLC]
GUARANTOR JOINDER SIGNATURE PAGE
MSD PORTFOLIO L.P. - INVESTMENTS , a Delaware limited partnership | ||||||
By: | MSD Capital, L.P., a Delaware limited partnership, its General Partner | |||||
By: | MSD Capital Management, LLC, a Delaware limited liability company, its General Partner |
By: |
/s/ Marcello Liguori |
|||||
Name: |
Marcello Liguori |
|||||
Its: |
Vice President |
[Signature Page to Joinder to Fourth Amended And Restated Limited
Liability Company Agreement of Heritage Fields LLC]
GUARANTOR JOINDER SIGNATURE PAGE
STARWOOD DISTRESSED OPPORTUNITY FUND IX-I U.S., L.P., a Delaware limited partnership | ||
By: | Starwood IX Management, L.P., a Delaware limited partnership | |
By: |
Starwood IX Management GP, L.L.C, a Delaware liability company |
|
By: |
/s/ Daniel Schwaegler |
|
Name: |
Daniel Schwaegler |
|
Its: |
Senior Vice President |
|
STARWOOD DISTRESSED OPPORTUNITY FUND IX GLOBAL, L.P., a Delaware limited partnership | ||
By: | Starwood IX Management, L.P., a Delaware limited partnership | |
By: |
Starwood IX Management GP, L.L.C, a Delaware liability company |
|
By: |
/s/ Daniel Schwaegler |
|
Name: |
Daniel Schwaegler |
|
Its: |
Senior Vice President |
[Signature Page to Joinder to Fourth Amended And Restated Limited
Liability Company Agreement of Heritage Fields LLC]
GUARANTOR JOINDER SIGNATURE PAGE
HERITAGE FIELDS CAPITAL CO-INVESTOR MEMBER, LLC , a Delaware limited liability company | ||||||
By: | Heritage Fields Capital Co-Investor MM, LLC, a Delaware limited liability company | |||||
By: | Rockpoint Group, L.L.C., a Delaware limited liability company |
By: |
/s/ Ron J. Hoyl |
|||||
Name: |
Ron J. Hoyl |
|||||
Its: |
Vice President |
[Signature Page to Joinder to Fourth Amended And Restated Limited
Liability Company Agreement of Heritage Fields LLC]
EXHIBIT A
MEMBERS NAMES, PERCENTAGE INTERESTS AND CONTRIBUTION PERCENTAGES
(as of the Effective Date)
Member |
Percentage
Interest |
Legacy Interest |
Contribution
Percentage |
|||||||||
FPC-HF Venture I, LLC |
| 12.5 | % | | ||||||||
MSD Heritage Fields, LLC |
12.5 | % | 12.5 | % | 12.5 | % | ||||||
Heritage Fields Capital Co-Investor Member LLC |
37.5 | % | 37.5 | % | 37.5 | % | ||||||
LNR HF II, LLC |
12.5 | % | 12.5 | % | 12.5 | % | ||||||
LenFive, LLC |
| 25.0 | % | | ||||||||
Five Point Heritage Fields, LLC |
37.5 | % | | 37.5 | % |
EXHIBIT B
ADDRESSES FOR NOTICES
If to Five Point:
Five Point Heritage Fields, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Attn: Legal Notices
Telephone: (949) 349-1000
Facsimile: (949) 349-1075
If to FPC-HF:
Five Point Communities, LP
25 Enterprise Drive, Suite 300
Aliso Viejo, CA 92691
Attn: Emile Haddad and Michael Alvarado
Facsimile:
Email:
and:
HFET Opportunities, LLC
4600 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: General Counsel
Facsimile: (612) 851-3001
Email: notices@castlelake.com
with a copy (which shall not constitute notice) to:
HFET Opportunities, LLC
4600 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: Judd Gilats
Facsimile: (612) 851-3001
Email: judd.gilats@castlelake.com
and:
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30 th Floor
San Francisco, CA 94111
Attn: Marv Pearlstein
Facsimile: (415) 291-7511
Email: MPearlstein@manatt.com
To Co-Investor:
Heritage Fields Capital Co-Investor Member LLC
c/o Rockpoint Group, L.L.C.
Woodlawn Hall at Old Parkland
3953 Maple Avenue, Suite 300
Dallas, Texas 75219
Attn: General Counsel
Telephone: (972) 934-0100
Facsimile: (972) 934-8333
with a copy to:
Kaye Scholer LLP
425 Park Avenue
New York, NY 10022
Attn: Louis Hait, Esq.
Telephone: (212) 836-8870
Facsimile: (212) 836-6770
If to MSD:
MSD Portfolio L.P. - Investments
c/o MSD Capital, L.P.
645 Fifth Avenue, 21st Floor
New York, NY 10022-5910
Attn: Marc Lisker, General Counsel
Telephone: (212) 303-1668
Facsimile: (212) 303-1772
with a copy to:
MSD Capital, L.P.
100 Wilshire Boulevard,
Suite 1700
Santa Monica, California 90401
Attn: Alan Epstein
Telephone: (310) 458-3609
Facsimile: (310) 458-3619
If to Lennar:
Lennar Corporation
25 Enterprise, 4th Floor
Aliso Viejo, California 92656
Attn: Jonathan M. Jaffe
Telephone: (949) 349-8076
Facsimile: (949) 349-0782
with a copy to:
Lennar Corporation
700 NW 107th Avenue
Miami, FL 33172
Attn: Mark Sustana/General Counsel
Telephone: (305) 229-6400
Facsimile: (305) 229-6650
and:
Bilzin Sumberg Baena Price & Axelrod LLP
1450 Brickell Avenue
Suite 2300
Miami, Florida 33131-3456
Attn: Brian L. Bilzin, Esq.
Facsimile: (305) 351-2200
If to LNR:
c/o IX LNR HF II HOLDINGS, L.L.C.
591 West Putnam Avenue
Greenwich, Connecticut 06830
Attn: Ellis Rinaldi, Esq.
With a copy to
LNR HF II, LLC
c/o Starwood Capital Group Global, LLC
100 Pine Street, Suite 3000
San Francisco, California 94111
Attn: Daniel Schwaegler
and:
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Attn: Scott M. Freeman
Michael A. Gordon
Exhibit 10.28
ENTITLEMENT TRANSFER AGREEMENT
TABLE OF CONTENTS
Page | ||||
ARTICLE 1 DEFINITIONS |
2 | |||
ARTICLE 2 ENTITLEMENT TRANSFER |
6 | |||
2.1 Entitlement Transfer |
6 | |||
2.2 Entitlement Transfer Approval Process |
6 | |||
2.3 Cost Allocation |
7 | |||
2.4 Litigation |
7 | |||
2.5 Termination of Entitlement Transfer and Entitlement Transfer Approval Process |
8 | |||
2.6 Reconveyance of Revenue Participation Deed of Trust |
8 | |||
2.7 Limitations on Development of HPS1 Project |
9 | |||
ARTICLE 3 DISPUTES |
9 | |||
3.1 Mediation |
9 | |||
3.2 Judicial Reference |
10 | |||
3.2.1 Reference of Dispute |
10 | |||
3.2.2 Procedure for Appointment |
10 | |||
3.2.3 Agreement to Appoint Proposed Special Referee |
11 | |||
3.2.4 Discovery |
11 | |||
3.2.5 Decision and Jurisdiction of Referee |
11 | |||
3.2.6 Cooperation |
11 | |||
3.2.7 Allocation of Costs |
11 | |||
3.2.8 Governing Law |
12 | |||
3.2.9 Other Remedies |
12 | |||
3.2.10 Joinder |
12 | |||
ARTICLE 4 REPRESENTATIONS AND WARRANTIES |
12 | |||
4.1 Representations and Warranties of TSC |
12 | |||
4.1.1 Power and Authority |
12 | |||
4.1.2 Binding Agreement |
12 | |||
4.1.3 Consents |
12 | |||
4.1.4 Representation by Counsel |
12 | |||
4.1.5 Authorization |
12 | |||
4.1.6 Compliance with Other Instruments |
13 |
i
TABLE OF CONTENTS
(continued)
Page | ||||
4.2 Representations and Warranties of CPHP |
13 | |||
4.2.1 Power and Authority |
13 | |||
4.2.2 Binding Agreement |
13 | |||
4.2.3 Consents |
13 | |||
4.2.4 Representation by Counsel |
13 | |||
4.2.5 Authorization |
13 | |||
4.2.6 Compliance with Other Instruments |
13 | |||
ARTICLE 5 MISCELLANEOUS |
14 | |||
5.1 Transfer and Change of Control |
14 | |||
5.1.1 CPHP |
14 | |||
5.1.2 TSC |
15 | |||
5.1.3 Notice |
15 | |||
5.2 Relationship of Parties |
15 | |||
5.3 Interpretation |
15 | |||
5.4 Resolution of Contractual Uncertainties |
16 | |||
5.5 Entire Agreement |
16 | |||
5.6 Amendment; Third Party Beneficiaries |
16 | |||
5.7 Successors and Assigns |
16 | |||
5.8 Approvals |
16 | |||
5.9 Waivers |
16 | |||
5.10 Severability |
17 | |||
5.11 Time |
17 | |||
5.12 Further Acts |
17 | |||
5.13 Authority |
17 | |||
5.14 Counterparts |
17 | |||
5.15 Confidentiality |
17 | |||
5.16 Costs and Expenses |
18 | |||
5.17 Estoppel Certificates |
18 | |||
5.18 Notices |
18 |
ii
ENTITLEMENT TRANSFER AGREEMENT
This ENTITLEMENT TRANSFER AGREEMENT (as amended from time to time in accordance herewith, this Agreement ) is made as of December 6, 2016 (the Effective Date ) by and between CPHP Development Co., LLC, a Delaware limited liability company ( CPHP ), and The Shipyard Communities, LLC, a Delaware limited liability company ( TSC ).
RECITALS
A. HPS Development Co., LP, a Delaware limited partnership and a wholly owned, direct and indirect subsidiary of CPHP ( HPS ), is the master developer of the redevelopment project in the City commonly known as Phase 1 of the Hunters Point Shipyard (as more particularly described in the HPS1 DDA (as defined below), the HPS1 Project ) pursuant to that certain Disposition and Development Agreement Hunters Point Shipyard Phase 1 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 HPS dated as of December 2, 2003 and recorded in the Official Records of the City and County of San Francisco, California (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 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 (collectively, and as the same may be further amended or supplemented from time to time in accordance herewith and therewith, the HPS1 DDA ). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the HPS1 DDA.
B. CP Development Co., LP, a Delaware limited partnership and a wholly owned direct and indirect subsidiary of TSC ( CPDC ), is the master developer of the redevelopment project in the City commonly known as Candlestick Point and Phase 2 of the Hunters Point Shipyard (as more particularly described in the CP/HPS2 DDA (as defined below), the CP/HPS2 Project ) pursuant to 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 as of December 1, 2014 and recorded in the Official Records on December 5, 2014 as Document No. 2014-J984039-00 (collectively, and as the same may be further amended or supplemented from time to time in accordance herewith and therewith, the CP/HPS2 DDA ). The CP/HPS2 Project is adjacent to the HPS1 Project.
C. The HPS1 Project is currently planned to include one thousand four hundred twenty-eight (1,428) Residential Units, consisting of two hundred eighteen (218) Agency Affordable Housing Units to be developed by or on behalf of the Agency (the Planned Agency Units ) and one thousand two hundred ten (1,210) Residential Units (including Market Rate Units and Inclusionary Units) to be developed by Vertical Developers (the Planned Residential Units ), and nine thousand (9,000) gross square feet of retail space to be developed by Vertical Developers (the Planned Retail Space ).
D. The HPS1 Project has entitlements for one thousand six hundred (1,600) Residential Units and eighty thousand (80,000) square feet of retail space. The Parties are entering into this Agreement in order to provide for the transfer of all entitlements for all Residential Units in the HPS1 Project that are in excess of the Residential Units developed or to be developed by or on behalf of the Agency or by Vertical Developers (but not less than one hundred seventy two (172) Residential Units) (collectively, the Excess Units ) and for all retail space in the HPS1 Project that is in excess of the retail space to be developed by or on behalf of the Agency or by Vertical Developers (but not less than seventy thousand (70,0000) gross square feet of retail space) ( Excess Retail Space and, together with the Excess Units, the Excess Entitlements ) to the CP/HPS2 Project for development by Vertical Developers under and as defined in the CP/HPS2 DDA (the Entitlement Transfer ), all as more particularly described herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual undertakings and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
Definitions
$ is defined in Section 5.3 .
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
2
Common Control with such specified Person. For purposes of this Agreement, TSC and CPDC, on the one hand, and CPHP and HPS, on the other, shall not be deemed to be an Affiliate of the other, respectively.
Agency is defined in the Recitals.
Agreement is defined in the preamble to this Agreement.
Applicable Laws means all federal, state and local laws, regulations, codes, ordinances, requirements and regulations applicable to the relevant subject matter.
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.
Block 6aS, 8aS and 9aS means the real property that is the subject of the Block 6aS, 8aS and 9aS PSA, as more particularly described therein.
Block 6aS, 8aS and 9aS Developer means CP Vertical Development Co. 1, LLC, a Delaware limited liability company and a wholly owned subsidiary of CPHP, or its permitted successor and assign under the Block 6aS, 8aS and 9aS PSA.
Block 6aS, 8aS and 9aS PSA means that certain Purchase and Sale Agreement and Joint Escrow Instructions (Candlestick Buildings), dated as of May 2, 2016, by and between Block 6aS, 8aS and 9aS Developer, as buyer, and CPDC, as Seller, as amended on or about the date hereof and as the same may be further amended from time to time.
Business Day means a day other than a Saturday, Sunday or holiday recognized by federally insured banks in the State of California.
BVHP Redevelopment Plan means that certain Redevelopment Plan for the Bayview Hunters Point Redevelopment Project, approved and adopted by the Board of Supervisors by ordinance number 25-69 on January 20, 1969, as amended by the Board of Supervisors by ordinance numbers 280-70 on August 24, 1970, 475-86 on December 1, 1986, 417-94 on December 12, 1994, 113-06 on June 1, 2006, and 210-10 on August 3, 2010, and as the same may be further amended from time to time.
City means, as the context requires, (i) the City and County of San Francisco, a charter city of the State, or (ii) the territorial jurisdiction of the foregoing.
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.
3
Consolidated Approvals is defined in Section 2.2.3 .
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.
CPHP is defined in the preamble to this Agreement and includes its permitted successors and assigns hereunder.
CP/HPS2 DDA is defined in the Recitals.
CP/HPS2 Project is defined in the Recitals.
CP/HPS2 Project Amendments is defined in Section 2.2.3 .
DDA Amendments is defined in Section 2.2.1 .
dollars is defined in Section 5.3 .
Effective Date is defined in the preamble to this Agreement.
Entitlement Transfer is defined in the Recitals.
Entitlement Transfer Amendments is defined in Section 2.2.1 .
Entitlement Transfer Approval Process is defined in Section 2.2.1 .
Entitlement Transfer Costs is defined in Section 2.3 .
Entity means any corporation, firm, partnership, limited liability company, limited partnership, association, joint venture, or any similar entity.
Excess Entitlements is defined in the Recitals.
Excess Retail Space is defined in the Recitals.
Excess Units is defined in the Recitals.
Governmental Approvals means Approvals from all Governmental Entities required in order to effectuate the Entitlement Transfer, including Approvals from all required Governmental Entities of the Entitlement Transfer Amendments (and execution and delivery of
4
same by such Governmental Entities, as applicable), and the expiration of any relevant challenge and appeal periods or statutes of limitation with respect thereto without a challenge or an appeal having been filed (or, if any challenge or appeal has been filed, the entry of a final, non-appealable judgment upholding such Approval, execution and delivery without material change).
Governmental Entity means any court, administrative agency or commission, or other governmental or quasi-governmental organization with jurisdiction over the applicable matter, including the City and the Agency.
HPS is defined in the Recitals.
HPS1 DDA is defined in the Recitals.
HPS1 Project is defined in the Recitals.
Judge is defined in Section 3.2.2 .
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.
Official Records is defined in the Recitals.
Parties means TSC and CPHP.
Party means TSC or CPHP, as the context requires.
Person means any natural person, Entity or Governmental Entity.
Planned Agency Units is defined in the Recitals.
Planned Residential Units is defined in the Recitals.
Planned Retail Space is defined in the Recitals.
Redevelopment Plan Amendments is defined in Section 2.2.1 .
Revenue Participation is defined in Section 2.6 .
Revenue Participation Deed of Trust is defined in Section 2.6 .
Shipyard 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 and 211-10 on August 3, 2010, and as the same may be further amended from time to time.
5
Transfer means to convey, transfer, sell or assign. Transferred , Transferring and other variations of Transfer have correlative meanings.
TSC is defined in the preamble to this Agreement or means its permitted successors and assigns hereunder.
ARTICLE 2
Entitlement Transfer
2.1 Entitlement Transfer . CPHP shall cause HPS to use commercially reasonable efforts and TSC shall cause CPDC to use commercially reasonable efforts to cause the Entitlement Transfer to occur (and receive the Governmental Approvals) in accordance with this Agreement.
2.2 Entitlement Transfer Approval Process .
2.2.1 Entitlement Transfer Approval Process . The Parties acknowledge and agree that the Entitlement Transfer will require discretionary Governmental Approvals, including Approvals of amendments to (i) the CP/HPS2 DDA and the HPS1 DDA (collectively, the DDA Amendments ), (ii) the BVHP Redevelopment Plan and the Shipyard Redevelopment Plan (collectively, the Redevelopment Plan Amendments ), and (iii) other regulatory or planning documents or agreements related to the HPS1 Project and the CP/HPS2 Project (together with the DDA Amendments and the Redevelopment Plan Amendments, the Entitlement Transfer Amendments ). The Governmental Approvals are expected to require public hearings before, and Approvals from, the Agency (including the Agencys Commission and its Oversight Board) and various City bodies, including the Citys Planning Commission and its Board of Supervisors, Approvals from the State of California Department of Finance and review under the California Environmental Quality Act (collectively, the Entitlement Transfer Approval Process ).
2.2.2 TSCs Lead Role; CPHPs Approvals and Support . CPHP agrees that TSC will cause CPDC to take the lead role in all aspects of the Entitlement Transfer Approval Process, including negotiating the Entitlement Transfer Amendments with the Agency (and, to the extent required, with the City and the State of California), establishing the terms thereof, and determining the timing and sequence of the Governmental Approvals; provided, however, such Entitlement Transfer Amendments shall be subject to (i) TSCs Approval in its sole and absolute discretion and (ii) CPHPs Approval, which Approval shall be limited to those provisions of the Entitlement Transfer Amendments that could reasonably be expected to have a material adverse effect on the development, ownership or use of the HPS1 Project and/or the development, ownership or use of (a) the CP Parking Parcel as such term is defined in that certain CP Parking Parcel Agreement and Joint Escrow Instructions by and between CPDC and CPHP dated as of May 2, 2016, (b) the Parcels as such term is defined in that certain Purchase and Sale Agreement and Joint Escrow Instructions (Apartments) by and between CPDC and Block 6aS, 8aS and 9aS Developer dated as of May 2, 2016 or (c) Block 6aS, 8aS and 9aS. Upon request from TSC, CPHP shall provide (or cause HPS to
6
provide) any reasonably requested assistance and support in connection with the Governmental Approvals, including appearances at public hearings, execution of applications and associated documents and agreements and communications with representatives of the Governmental Entities in support of the Governmental Approvals and the Entitlement Transfer Amendments.
2.2.3 CP/HPS2 Project Amendments . CPHP acknowledges that TSC currently anticipates CPDC will seek Approvals from Governmental Entities of amendments to the CP/HPS2 DDA, the BVHP Redevelopment Plan and the Shipyard Redevelopment Plan, and other regulatory or planning documents or agreements related to the CP/HPS2 Project for matters other than the Entitlement Transfer (collectively, the CP/HPS2 Project Amendments ). CPHP agrees that TSC may, in its sole and absolute discretion, cause CPDC to pursue the CP/HPS2 Project Amendments simultaneously with the Entitlement Transfer Amendments (including by consolidating the associated hearings, documents and Approvals) (the Consolidated Approvals ).
2.3 Cost Allocation . Except as otherwise provided in this Section 2.3, each Party shall pay fifty percent (50%) of the total aggregate costs, including reasonable attorneys fees and costs, incurred by the Parties in connection with the Governmental Approvals (collectively, Entitlement Transfer Costs ). Each Party shall, from time to time and upon reasonable request from the other Party, provide the other Party with invoices and other reasonably requested documentation evidencing the Entitlement Transfer Costs incurred by such Party (provided, that neither Party shall be required to provide any documentation that would serve to waive any attorney-client privilege, the work product doctrine or any other applicable privilege). In the event either Party overpaid its allocation of the Entitlement Transfer Costs, the Party that underpaid its allocation of the Entitlement Transfer Costs shall reimburse the overpaying Party in the amount necessary to bring each Partys allocation of Entitlement Transfer Costs equal to fifty percent (50%) of the Entitlement Transfer Costs no later than fifteen (15) Business Days following submittal of invoices or documentation evidencing such overpayment. If CPDC pursues the Consolidated Approvals: (i) CPHP shall not be responsible for the payment of any portion of Entitlement Transfer Costs to the extent related solely to the CP/HPS2 Project Amendments; and (ii) the Parties shall reasonably and equitably allocate the Entitlement Transfer Costs such that the Entitlement Transfer Costs that are related solely to the CP/HPS2 Project Amendments are paid by TSC (or CPDC) and the remaining Entitlement Transfer Costs are paid in accordance with the first sentence of this Section 2.3 . For purposes of this Section 2.3 , the Entitlement Transfer Costs incurred by CPHP shall include the Entitlement Transfer Costs incurred by HPS and the Entitlement Transfer Costs incurred by TSC shall include the Entitlement Transfer Costs incurred by CPDC. This Section 2.3 shall survive the termination of this Agreement.
2.4 Litigation . If a Claim is made against CPDC, HPS or any Governmental Entity related to the Entitlement Transfer Amendments or the Entitlement Transfer Approval Process, CPHP agrees that, as between CPHP and HPS on the one hand, and TSC and CPDC on the other hand, TSC shall be solely responsible for controlling the defense of the Claim, including retaining counsel for such defense, and that the costs and expenses of the defense of such Claim, including reasonable attorneys fees and costs, shall be included as Entitlement Transfer Costs subject to allocation as set forth in Section 2.3 ; provided that, such costs shall be borne solely by
7
TSC to the extent arising from the willful misconduct of CPDC or TSC, and provided further that, without Approval of CPHP, TSC shall not settle or compromise any Claim on a basis that would result in (i) the imposition of a consent order, injunction or decree that would affect the future activity or conduct of CPHP or HPS, (ii) a finding or admission that would have an adverse effect on other Claims made or threatened against CPHP or HPS, (iii) any monetary liability of CPHP or HPS that will not be promptly paid or reimbursed by TSC to CPHP, or (iv) any admission of wrongdoing or guilt on the part of CPHP or any of its Affiliates. CPHP shall cooperate with all actions taken by TSC pursuant to this Section 2.4 , including by executing reasonable documentation to the extent necessary for TSC to defend any Claims brought against the Entitlement Transfer Amendments and/or the Entitlement Transfer Approval Process. This Section 2.4 shall survive the termination of this Agreement.
2.5 Termination of Entitlement Transfer and Entitlement Transfer Approval Process . If at any time prior to receipt of the Governmental Approvals (x) TSC or CPHP does not Approve the terms or conditions required by any Governmental Entity for the Entitlement Transfer in accordance with Section 2.2.2 , including the terms and conditions of any Entitlement Transfer Amendments, or (y) TSC determines in its sole and absolute discretion, based on the information available to it, that the Entitlement Transfer will not result in a net benefit to CPDC equal to not less than the aggregate projected amount of the Revenue Participation considering its projections of, among other things, (a) the Entitlement Transfer Costs, (b) the timing of the Governmental Approvals, (c) the conditions to be imposed by Governmental Entities on the Entitlement Transfer, (d) challenges or appeals to any Approvals from Governmental Entities to effectuate the Entitlement Transfer and the likelihood of the success thereof, and (e) the value of the Excess Entitlements, then, in either case, TSC may elect by written notice thereof to CPHP to terminate this Agreement. Upon any such termination, the Parties shall reasonably cooperate to terminate the Entitlement Transfer and the Entitlement Transfer Approval Process and any restrictions on the actions of CPHP in Sections 2.7 and 5.1.1 shall terminate.
2.6 Reconveyance of Revenue Participation Deed of Trust . Contemporaneously with the Closing (as defined in the Block 6aS, 8aS and 9aS PSA), a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the Revenue Participation Deed of Trust ) will be recorded against Block 6aS, 8aS and 9aS in favor of CPDC securing Block 6aS, 8aS and 9aS Developers obligation to pay, or cause Block 6aS, 8aS and 9aS Developer to, contemporaneously with the closing of the sale of each DU (as defined in the Block 6aS, 8aS and 9aS PSA) in the Project (as defined in the Block 6aS, 8aS and 9aS PSA) to a member of the homebuying public, pay to CPDC an amount equal to two percent (2%) of the gross purchase price paid for such DU (the Revenue Participation ). Upon receipt of the Governmental Approvals, Block 6aS, 8aS and 9aS Developers obligation to pay the Revenue Participation shall terminate and TSC shall cause CPDC to (i) provide a release or other evidence of such termination in a form Approved by CPHP, (ii) reconvey the Revenue Participation Deed of Trust to Block 6aS, 8aS and 9aS Developer and (iii) repay to Block 6aS, 8aS and 9aS Developer within thirty (30) days of receipt of the Governmental Approvals any Revenue Participation paid pursuant to the Block 6aS, 8aS and 9aS PSA prior to the receipt of the Governmental Approvals.
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2.7 Limitations on Development of HPS1 Project .
2.7.1 Agency Affordable Units . CPHP shall (and shall cause HPS to) use commercially reasonable efforts to prohibit the Agency from developing Residential Units in the HPS1 Project in excess of the Planned Agency Units.
2.7.2 Residential Units . CPHP shall not (and shall cause HPS not to) permit Vertical Developers to develop Residential Units in the HPS1 Project in excess of the Planned Residential Units. For the avoidance of doubt, the Planned Residential Units include the Residential Units constructed, under construction and planned to be constructed as of the Effective Date.
2.7.3 Retail Space . CPHP shall not (and shall cause HPS not to) permit Vertical Developers to develop retail space in the HPS1 Project in excess of the Planned Retail Space.
2.8 Term . This Agreement shall terminate upon the occurrence of the Entitlement Transfer (and receipt of the Governmental Approvals), unless sooner terminated in accordance with the terms hereof. Upon the termination of this Agreement, neither Party shall have any further rights or obligations hereunder except for those herein that expressly survive such termination.
ARTICLE 3
Disputes
3.1 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 3.2 . Any such mediation shall be held in San Francisco, California, before a mediator selected by the Parties in accordance with this Section 3.1 . 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 3.1 . 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 3.2 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 3.2 .
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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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TSCS INITIALS | CPHPS INITIALS |
3.2 Judicial Reference . The Parties have agreed on the following mechanisms in order to obtain prompt and expeditious resolution of disputes hereunder:
3.2.1 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 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.
3.2.2 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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3.2.3 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 .
3.2.4 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 .
3.2.5 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.
3.2.6 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.
3.2.7 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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3.2.8 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.
3.2.9 Other Remedies . The provisions of this Article III 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.
3.2.10 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 4
Representations and Warranties
4.1 Representations and Warranties of TSC . TSC 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:
4.1.1 Power and Authority . TSC 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.
4.1.2 Binding Agreement . This Agreement is binding on TSC 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.
4.1.3 Consents . No consents of any other Person are required with respect to TSCs execution and delivery of this Agreement that have not been obtained.
4.1.4 Representation by Counsel . TSC 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 TSC contained in this Agreement and after such advice from and consultation with such counsel as TSC has determined to be necessary or appropriate and sufficient with respect thereto, TSC, 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.
4.1.5 Authorization . TSC 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 TSC have been duly taken.
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4.1.6 Compliance with Other Instruments . TSCs authorization, execution, delivery, and performance of this Agreement do not conflict with any other agreement or arrangement to which TSC or any of its Affiliates is a party or by which it is bound.
4.2 Representations and Warranties of CPHP . CPHP hereby makes the following representations and warranties for the benefit of TSC as of the Effective Date, and acknowledges that TSC is relying upon such representations and warranties in entering into this Agreement:
4.2.1 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.
4.2.2 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.
4.2.3 Consents . No consents of any other Person are required with respect to CPHPs execution and delivery of this Agreement that have not been obtained.
4.2.4 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.
4.2.5 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.
4.2.6 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.
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ARTICLE 5
Miscellaneous .
5.1 Transfer and Change of Control .
5.1.1 CPHP . CPHP shall not without TSCs 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, (ii) suffer or permit a change in the beneficial interests in HPS such that HPS is no longer a wholly owned direct and/or indirect subsidiary of CPHP, (iii) suffer or permit HPS to Transfer all or any portion of its interests in the HPS1 DDA or any other right, title or interest in or to the Excess Entitlements, (iv) suffer or permit a change in the beneficial interests in Block 6aS, 8aS and 9aS Developer such that Block 6aS, 8aS and 9aS Developer is no longer a wholly owned direct and/or indirect subsidiary of CPHP, (v) suffer or permit Block 6aS, 8aS and 9aS Developer to Transfer all or any portion of its interests in Block 6aS, 8aS and 9aS, (vi) suffer or permit a change in the Control of CPHP such that any Person other than Lennar Controls CPHP or (vii) 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 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 such Affiliate directly or indirectly owns the beneficial interests in the HPS1 DDA and any other right, title or interest in or to the Excess Entitlements. For the avoidance of doubt, (x) nothing in this Section 5.1.1 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 5.1.1 , unless otherwise Approved by TSC 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. For the avoidance of doubt, a sale of a Residential Unit to a member of the home-buying public shall not be a deemed a Transfer by Block 6aS, 8aS and 9aS Developer. Any attempted Transfer made in violation of this Section 5.1.1 shall be null and void.
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5.1.2 TSC . TSC shall not without CPHPs Approval in its sole and absolute discretion voluntarily or by operation of law Transfer any of its rights, interests and/or obligations under this Agreement; provided, however, that TSC may assign its rights, interests and/or obligations under this Agreement in whole or in part to its Affiliate, to CPDC or to any other Person that is (or whose Affiliate is) Developer under and as defined in the CP/HPS2 DDA without the requirement of any Approval of CPHP. Any permitted Transfer by TSC must be evidenced by a written assignment and assumption of this Agreement that provides that the assignee shall be responsible for all of TSCs Transferred obligations under this Agreement from and after the Effective Date. Notwithstanding anything set forth in this Section 5.1.2 , unless otherwise Approved by CPHP in its sole and absolute discretion, in no event shall TSC be relieved of any of its obligations under this Agreement as a result of any Transfer by or change of Control of TSC. Any attempted Transfer made in violation of this Section 5.1.2 shall be null and void. At all times that Five Point Operating Company, LLC Controls TSC, at least one (1) employee of Five Point Operating Company, LLC (or its wholly owned direct or indirect subsidiaries) shall remain the sole point of contact and authorized representative on behalf of TSC to address any and all matters under this Agreement, and under any and all documents executed or entered into in connection with this Agreement.
5.1.3 Notice . For any Transfer by a Party, or any change in Control of CPHP, in any case permitted hereunder, the applicable Party shall provide notice thereof to the other Party as soon as commercially practicable in advance of such Transfer or change and, in any event, no later than concurrently therewith. Any such notice pursuant to this Section 5.1.3 shall include, with respect to a Transfer, a copy of the assignment and assumption of this Agreement in accordance with the foregoing.
5.2 Relationship of Parties . By virtue of this Agreement, TSC 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.
5.3 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. 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
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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.
5.4 Resolution of Contractual Uncertainties . Both TSC and CPHP, with the assistance of their respective counsel, have actively negotiated the terms and provisions of this Agreement. Therefore, TSC and CPHP waive the effect of California Civil Code Section 1654 which interprets uncertainties in a contract against the Party who drafted the contract.
5.5 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.
5.6 Amendment; Third Party Beneficiaries . This Agreement shall not be amended or modified except in writing signed by CPHP and TSC. 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.
5.7 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.
5.8 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.
5.9 Waivers . 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.
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5.10 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 TSC or constitute a material unwaived deviation from the general intent and purpose of the Parties as reflected in this Agreement.
5.11 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.
5.12 Further Acts . CPHP and TSC 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.
5.13 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.
5.14 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.
5.15 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
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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.
5.16 Costs and Expenses . Except as set forth in Section 2.3 or 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.
5.17 Estoppel Certificates . A Party, within twenty (20) days after request from the other Party, shall execute and deliver to the requesting Party an estoppel certificate stating:
5.17.1 whether or not this Agreement is unmodified and in full force and effect; if there has been a modification of this Agreement, the certificate shall state that this Agreement is in full force and effect as modified, and shall set forth the modification; if this Agreement is not in full force and effect, the certificate shall so state; and
5.17.2 whether or not the responding Party is aware of any default (or event that, with notice or the passage of time or both, could be a default) by the other Party under this Agreement and, if so, describing the same in detail.
5.18 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 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 5.18 . 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 5.18 , 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 5.18 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
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communication shall refer to the date such communication is deemed to have been given under the terms of this Section 5.18 . Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given under this Section 5.18 shall be deemed to constitute receipt of notice or other communication sent.
If to TSC:
CP Development Co., LP
One Sansome Street, Suite 3200
San Francisco, California 94104
Attention: Kofi Bonner
Facsimile: 415.995.1778
with copies to :
Paul Hastings LLP
55 Second Street, 24th Floor
San Francisco, California 94105
Attention: David A. Hamsher
Facsimile: 415.856.7123
and
CP Development Co., LP
25 Enterprise Drive, Suite 300
Aliso Viejo, California 92656
Attention: Legal Notices
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
19
Bilzin Sumberg Baena Price & Axelrod LLP
1450 Brickell Avenue, Suite 2300
Miami, Florida 33131
Attn: Steven D. Lear, Esq.
Facsimile: 305.351.2232
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
[Remainder of Page Intentionally Blank]
20
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the Effective Date.
Exhibit 10.29
FIVE POINT HOLDINGS, LLC
2016 INCENTIVE AWARD PLAN
RESTRICTED SHARE UNIT AGREEMENT
This Restricted Share Unit Agreement (this Agreement ) is made and entered into as of the date of grant set forth below (the Date of Grant ) by and between Five Point Holdings, LLC, a Delaware limited liability company (the Company ), and the individual named below (the Grantee ). Capitalized terms not defined herein shall have the meaning ascribed to them in the Five Point Holdings, LLC 2016 Incentive Award Plan (the Plan ). Where the context permits, references to the Company shall include any successor to the Company.
Name of Grantee:
Number of RSUs:
Date of Grant:
1. Grant of Restricted Share Units . The Company hereby grants to the Grantee the total number of Restricted Share Units set forth above as Number of RSUs (the RSUs ), subject to all of the terms and conditions of this Agreement and the Plan. Each RSU represents the right to receive one (1) Share.
2. Incorporation of Plan . The Plan is hereby incorporated by reference and made a part hereof, and the RSUs and this Agreement shall be subject to all of the terms and conditions of the Plan. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern.
3. Vesting .
(a) Except as otherwise provided in this Section 3, the RSUs will vest [Insert Vesting Schedule] subject to the Grantees continued service with the Company or an Affiliate through such date (each a Vesting Date ).
(b) [Additional Vesting Provisions]
4. Settlement . The Shares underlying the RSUs, if any, that become vested as of an applicable Vesting Date will be delivered to the Grantee on or as soon as practicable (and in any event within five (5) business days) following the Vesting Date or, in the case of vesting by reason of the occurrence of a Change in Control, as of immediately prior to the Change in Control (the date of each such settlement, the Settlement Date ).
5. Voting and Other Rights .
(a) The Grantee shall have no rights of a shareholder with respect to the RSUs (including the right to vote the underlying Shares or to receive any distributions or dividends) unless and until Shares are issued in respect thereof on the Settlement Date.
(b) Notwithstanding the foregoing, on each date that the Company pays a dividend or distribution to holders of Shares between the Date of Grant and the Settlement Date, the Company shall credit to the Grantee an additional number of RSUs (the Additional RSUs )
equal to (i) the product of the total number of outstanding RSUs and Additional RSUs previously credited to the Grantee under this Agreement and the aggregate amount or value of the dividend or distribution paid with respect to a Share by the Company on such date, divided by (ii) the Fair Market Value per Share on the payment date for such dividend or distribution. Any Additional RSUs shall be subject to same payment provisions as the underlying RSUs.
6. Authority of the Administrator . The Administrator shall have full authority to interpret and construe the terms of the Plan and this Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.
7. Governing Law . This Agreement shall be construed and administered in accordance with the laws of the State of Delaware without reference to its principles of conflicts of law.
8. Binding on Successors . The terms of this Agreement shall be binding upon the Grantee and upon the Grantees heirs, executors, administrators, personal representatives, transferees, assignees and successors in interest, and upon the Company and its successors and assignees.
9. Assignment and Transferability . Except for transfers to a Permitted Transferee, the RSUs may not be transferred, assigned or otherwise disposed of, and no transfer of the Grantees rights with respect to the RSUs, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such RSUs, and all of the rights related thereto, shall be forfeited by the Grantee.
10. Securities Laws Requirements . The Company shall not be obligated to issue Shares to the Grantee if such issuance, in the opinion of counsel for the Company, would violate the Securities Act (or any other federal or state statutes having similar requirements as may be in effect at that time).
11. Necessary Acts . The Grantee hereby agrees to perform all acts, and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement, including but not limited to all acts and documents related to compliance with federal and/or state securities and/or tax laws.
12. Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding among the parties as to the subject matter hereof, and supersede any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof.
13. Headings . Headings are used solely for the convenience of the parties and shall not be deemed to be a limitation upon or descriptive of the contents of any such Section.
14. Counterparts; Electronic Signature . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. The Grantees electronic signature of this Agreement shall have the same validity and effect as a signature affixed by the Grantees hand.
15. Notices . Any notice provided hereunder must be in writing and mailed or delivered either (i) to the Company at the physical address listed below or (ii) to the Grantee at the Grantees physical address on file with the Company. Any such notice shall be deemed effective (1) upon delivery if delivered in person, (2) on the next business day if transmitted by national overnight courier (such as FedEx or UPS) and (3) on the fourth business day following mailing by first class mail.
Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Attention: Chief Legal Officer
Either party hereto may change such partys address for notices by notice duly given pursuant hereto.
16. Amendment . No amendment or modification hereof shall be valid unless it shall be in writing and signed by both of the parties hereto.
17. Acceptance . The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understand the terms and provision thereof, and accepts the RSUs subject to all the terms and conditions of the Plan and this Agreement.
18. Taxes . The Company shall require a cash payment by or on behalf of the Grantee in satisfaction of the amount of tax to be withheld from Grantee in respect of the settlement of the RSUs or alternatively, if the Grantee requests, the Administrator in its sole discretion may but shall not be required to deduct from the Shares otherwise issuable or other compensation payable to the Grantee the sums to be withheld from Grantee pursuant to federal, state or local tax law in respect of the settlement of the RSUs (in the case of withheld Shares, measured at their Fair Market Value on the date of required withholding).
19. Section 409A Compliance . The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Code, to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, the Grantee shall not be considered to have terminated employment with the Company for purposes of any payments under this Agreement which are subject to Section 409A of the Code until the Grantee would be considered to have incurred a separation from service from the Company within the meaning of Section 409A of the Code. Each amount to be paid or benefit to be provided under this Agreement shall be construed as a separate identified payment for purposes of Section 409A of the Code. Without limiting the foregoing and notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement or any other arrangement between the Grantee and the Company during the six-month period immediately following the Grantees separation from service shall instead be paid on the first business day after the date that is six months following the Grantees separation from service (or, if earlier, the Grantees date of death). The Company makes no representation that any or all of the payments described in this Agreement will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the day and year first above written.
FIVE POINT HOLDINGS, LLC | ||
By: |
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Name: |
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Title: |
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GRANTEE | ||
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Name: |
25 Enterprise, Suite 300, Aliso Viejo, CA 92656 | p. 949.349.1000 | f. 949.349.0718 | FivePoint.com
Exhibit 10.30
FIVE POINT HOLDINGS, LLC
2016 INCENTIVE AWARD PLAN
RESTRICTED SHARE AGREEMENT
This Restricted Share Agreement (this Agreement ) is made and entered into as of the date of grant set forth below (the Date of Grant ) by and between Five Point Holdings, LLC, a Delaware limited liability company (the Company ), and the individual named below (the Grantee ). Capitalized terms not defined herein shall have the meaning ascribed to them in the Five Point Holdings, LLC 2016 Incentive Award Plan (the Plan ). Where the context permits, references to the Company shall include any successor to the Company.
Name of Grantee:
Number of Restricted Shares:
Date of Grant:
1. Grant of Restricted Shares . The Company hereby grants to the Grantee the total number of Restricted Shares set forth above as Number of Restricted Shares (the Restricted Shares ), subject to all of the terms and conditions of this Agreement and the Plan. The Restricted Shares will not be evidenced by certificates. The Restricted Shares will be issued in book entry form, registered in the name of the Grantee, and the Share ledger of the Company shall indicate the restrictive legend described in Section 6 hereof until the restrictions on such Restricted Shares shall have lapsed.
2. Restrictions; Lapse of Restrictions .
(a) Unless and until, and then only to the extent, the restrictions on transfer of the Restricted Shares lapse as provided in Section 3 hereof, or as otherwise provided in the Plan, no transfer of the Restricted Shares or the Grantees rights with respect to the Restricted Shares, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Unless the Administrator determines otherwise, upon any attempt to transfer a Restricted Share or any rights in respect of a Restricted Share in contravention of the preceding sentence, such Restricted Share, and all of the rights related thereto, shall be immediately forfeited by the Grantee and transferred to, and reacquired by, the Company without consideration of any kind.
(b) The restrictions on transfer set forth in subsection (a) above shall lapse as the Restricted Shares become vested in accordance with Section 3 hereof. Upon each lapse of restrictions relating to Restricted Shares, the Secretary of the Company shall cause the Share ledger of the Company to indicate that the restrictive legend described in Section 6 hereof no longer applies to such Restricted Shares.
3. Vesting .
(a) Except as otherwise provided in this Section 3, the RSUs will vest [Insert Vesting Schedule] subject to the Grantees continued service with the Company or an Affiliate.
(b) [Additional Vesting Provisions]
4. Rights as a Shareholder . Subject to the restrictions set forth in the Plan and this Agreement, the Grantee shall possess all incidents of ownership with respect to the Restricted Shares, including the right to receive distributions with respect to the Restricted Shares and to vote the Restricted Shares. With respect to Restricted Shares that are still subject to the restrictions set forth in Section 2 hereof, property that the Grantee is entitled to receive with respect to such Restricted Shares by reason of an event described in Section 13.2(a) of the Plan (other than cash distributions received) shall be subject to the restrictions imposed on such Restricted Shares.
5. Transfer of Unvested Shares Upon Forfeiture . The Grantee hereby authorizes and directs the Secretary of the Company, or such other person designated by the Company, to take such steps as may be necessary to cause the transfer to the Company of any Restricted Shares that are forfeited by the Grantee.
6. Legend on Certificates . The Grantee agrees that any book entry made in respect of Restricted Shares (including Shares received as a result of stock distributions, stock splits or other forms of recapitalization) prior to the lapse of any outstanding restrictions relating thereto shall be subject to the following legend (in addition to any other legend or legends required under applicable federal and state securities laws):
THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF FORFEITURE (THE RESTRICTIONS) AS SET FORTH IN THE FIVE POINT HOLDINGS, LLC 2016 INCENTIVE AWARD PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND FIVE POINT HOLDINGS, LLC, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY. ANY ATTEMPT TO DISPOSE OF THESE SHARES IN CONTRAVENTION OF THE RESTRICTIONS, INCLUDING BY WAY OF SALE, ASSIGNMENT, TRANSFER, ALIENATION, PLEDGE, HYPOTHECATION OR OTHERWISE, SHALL BE NULL AND VOID AND WITHOUT EFFECT.
7. Incorporation of Plan . The Plan is hereby incorporated by reference and made a part hereof, and the Restricted Shares and this Agreement shall be subject to all of the terms and conditions of the Plan. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern.
8. Authority of the Administrator . The Administrator shall have full authority to interpret and construe the terms of the Plan and this Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.
9. Governing Law . This Agreement shall be construed and administered in accordance with the laws of the State of Delaware without reference to its principles of conflicts of law.
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10. Binding on Successors . The terms of this Agreement shall be binding upon the Grantee and upon the Grantees heirs, executors, administrators, personal representatives, transferees, assignees and successors in interest, and upon the Company and its successors and assignees.
11. Necessary Acts . The Grantee hereby agrees to perform all acts, and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement, including but not limited to all acts and documents related to compliance with federal and/or state securities and/or tax laws.
12. Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding among the parties as to the subject matter hereof, and supersede any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof.
13. Headings . Headings are used solely for the convenience of the parties and shall not be part of and shall not be deemed to be a limitation upon or descriptive of the contents of this Agreement.
14. Counterparts; Electronic Signature . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. The Grantees electronic signature of this Agreement shall have the same validity and effect as a signature affixed by the Grantees hand.
15. Notices . Any notice provided hereunder must be in writing and mailed or delivered either (i) to the Company at the physical address listed below or (ii) to the Grantee at the Grantees physical address on file with the Company. Any such notice shall be deemed effective (1) upon delivery if delivered in person, (2) on the next business day if transmitted by national overnight courier (such as FedEx or UPS) and (3) on the fourth business day following mailing by first class mail.
Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Attention: Chief Legal Officer
Either party hereto may change such partys address for notices by notice duly given pursuant hereto.
16. Amendment . No amendment or modification hereof shall be valid unless it shall be in writing and signed by both of the parties hereto.
17. Acceptance . The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understand the terms and provision thereof, and accepts the Restricted Shares subject to all the terms and conditions of the Plan and this Agreement.
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18. Failure to Enforce Not a Waiver . The failure of either party hereto to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.
19. Agreement Not a Contract for Services . Neither the Plan, the granting of the Restricted Shares, this Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Grantee has a right to continue to provide services as an officer, director, employee, consultant or advisor of the Company or any Affiliate for any period of time or at any specific rate of compensation, or shall interfere with or restrict in any way the rights of the Company and its Affiliates, which are hereby expressly reserved, to discharge the Grantee at any time for any reason whatsoever, with or without Cause.
20. Severability . If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; provided, however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Agreement to be construed so as to foster the intent of this Agreement and the Plan and to avoid any such finding of invalidity, illegality or unenforceability.
21. Taxes . The Company shall require a cash payment by or on behalf of the Grantee in satisfaction of the amount of tax to be withheld from the Grantee in respect of the vesting of the Restricted Shares or alternatively, if the Grantee requests, the Administrator in its sole discretion may but shall not be required to reduce the number of Restricted Shares that otherwise would become unrestricted Shares held by the Grantee or reduce other compensation payable to the Grantee in such amount as equals the sums to be withheld from Grantee pursuant to federal, state or local tax law in respect of the vesting of the Restricted Shares (in the case of withheld Shares, measured at their Fair Market Value on the date of required withholding).
THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEES SOLE RESPONSIBILITY AND NOT THE COMPANYS TO FILE TIMELY ANY ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON THE GRANTEES BEHALF.
22. Section 409A Compliance . The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Code, to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, the Grantee shall not be considered to have terminated employment with the Company for purposes of any payments under this Agreement which are subject to Section 409A of the Code until the Grantee would be considered to have incurred a separation from service from the Company within the meaning of Section 409A of the Code. Each amount to be paid or benefit to be provided under this Agreement shall be construed as a separate identified payment for purposes of Section 409A of the Code. Without limiting the foregoing and notwithstanding
4
anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement or any other arrangement between the Grantee and the Company during the six-month period immediately following the Grantees separation from service shall instead be paid on the first business day after the date that is six months following the Grantees separation from service (or, if earlier, the Grantees date of death). The Company makes no representation that any or all of the payments described in this Agreement will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the day and year first above written.
FIVE POINT HOLDINGS, LLC | ||
By: |
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Name: |
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Title: |
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GRANTEE | ||
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Name: |
6
Exhibit 10.31
CREDIT AGREEMENT
Dated as of April 18, 2017
among
FIVE POINT OPERATING COMPANY, LLC,
as the Borrower,
ZB, N.A. dba CALIFORNIA BANK & TRUST,
as Administrative Agent
and
L/C Issuer,
and
The Lenders Party Hereto
ZB, N.A. dba CALIFORNIA BANK & TRUST,
as
Sole Lead Arranger and Sole Bookrunner
TABLE OF CONTENTS
Section |
Page | |||||
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS | 1 | |||||
1.01 |
Defined Terms | 1 | ||||
1.02 |
Other Interpretive Provisions | 26 | ||||
1.03 |
Accounting Terms | 27 | ||||
1.04 |
Rounding | 27 | ||||
1.05 |
Times of Day; Rates | 27 | ||||
1.06 |
Letter of Credit Amounts | 28 | ||||
ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS | 28 | |||||
2.01 |
Committed Loans | 28 | ||||
2.02 |
Borrowings, Conversions and Continuations of Committed Loans | 28 | ||||
2.03 |
Letters of Credit | 30 | ||||
2.04 |
Term Loan Conversion; Repayment of Converted Term Loan | 38 | ||||
2.05 |
Prepayments | 39 | ||||
2.06 |
Termination or Reduction of Commitments | 39 | ||||
2.07 |
Repayment of Loans | 40 | ||||
2.08 |
Interest | 40 | ||||
2.09 |
Fees | 41 | ||||
2.10 |
Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate | 42 | ||||
2.11 |
Evidence of Debt | 42 | ||||
2.12 |
Payments Generally; Administrative Agents Clawback | 43 | ||||
2.13 |
Sharing of Payments by Lenders | 45 | ||||
2.14 |
Extension of Maturity Date | 45 | ||||
2.15 |
Increase in Commitments | 47 | ||||
2.16 |
Cash Collateral | 48 | ||||
2.17 |
Defaulting Lenders | 49 | ||||
ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY | 52 | |||||
3.01 |
Taxes | 52 | ||||
3.02 |
Illegality | 56 | ||||
3.03 |
Inability to Determine Rates | 56 | ||||
3.04 |
Increased Costs | 57 | ||||
3.05 |
Compensation for Losses | 58 | ||||
3.06 |
Mitigation Obligations; Replacement of Lenders | 59 | ||||
3.07 |
Survival | 60 | ||||
ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS | 60 | |||||
4.01 |
Conditions of Initial Credit Extension | 60 | ||||
4.02 |
Conditions to all Credit Extensions | 61 |
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ARTICLE V. |
REPRESENTATIONS AND WARRANTIES |
62 | ||||
5.01 |
Existence, Qualification and Power |
62 | ||||
5.02 |
Authorization; No Contravention |
62 | ||||
5.03 |
Governmental Authorization |
62 | ||||
5.04 |
Binding Effect |
62 | ||||
5.05 |
Financial Statements; No Material Adverse Effect |
63 | ||||
5.06 |
Litigation |
63 | ||||
5.07 |
No Default |
63 | ||||
5.08 |
Ownership of Property; Liens |
63 | ||||
5.09 |
Environmental Compliance |
63 | ||||
5.10 |
Insurance |
63 | ||||
5.11 |
Taxes |
63 | ||||
5.12 |
ERISA Compliance |
64 | ||||
5.13 |
Margin Regulations; Investment Company Act |
64 | ||||
5.14 |
Disclosure |
65 | ||||
5.15 |
Compliance with Laws |
65 | ||||
5.16 |
[Reserved] |
65 | ||||
5.17 |
OFAC |
65 | ||||
5.18 |
Anti-Corruption Laws |
65 | ||||
5.19 |
EEA Financial Institutions |
65 | ||||
ARTICLE VI. AFFIRMATIVE COVENANTS |
65 | |||||
6.01 |
Financial Statements |
66 | ||||
6.02 |
Certificates; Other Information |
66 | ||||
6.03 |
Notices |
68 | ||||
6.04 |
Payment of Obligations |
68 | ||||
6.05 |
Preservation of Existence, Etc |
68 | ||||
6.06 |
Maintenance of Properties |
69 | ||||
6.07 |
Maintenance of Insurance |
69 | ||||
6.08 |
Compliance with Laws |
69 | ||||
6.09 |
Books and Records |
69 | ||||
6.10 |
Inspection Rights |
69 | ||||
6.11 |
Use of Proceeds |
69 | ||||
6.12 |
Additional Guarantors |
70 | ||||
6.13 |
Anti-Corruption Laws |
70 | ||||
ARTICLE VII. NEGATIVE COVENANTS |
70 | |||||
7.01 |
First Tier Financial Covenants |
70 | ||||
7.02 |
Second Tier Financial Covenants |
71 | ||||
7.03 |
Use of Proceeds |
71 | ||||
7.04 |
Organization Documents |
71 | ||||
7.05 |
Sanctions |
71 | ||||
7.06 |
Proceeds Used In Contravention of Anti-Corruption Laws |
72 | ||||
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES |
72 | |||||
8.01 |
Events of Default |
81 |
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8.02 |
Remedies Upon Event of Default |
74 | ||||
8.03 |
Application of Funds |
74 | ||||
ARTICLE IX. ADMINISTRATIVE AGENT |
75 | |||||
9.01 |
Appointment and Authority |
75 | ||||
9.02 |
Rights as a Lender |
76 | ||||
9.03 |
Exculpatory Provisions |
76 | ||||
9.04 |
Reliance by Administrative Agent |
77 | ||||
9.05 |
Delegation of Duties |
77 | ||||
9.06 |
Resignation of Administrative Agent |
77 | ||||
9.07 |
Non-Reliance on Administrative Agent and Other Lenders |
79 | ||||
9.08 |
No Other Duties, Etc |
79 | ||||
9.09 |
Guaranty Matters |
79 | ||||
9.10 |
Document Imaging |
80 | ||||
ARTICLE X. MISCELLANEOUS |
80 | |||||
10.01 |
Amendments, Etc |
80 | ||||
10.02 |
Notices; Effectiveness; Electronic Communication |
81 | ||||
10.03 |
No Waiver; Cumulative Remedies; Enforcement |
83 | ||||
10.04 |
Expenses; Indemnity; Damage Waiver |
84 | ||||
10.05 |
Payments Set Aside |
86 | ||||
10.06 |
Successors and Assigns |
86 | ||||
10.07 |
Treatment of Certain Information; Confidentiality |
91 | ||||
10.08 |
Right of Setoff |
92 | ||||
10.09 |
Interest Rate Limitation |
93 | ||||
10.10 |
Counterparts; Integration; Effectiveness |
93 | ||||
10.11 |
Survival of Representations and Warranties |
93 | ||||
10.12 |
Severability |
93 | ||||
10.13 |
Replacement of Lenders |
94 | ||||
10.14 |
Governing Law; Jurisdiction; Etc |
94 | ||||
10.15 |
Waiver of Jury Trial |
95 | ||||
10.16 |
California Judicial Reference |
96 | ||||
10.17 |
No Advisory or Fiduciary Responsibility |
96 | ||||
10.18 |
Electronic Execution of Assignments and Certain Other Documents |
97 | ||||
10.19 |
USA PATRIOT Act |
97 | ||||
10.20 |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions |
97 | ||||
SIGNATURES |
S-1 |
iii
SCHEDULES
1.01(a)Guarantors
2.01 Commitments and Applicable Percentages
5.06 Litigation
5.09 Environmental Matters
10.02 Administrative Agents Office; Certain Addresses for Notices
EXHIBITS
A | Committed Loan Notice |
B | [Intentionally Omitted] |
C | Form of Note |
D | Compliance Certificate |
E-1 | Assignment and Assumption |
E-2 | Administrative Questionnaire |
F | Form of Guaranty |
G | Form of U.S. Tax Compliance Certificates |
iv
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of April 18, 2017, among FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Borrower ), each lender from time to time party hereto (collectively, the Lenders and individually, a Lender ), and ZB, N.A. dba CALIFORNIA BANK & TRUST, as Administrative Agent and L/C Issuer.
The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
Administrative Agent means CBT, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
Administrative Agents Office means the Administrative Agents address and, as appropriate, account as set forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire in substantially the form of Exhibit E-2 or any other form approved by the Administrative Agent.
Affiliate means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Aggregate Commitments means the Commitments of all the Lenders, which as of the Closing Date is Fifty Million Dollars ($50,000,000).
Agreement means this Credit Agreement.
Applicable Percentage means, with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lenders Commitment at such time, subject to adjustment as provided in Section 2.17 . If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired or terminated, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption or joinder agreement contemplated by Section 2.15 pursuant to which such Lender becomes a party hereto, as applicable.
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Applicable Rate means the following percentages per annum, based upon the Consolidated Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(a) :
Pricing Level |
Consolidated Leverage Ratio |
Applicable Rate for Undrawn Fees |
Applicable Rate for Eurodollar Rate Loans + Letter of Credit Fees |
Applicable Rate for Base Rate Loans |
||||
1 | £ 30% | 0.30% | 1.75% | 1.75% | ||||
2 | >30% but £ 40% | 0.35% | 2.00% | 2.00% |
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(a) ; provided , however , that if a Compliance Certificate is not delivered when due in accordance with such Section, then, upon the request of the Required Lenders, Pricing Level 2 shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered. The Applicable Rate in effect from the Closing Date through the first Business Day immediately following the date of delivery of the Compliance Certificate with respect to the fiscal quarter ended June 30, 2017 shall be determined based upon Pricing Level 1.
Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.10(b) .
Approved Fund means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Arranger means CBT (or any other registered broker-dealer wholly-owned by ZB, N.A. to which all or substantially all of ZBs or any of its subsidiaries investment banking, commercial lending services or related businesses may be transferred following the date of this Agreement), in its capacity as sole lead arranger and sole bookrunner.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b) ), and accepted by the Administrative Agent, in substantially the form of Exhibit E-1 or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent.
Audited Financial Statements means the audited consolidated balance sheet of Holdings and its Subsidiaries for the fiscal year ended December 31, 2016, and the related consolidated statements of income or operations, capital and cash flows for such fiscal year of Holdings and its Subsidiaries, including the notes thereto.
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Authorized Financial Officer means any of the chief financial officer, treasurer or controller of the Borrower.
Availability Period means the period from and including the Closing Date to the earliest of (a) the then current Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.06 , (c) any Term Out Commencement Date, and (d) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02 .
Bail-In Action means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
Bail-In Legislation means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
Base Rate means the Daily Eurodollar Rate; provided , that if for any reason the Daily Eurodollar Rate is unavailable, Base Rate shall mean the per annum rate of interest equal to the Federal Funds Rate plus one-half percent (0.50%).
Base Rate Loan means a Loan that bears interest based on the Base Rate.
Basel III means the third of the so-called Basel Accords issued by the Basel Committee on Banking Supervision.
Board means the Board of Governors of the Federal Reserve System of the United States of America.
Borrower has the meaning specified in the introductory paragraph hereto.
Borrower Materials has the meaning specified in Section 6.02 .
Borrowing means a Committed Borrowing.
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agents Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day that is also a London Banking Day.
Cash Collateralize means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of one or more of the L/C Issuer or the Lenders, as collateral for L/C Obligations or obligations of the Lenders to fund participations in respect of L/C Obligations, cash or deposit account balances or, if the Administrative Agent and the L/C Issuer shall agree in their reasonable discretion, other credit support, in each case pursuant to documentation in form
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and substance reasonably satisfactory to the Administrative Agent and the L/C Issuer. Cash Collateral shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
Cash Equivalents means (a) obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof, (b) commercial paper rated at the time of acquisition thereof A-2 or better by S&P or P-2 or better by Moodys, (c) demand deposit accounts maintained in the ordinary course of business (whether domestic or foreign), (d) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus at the time of acquisition thereof in excess of $100,000,000, (e) any corporate debt rated, at the time of acquisition thereof, BBB+ (or the equivalent thereof) or better by S&P or Baa1 (or the equivalent thereof) or better by Moodys and maturing within one year of the date of acquisition, (f) securities with average maturities of 24 months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, or by any political subdivision or taxing authority of any such state, commonwealth or territory having an investment grade rating from either S&P or Moodys (or the equivalent thereof), and (g) money market funds investing in various asset classes, including substantially all the assets of which are described in the preceding clauses.
CBT means ZB, N.A. dba California Bank & Trust and its successors.
Change in Law means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Change in Control means:
(a) at any time, Holdings (or a direct or indirect wholly-owned Subsidiary of Holdings) ceases to be the manager, general manager, general partner or operating managing member (or any equivalent role) of, or otherwise Control, the Borrower; or
(b) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person or its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) (other than the Permitted Investors) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the Equity Interests of Holdings entitled to vote in the election of members of the board of directors (or equivalent governing body) of Holdings.
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Closing Date means April 18, 2017.
Code means the Internal Revenue Code of 1986, as amended, and any successor Law.
Commitment means, as to each Lender, its obligation to (a) make Committed Loans to the Borrower pursuant to Section 2.01 , and (b) purchase participations in L/C Obligations, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lenders name on Schedule 2.01 or in the Assignment and Assumption or joinder agreement contemplated by Section 2.15 pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
Committed Borrowing means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01 .
Committed Loan has the meaning specified in Section 2.01 .
Committed Loan Notice means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a) , which shall be substantially in the form of Exhibit A or such other form as may be approved by the Administrative Agent (including any form on an electronic platform or electronic transmission system as shall be approved by the Administrative Agent), appropriately completed and signed by a Responsible Officer of the Borrower.
Compliance Certificate means a certificate substantially in the form of Exhibit D or any other form approved by the Administrative Agent.
Connection Income Taxes means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated Adjusted Tangible Net Worth means, as of any date of determination, the sum of (i) seventy percent (70%) of Consolidated Tangible Net Worth as of such date; plus (ii) fifty percent (50%) of the cumulative Consolidated Net Income for the period (treated as one accounting period) from the first day of the first fiscal quarter of Holdings ending after the Closing Date occurs through such date of determination; plus (iii) fifty percent (50%) of the Net Proceeds of all Equity Issuances effected at any time after the Closing Date by Holdings or any of its Subsidiaries to any Person other than Holdings or any of its Subsidiaries, in each case including any non-controlling interest as determined in accordance with GAAP. Notwithstanding anything herein to the contrary, interim losses may be applied prior to the 50% Consolidated Net Income accretion in clause (ii) above, but under no circumstances shall the level of required minimum Consolidated Adjusted Tangible Net Worth be allowed to decrease.
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Consolidated EBITDA means, for any period, for Holdings and its Subsidiaries on a consolidated basis, an amount equal to (a) Consolidated Net Income for such period plus (b) to the extent deducted from revenues in determining such Consolidated Net Income: (i) interest expense, (ii) expense for income taxes paid or accrued, (iii) depreciation, (iv) amortization, (v) non-cash (including impairment) charges, (vi) extraordinary losses, and (vii) loss (gain) on early extinguishment of indebtedness, minus (c) to the extent added to revenues in determining such Consolidated Net Income, (i) non-cash gains and extraordinary gains (including for the avoidance of doubt, gains relating to the release of any tax asset valuation reserves), (ii) interest income and (iii) benefit for income taxes.
Consolidated Funded Indebtedness means, as of any date of determination, for Holdings and its Subsidiaries on a consolidated basis, the sum (without duplication) of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds (excluding surety and appeal bonds, performance bonds and other bonds of a like nature), debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit (including standby and commercial but excluding Performance Letters of Credit and any surety and appeal bonds, performance bonds and other bonds of a like nature), bankers acceptances, bank guaranties and similar instruments, (d) all obligations in respect of the deferred purchase price of property or services (excluding (i) accounts payable, expense accruals and deferred compensation items incurred in the ordinary course of business, and (ii) any earnout obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and such obligation is not paid by or on behalf of such Person after becoming due and payable), (e) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (d) above of Persons other than Holdings or any Subsidiary (excluding any bad boy, bad acts or completion guarantee or similar arrangement), and (f) all Indebtedness of the types referred to in clauses (a) through (e) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which Holdings or a Subsidiary is a general partner or joint venturer, unless and to the extent such Indebtedness is expressly made non-recourse to Holdings or such Subsidiary. Notwithstanding (but without duplication of) the foregoing, Consolidated Funded Indebtedness (i) shall not include any Macerich Note Obligations, and (ii) shall include reimbursement obligations owing by The Shipyard Communities, LLC ( TSC ) in respect of EB-5 loan obligations pursuant to (A) the Reimbursement Agreement, dated as of May 2, 2016, between TSC and CP/HPS Development Co.-C, LLC, (B) the Reimbursement Agreement, dated as of May 2, 2016, between TSC and HPS Vertical Development Co.-D/E, LLC and (C) the Reimbursement Agreement, dated as of May 2, 2016, between TSC and CP Vertical Development Co. 1, LLC.
Consolidated Interest Charges means, for any period, for Holdings and its Subsidiaries on a consolidated basis, (a) the sum of all interest, premium payments, debt discount, fees, charges and related expenses of Holdings and its Subsidiaries in connection with borrowed money or in connection with the deferred purchase price of assets for such period, in each case to the extent treated as interest in accordance with GAAP, but excluding amortization of deferred financing costs and any amounts of non-cash interest, minus (b) interest income for such period.
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Consolidated Interest Coverage Ratio means, as of any date of determination, the ratio of (a) Consolidated EBITDA for the period of the four consecutive fiscal quarters ending on such date to (b) Consolidated Interest Charges for the period of four consecutive fiscal quarters ending on such date.
Consolidated Leverage Ratio means, as of any date of determination, (A) with respect to Section 7.01 , the ratio of (a)(I) Consolidated Funded Indebtedness as of such date minus (II) Unrestricted Cash in excess of $25,000,000 as of such date to (b)(I) Consolidated Funded Indebtedness as of such date plus (II) Consolidated Tangible Net Worth as of such date minus (III) Unrestricted Cash in excess of $25,000,000 as of such date and (B) with respect to Section 7.02 , the ratio of (a)(I) Consolidated Funded Indebtedness as of such date minus (II) Unrestricted Cash in excess of $18,750,000 as of such date to (b)(I) Consolidated Funded Indebtedness as of such date plus (II) Consolidated Tangible Net Worth as of such date minus (III) Unrestricted Cash in excess of $18,750,000 as of such date.
Consolidated Net Income means, for any period, for Holdings and its Subsidiaries on a consolidated basis determined in accordance with GAAP, the net income (or loss) of Holdings and its Subsidiaries (excluding extraordinary gains and extraordinary losses) for that period.
Consolidated Net Tangible Assets means, as of any date of determination, (a) the sum of (i) the total amount of assets of Holdings and its Subsidiaries as of such date determined on a consolidated basis in accordance with GAAP and (ii) intangible assets attributed to the incentive compensation provisions of the Amended and Restated Development Management Agreement, dated as of May 2, 2016, by and among Heritage Fields E1 Toro, LLC, Five Point Communities, LP and Five Point Communities Management, Inc., minus (b) the sum of (i) minority or non-controlling interests included therein, (ii) Intangible Assets of Holdings and its Subsidiaries on that date and (iii) all assets of Holdings and its Subsidiaries securing Non-Recourse Indebtedness as of such date up to the aggregate principal amount of such Non-Recourse Indebtedness.
Consolidated Tangible Net Worth means, as of any date of determination, for Holdings and its Subsidiaries on a consolidated basis determined in accordance with GAAP, Shareholders Equity of Holdings and its Subsidiaries on that date minus the Intangible Assets of Holdings and its Subsidiaries on that date.
Consolidated Unpledged Assets means, as of any date of determination, for Holdings and its Subsidiaries on a consolidated basis determined in accordance with GAAP, the total amount of all gross investments, cash and Cash Equivalents, receivables and other assets as are presented on the consolidated balance sheet of Holdings that are not subject to any Lien (excluding all assets related to improvement bonds and communities facility district financings).
Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
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Converted Term Loan has the meaning specified in Section 2.04(a) .
Converted Term Loan Maturity Date has the meaning specified in Section 2.04(b) .
Credit Extension means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
Daily Eurodollar Rate means, for any day, the Eurodollar Rate as of that day that would be applicable for a Eurodollar Rate Loan having a one-month Interest Period determined at approximately 8:00 a.m. Pacific time for such day (rather than 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period as otherwise provided in the definition of Eurodollar Rate), or if such day is not a Business Day, the immediately preceding Business Day; provided that, if the rate of interest determined as provided above with respect to any Eurodollar Rate Loan for a one-month Interest Period would be less than 0.0% per annum, then the rate of interest with respect to such Eurodollar Rate Loan for such Interest Period shall be deemed to be 0.0% per annum. The Daily Eurodollar Rate shall be determined on a daily basis.
DDA means that certain 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, as amended by that certain 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, and as further 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, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP.
Debtor Relief Laws means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
Default means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would, unless cured or waived, be an Event of Default.
Default Rate means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided , however , that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate applicable to such Letters of Credit plus 2% per annum.
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Defaulting Lender means, subject to Section 2.17(b) , any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lenders good faith determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, the L/C Issuer or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit) within two Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or the L/C Issuer in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lenders obligation to fund a Loan hereunder and states that such position is based on such Lenders good faith determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity, or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.17(b) ) as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Borrower, the L/C Issuer and each other Lender promptly following such determination.
Designated Jurisdiction means any country or territory to the extent that such country or territory itself is the subject of any Sanction, including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and Crimea.
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Dollar and $ mean lawful money of the United States.
Domestic Subsidiary means any Subsidiary of the Borrower (other than a FSHCO) that is organized under the laws of the United States, any state thereof or the District of Columbia.
EEA Financial Institution means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
EEA Member Country means any of the member states of the European Union, Iceland, Liechtenstein, and Norway
EEA Resolution Authority means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution
Eligible Assignee means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii) , and (v) (subject to such consents, if any, as may be required under Section 10.06(b)(iii) ), and which is any of (i) a Lender or any of its Affiliates; (ii) a commercial bank organized under the laws of the United States, or any State thereof, and having (x) total assets in excess of $1,000,000,000 and (y) a combined capital and surplus of at least $250,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization of Economic Cooperation and Development (OECD), or a political subdivision of any such country, and having (x) total assets in excess of $1,000,000,000 and (y) a combined capital and surplus of at least $250,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of OECD; (iv) a life insurance company organized under the laws of any State of the United States, or organized under the laws of any country and licensed as a life insurer by any State within the United States and having admitted assets of at least $1,000,000,000; (v) a nationally or internationally recognized investment banking company or other financial institution in the business of making, investing in or purchasing loans, or an Affiliate thereof organized under the laws of any State of the United States or any other country which is a member of OECD, and licensed or qualified to conduct such business under the laws of any such State and having (1) total assets of at least $1,000,000,000 and (2) a net worth of at least $250,000,000; or (vi) an Approved Fund. In no event shall a Defaulting Lender be deemed to be an Eligible Assignee.
Environmental Laws means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
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Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
Equity Interests means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, and all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person.
Equity Issuance means any issuance of Equity Interests by any Person.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
ERISA Event means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a substantial employer as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan; (d) the filing of a notice of intent to terminate a Pension Plan under Section 4041 of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
EU Bail-In Legislation Schedule means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
Eurodollar Rate means for any Interest Period with respect to a Eurodollar Rate Loan, the rate of interest obtained by dividing (a) the rate of interest per annum determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period as set by the ICE Benchmark Administration, Limited ( IBA ), as shown on the display designated as IBA Interest Settlement Rates, or its equivalent, on the Bloomberg Financial system ( Bloomberg )
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at approximately 11:00 a.m. (London time) three (3) Business Days prior to the first (1st) day of the applicable Interest Period by (b) a percentage equal to one (1) minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained with respect to Eurocurrency funding (currently referred to as Eurocurrency liabilities ) as specified in Regulation D of the Board of Governors of the Federal Reserve System (or against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined or any applicable category of extensions of credit or other assets which includes loans by an office of any Lender outside of the United States of America); provided that, if the rate of interest determined as provided above with respect to any Eurodollar Rate Loan for any Interest Period would be less than 0.0% per annum, then the rate of interest with respect to such Eurodollar Rate Loan for such Interest Period shall be deemed to be 0.0% per annum. If, for any reason, the rate referred to in the preceding clause (a) does not appear on Bloomberg (or any applicable successor page), then the rate to be used for such clause (a) shall be otherwise independently determined by the Administrative Agent from an alternate, substantially similar independent source available to the Administrative Agent or shall be calculated by the Administrative Agent by a substantially similar methodology as that heretofore used to determine such offered rate in Bloomberg. Any change in the maximum rate of reserves described in the preceding clause (b) shall result in a change in the Eurodollar Rate on the date on which such change in such maximum rate becomes effective.
Eurodollar Rate Loan means a Committed Loan that bears interest at a rate based on of the definition of Eurodollar Rate.
Event of Default has the meaning specified in Section 8.01 .
Exchange Act means the Securities Exchange Act of 1934.
Excluded Subsidiary means any Subsidiary of the Borrower that is (a) not a Wholly Owned Subsidiary of the Borrower, (b) an Immaterial Subsidiary, (c) an SPE Subsidiary, (d) a Foreign Subsidiary, (e) prohibited or restricted from guaranteeing the Indebtedness of the Borrower hereunder by (i) any Contractual Obligation (including any requirement to obtain the consent of any Person that is not the Borrower or a Subsidiary thereof) or (ii) applicable Law (including the requirement to obtain the consent of any Governmental Authority to the extent not obtained) or (f) any direct or indirect Subsidiary of any Excluded Subsidiary pursuant to clauses (a) through (e).
Excluded Taxes means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or its applicable Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding (including backup withholding) Taxes imposed on amounts payable to or for the account of such Recipient with respect to an applicable interest in a Loan or Commitment pursuant to a Law in effect on the date on which (i) such Recipient acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 10.13 ) or (ii) such Recipient changes its Lending Office, except in each
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case to the extent that, pursuant to Section 3.01(a)(ii), (a)(iii) or (c) , amounts with respect to such Taxes were payable either to such Recipients assignor immediately before such Recipient became a party hereto or to such Recipient immediately before it changed its Lending Office, (c) Taxes attributable to such Recipients failure to comply with Section 3.01(e) , and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
Extension Request has the meaning specified in Section 2.14(a) .
Facility Anniversary Date means each annual anniversary of the Closing Date.
FASB ASC means the Accounting Standards Codification of the Financial Accounting Standards Board.
FATCA means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471 (b) (1) of the Code, and any applicable intergovernmental agreements with respect thereto and laws enacting such intergovernmental agreements.
Federal Funds Rate means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to CBT on such day on such transactions as determined by the Administrative Agent.
Fee Letter means the letter agreement, dated as of the Closing Date, between the Borrower and CBT.
Financial Term Out Trigger Event means (a) the Borrower breaches any financial covenant set forth in Section 7.01 as of the last day of a fiscal quarter of Holdings and such breach is not cured (or waived by the Required Lenders) within 30 days after the Borrower has delivered (or is required to deliver) the applicable financial statements relating to such fiscal quarter pursuant to Section 6.01 (a) or (b) and the Compliance Certificate relating to such fiscal quarter pursuant to Section 6.02(a) , or (b) the Borrower breaches any financial covenant set forth in Section 7.01 as of the last day of a fiscal quarter of Holdings and such breach is not cured (or waived by the Required Lenders) and the Borrower has failed to deliver the applicable financial statements relating to such fiscal quarter within the time period required pursuant to Section 6.01 (a) or (b) and the Compliance Certificate relating to such fiscal quarter within the time period required pursuant to Section 6.02(a) , in each case after giving any effect to any applicable grace period with respect to the delivery of such financial statements and the Compliance Certificate.
Foreign Lender means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. .
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Foreign Subsidiary means, with respect to any Person, a Subsidiary of that Person which is not a Domestic Subsidiary.
FRB means the Board of Governors of the Federal Reserve System of the United States.
Fronting Exposure means, at any time there is a Defaulting Lender, with respect to the L/C Issuer, such Defaulting Lenders Applicable Percentage of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof.
FSHCO means any direct or indirect Subsidiary of the Borrower substantially all of whose assets consists of the Equity Interests of Persons who are direct or indirect Foreign Subsidiaries of the Borrower.
Fund means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
GAAP means generally accepted accounting principles in the United States of America as in effect from time to time.
Governing Law Agreement means that certain governing law agreement dated as of the Closing Date by and among the Administrative Agent, the Borrower and each other Loan Party.
Governmental Authority means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Guarantee means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness payable by another Person (the primary obligor) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness of the payment of such Indebtedness, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), but in each case excluding any bad boy, bad acts or completion guarantee or similar
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arrangement. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a corresponding meaning.
Guarantors means, collectively, as of the Closing Date, the Domestic Subsidiaries of the Borrower set forth on Schedule 1.01(a) hereto and thereafter any other Domestic Subsidiary of the Borrower that executes a counterpart or joinder to the Guaranty pursuant to Section 6.12.
Guaranty means the Guaranty made by the Guarantors in favor of the Administrative Agent, substantially in the form of Exhibit F .
Hazardous Materials means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
Holdings means Five Point Holdings, LLC, a Delaware limited liability company.
Immaterial Subsidiary means any Subsidiary of the Borrower that has assets that do not exceed 5.0% of Consolidated Net Tangible Assets as of the last day of the most recent fiscal quarter for which financial statements of Holdings and its Subsidiaries are available; provided , that consolidated assets of all Subsidiaries that would otherwise be deemed Immaterial Subsidiaries under this definition shall not exceed 10% of such Consolidated Net Tangible Assets.
Indebtedness means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds (excluding surety and appeal bonds, performance bonds and other bonds of a like nature), debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial but excluding Performance Letters of Credit and any surety and appeal bonds, performance bonds and other bonds of a like nature), bankers acceptances, and bank guaranties and similar instruments;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or services (excluding (i) accounts payable, expense accruals and deferred compensation items incurred in the ordinary course of business, and (ii) any earnout obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and such obligation is not paid by or on behalf of such Person after becoming due and payable);
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(e) indebtedness of another Person of the types referred to in clauses (a) through (d) above (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse, but only to the extent of the fair market value of the assets so subject to the Lien if such obligation is nonrecourse; and
(f) all Guarantees of such Person in respect of any of the foregoing (excluding any bad boy, bad acts or completion guarantee or similar arrangement).
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. Notwithstanding the foregoing, Indebtedness shall not include any Macerich Note Obligations.
Indemnified Taxes means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
Indemnitees has the meaning specified in Section 10.04(b) .
Information has the meaning specified in Section 10.07 .
Intangible Assets means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs (excluding intangible assets attributed to the incentive compensation provisions of the Amended and Restated Development Management Agreement, dated as of May 2, 2016, by and among Heritage Fields E1 Toro, LLC, Five Point Communities, LP and Five Point Communities Management, Inc.).
Interest Payment Date means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the then current Maturity Date; provided , however , that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each month and the then current Maturity Date.
Interest Period means as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two or three months thereafter (in each case, subject to availability), as selected by the Borrower in its Committed Loan Notice; provided that:
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(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the then current Maturity Date.
IPO means an initial public offering of Equity Interests by Holdings registered with the SEC under the Securities Act of 1933.
IRS means the United States Internal Revenue Service.
ISP means, with respect to any Letter of Credit, the International Standby Practices 1998 published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
Issuer Documents means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to such Letter of Credit.
Laws means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
L/C Advance means, with respect to each Lender, such Lenders funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.
L/C Borrowing means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.
L/C Credit Extension means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
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L/C Issuer means CBT in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
L/C Obligations means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be outstanding in the amount so remaining available to be drawn.
Lender has the meaning specified in the introductory paragraph hereto.
Lender Fee Letter means any letter agreement entered into from time to time among the Borrower, the Administrative Agent and any Lender (other than CBT).
Lending Office means, as to any Lender, the office or offices of such Lender described as such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent, which office may include any Affiliate of such Lender or any domestic or foreign branch of such Lender or such Affiliate. Unless the context otherwise requires each reference to a Lender shall include its applicable Lending Office.
Lennar Entity means each of (a) Lenfive, LLC, Lennar Homes of California, Inc. and (b) any Affiliate of any Person referred to in the foregoing clause (a) that is obligated in respect of Unfunded Amounts under the Securities Purchase Agreement.
Letter of Credit means any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit.
Letter of Credit Application means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
Letter of Credit Expiration Date means the earlier of (i) two (2) years from the date on which such Letter of Credit is issued or (ii) one (1) year beyond the then current Maturity Date (or, if such day is not a Business Day, the next preceding Business Day); provided, that the Borrower must Cash Collateralize any Letters of Credit that extend beyond the then current Maturity Date in accordance with the terms hereof.
Letter of Credit Fee has the meaning specified in Section 2.03(h) .
Letter of Credit Sublimit means an amount equal to $50,000,000 plus one hundred percent (100%) of each Dollar increase in the Aggregate Commitments pursuant to Section 2.15 . The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments.
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Lien means, with respect to any asset, any mortgage, pledge, hypothecation, assignment in the nature of a security interest, lien (statutory or other) or other security interest in, on or of such asset.
Liquidity means, as of any date of determination, (a) Unrestricted Cash as of such date plus (b) any Unfunded Amounts as of such date.
Loan means an extension of credit by a Lender to the Borrower under Article II in the form of a Committed Loan.
Loan Documents means this Agreement, each Note, each Issuer Document, any agreement creating or perfecting rights in Cash Collateral pursuant to the provisions of Section 2.16 of this Agreement, the Fee Letter, any Lender Fee Letter, the Governing Law Agreement and the Guaranty, as each may be amended, amended and restated, modified, supplemented or restated from time to time in accordance with Section 10.01 .
Loan Extension has the meaning specified in Section 2.14(a) .
Loan Parties means, collectively, the Borrower and each Guarantor.
London Banking Day means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
Macerich Note Obligations means any obligation or liability in connection with the Promissory Note dated November 13, 2014 made by CP Development Co., LP in favor of Macerich Management Company.
Material Adverse Effect means (a) a material adverse change in, or a material adverse effect upon, the operations, business, or financial condition of Holdings and its Subsidiaries taken as a whole; (b) a material adverse effect on the ability of the Loan Parties to perform their payment or other material obligations under the Loan Documents; or (c) a material adverse effect upon the legality, validity or enforceability against the Loan Parties of the material Loan Documents to which they are a party.
Maturity Date means the latest of (a) April 18, 2019, (b) if the Maturity Date is extended pursuant to Section 2.14 , April 18, 2020 if extended one time and April 18, 2021 if extended a second and final time, or (c) if a Term Out Commencement Date occurs pursuant to Section 2.04 , the Converted Term Loan Maturity Date; provided , however , that, in each case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
Minimum Collateral Amount means, at any time, (a) with respect to Cash Collateral consisting of cash or deposit account balances provided to reduce or eliminate Fronting Exposure during the existence of a Defaulting Lender, an amount equal to 100% of the Fronting Exposure of the L/C Issuer with respect to Letters of Credit issued and outstanding at such time, and (b) with respect to Cash Collateral consisting of cash or deposit account balances provided in accordance with the provisions of Section 2.16(a)(i), (a)(ii) or (a)(iii) , an amount equal to 100% of the Outstanding Amount of (i) all L/C Obligations, in the case of Section 2.16(a)(iii) or (iv) , or (ii) the applicable L/C Obligations, in the case of Section 2.16(a)(i) or (ii) .
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Moodys means Moodys Investors Service, Inc. and its successors.
Multiemployer Plan means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five years, has made or been obligated to make contributions.
Net Proceeds means, with respect to an Equity Issuance by a Person, the aggregate amount of all cash and the fair market value (as determined by the Borrower in good faith) of all other property (other than securities of such Person being converted or exchanged in connection with such Equity Issuance) received by such Person in respect of such Equity Issuance, net of investment banking fees, legal fees, accountants fees, underwriting discounts and commissions and other customary fees and expenses actually incurred by such Person in connection with such Equity Issuance.
Non-Consenting Lender means any Lender that does not approve any consent, waiver or amendment that (i) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 10.01 and (ii) has been approved by the Required Lenders, including, without limitation, any Lender that rejects an Extension Request pursuant to Section 2.14(a) .
Non-Defaulting Lender means, at any time, each Lender that is not a Defaulting Lender at such time.
Non-Recourse Assets has the meaning set forth in the definition of Non-Recourse Indebtedness.
Non-Recourse Indebtedness means, with respect to a Person, Indebtedness of such Person for borrowed money in respect of which recourse for payment (except for customary exceptions for fraud, misapplication of funds, environmental indemnities, voluntary bankruptcy, collusive involuntary bankruptcy and other similar customary exceptions to nonrecourse liability) is contractually limited to specific assets of such Person (or Equity Interests in a Person) encumbered by a Lien securing such Indebtedness (such specific assets or Equity Interests, Non-Recourse Assets ). Indebtedness that is otherwise Non-Recourse Indebtedness will not lose its character as Non-Recourse Indebtedness because there is recourse to the Borrower, any Guarantor or any other Person for or in respect of (i) environmental warranties, covenants or indemnities, (ii) indemnities for and liabilities arising from fraud, misrepresentation, misapplication or non-payment of rents, profits, deposits, insurance and condemnation proceeds and other sums actually received by the obligor from secured assets to be paid to the lender, waste and mechanics liens, breach of separateness covenants, and other customary exceptions or similar customary bad-boy guarantees, (iii) a voluntary bankruptcy filing (or similar filing or action) or involuntary bankruptcy filings by such borrower, and other events, actions and circumstances customarily excluded by institutional lenders from exculpation provisions and /or included in separate indemnification agreements or guarantees in non-recourse financings of real estate or (iv) performance and completion guarantees.
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Note means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C .
Obligations means all advances to, and debts, liabilities and obligations of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
OFAC means the Office of Foreign Assets Control of the United States Department of the Treasury.
Organization Documents means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
Other Connection Taxes means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising solely from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
Other Taxes means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document, except, in each case, any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.06 ) or sale of a participation.
Outstanding Amount means (i) with respect to Committed Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans occurring on such date; (ii) with respect to Converted Term Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any prepayments or repayments of Converted Term Loans on such date and (iii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
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Participant has the meaning specified in Section 10.06(d) .
Participant Register has the meaning specified in Section 10.06(d) .
PBGC means the Pension Benefit Guaranty Corporation.
Pension Funding Rules means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
Pension Plan means any employee pension benefit plan (excluding any Multiemployer Plan) that is maintained or is contributed to by the Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
Performance Letter of Credit means a letter of credit issued to insure (i) the completion of improvements and infrastructure; (ii) maintenance of improvements and infrastructure; or (iii) other similar obligations incurred in the ordinary course of business, in each case only to the extent such letter of credit does not insure obligations constituting Indebtedness.
Permitted Investors means, collectively, the Persons who hold Equity Interests of Holdings on the Closing Date.
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Borrower or any ERISA Affiliate or any such Plan to which the Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees.
Platform has the meaning specified in Section 6.02 .
Potential Term Out Commencement Date means any event or condition that constitutes a Term Out Commencement Date or that, with the giving of any notice, the passage of time, or both, would, unless cured or waived, be a Financial Term Out Trigger Event.
Profit and Participation Agreement means an agreement, secured by a deed of trust, mortgage or other Lien against a property or asset, with respect to which the purchaser of such property or asset agrees to pay the seller of such property or asset a profit, price, premium participation or other similar amount in respect of such property or asset.
Public Lender has the meaning specified in Section 6.02 .
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Recipient means the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder.
Recourse Indebtedness means, with respect to a Person, Indebtedness of such Person that is not Non-Recourse Indebtedness.
Register has the meaning specified in Section 10.06(c) .
Related Parties means, with respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Persons Affiliates.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other than events for which notice has been waived.
Request for Credit Extension means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, and (b) with respect to an L/C Credit Extension, a Letter of Credit Application.
Required Lenders means, at any time, Lenders having Total Credit Exposures representing more than 50% of the Total Credit Exposures of all Lenders. The Total Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time; provided that, the amount of any participation in any Unreimbursed Amounts that such Defaulting Lender has failed to fund that have not been reallocated to and funded by another Lender shall be deemed to be held by the Lender that is the L/C Issuer in making such determination.
Responsible Officer means the chief executive officer, president, chief financial officer, treasurer, chief legal officer or controller of a Loan Party, and solely for purposes of the delivery of incumbency certificates pursuant to Section 4.01 , the secretary of a Loan Party (or, in the case of a partnership, limited partnership or limited liability company that does not have its own officers, of the general partner, manager or sole member of such Person). Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
Revolving Credit Exposure means, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Committed Loans and such Lenders participation in L/C Obligations at such time.
S&P means Standard & Poors Ratings Services, a Standard & Poors Financial Services LLC business, or any successor.
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Sanction(s) means any economic or financial sanction administered or enforced by the United States Government (including without limitation, OFAC), or the United Nations Security Council, the European Union, Her Majestys Treasury ( HMT ).
SEC means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
Securities Purchase Agreement means the Securities Purchase Agreement, dated as of May 2, 2016, among Holdings, the Borrower and the Lennar Entities.
Shareholders Equity means, as of any date of determination, consolidated total capital (including noncontrolling interests) of Holdings and its Subsidiaries as set forth on the consolidated balance sheet of Holdings and its Subsidiaries as of that date.
SPE Subsidiary means any Subsidiary of the Borrower that (a) (i) is a bankruptcy remote or other special purpose Subsidiary which engages in no material business other than owning Non-Recourse Assets, pledging or transferring interests in such Non-Recourse Assets and/or issuing or incurring Non-Recourse Indebtedness or (ii) has no material assets other than Equity Interests of one or more Subsidiaries described in clause (i) and (b) is prohibited or restricted by organizational or governing documents from guaranteeing the Indebtedness of the Borrower hereunder.
Subsidiary of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Borrower; provided that all references herein to Holdings and its Subsidiaries shall include all noncontrolling interests of Holdings as determined in accordance with GAAP.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement ), including any such obligations or liabilities under any Master Agreement.
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Swap Termination Value means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) , the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
Taxes means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Out Commencement Date has the meaning specified in Section 2.04 .
Threshold Amount means $25,000,000.
Total Credit Exposure means, as to any Lender at any time, the unused Commitments and Revolving Credit Exposure of such Lender at such time (including any Converted Term Loans, if the term conversion option under Section 2.04 is exercised).
Total Outstandings means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
Type means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
UCP means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce ( ICC ) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
Unfunded Amounts means, as of any date of determination, amounts that Holdings or the Borrower can cause any Lennar Entity to invest in Holdings as of such date pursuant to the Securities Purchase Agreement.
United States and U.S. mean the United States of America.
Unreimbursed Amount has the meaning specified in Section 2.03(c)(i) .
Unrestricted Cash means, as of any date of determination, the cash and Cash Equivalents of Holdings and its Subsidiaries as of such date, excluding cash and Cash Equivalents which are or should be listed as restricted on the consolidated balance sheet of Holdings and its Subsidiaries as of such date (unless such restriction is related to the Loan Documents).
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U.S. Person means any Person that is a United States Person as defined in Section 7701(a)(30) of the Code.
U.S. Tax Compliance Certificate has the meaning specified in Section 3.01(e)(ii)(B)(III) .
Wholly Owned Subsidiary means any Subsidiary of the Borrower all the Equity Interests of which (other than directors qualifying shares and Equity Interests held by other Persons to the extent such Equity Interests are required by applicable Law to be held by a Person other than the Borrower or one of its Subsidiaries) are owned by the Borrower or one or more Wholly Owned Subsidiaries.
Write-Down and Conversion Powers means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
1.02 Other Interpretive Provisions . With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include , includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall . Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Persons successors and assigns, (iii) the words hereto , herein , hereof and hereunder , and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word from means from and including ; the words to and until each mean to but excluding ; and the word through means to and including .
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(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
1.03 Accounting Terms.
(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 on financial liabilities shall be disregarded.
(b) Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that , until so amended, (A) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (B) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the Audited Financial Statements for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above. Notwithstanding any other provision of this Agreement or the other Loan Documents to the contrary, the determination of whether a lease constitutes a capital lease or an operating lease, and whether obligations arising under a lease are required to be capitalized on the balance sheet of the lessee thereunder and/or recognized as interest expense, shall be determined by reference to GAAP as in effect on the date of this Agreement.
1.04 Rounding . Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day; Rates. Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable). The Administrative Agent does not warrant, nor accept responsibility, nor shall the Administrative Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition of Eurodollar Rate or with respect to any comparable or successor rate thereto.
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1.06 Letter of Credit Amounts . Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 Committed Loans . Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a Committed Loan ) to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate principal amount not to exceed at any time outstanding the amount of such Lenders Commitment; provided , however , that after giving effect to any Committed Borrowing (including the application of the proceeds thereof), (i) the Total Outstandings shall not exceed the Aggregate Commitments, and (ii) the Revolving Credit Exposure of any Lender shall not exceed such Lenders Commitment. Within the limits of each Lenders Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01 , prepay under Section 2.05 , and reborrow under this Section 2.01 . Committed Loans may be Eurodollar Rate Loans or Base Rate Loans as further provided herein.
2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrowers irrevocable notice to the Administrative Agent, which may be given by (A) telephone, or (B) a Committed Loan Notice; provided that any telephonic notice must be confirmed promptly by delivery to the Administrative Agent of a Committed Loan Notice. Each such Committed Loan Notice must be received by the Administrative Agent not later than 10:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any Borrowing of Base Rate Loans. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c) , each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof. Each Committed Loan Notice shall specify (i) whether the Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Committed Loan
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in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agents Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01 ), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of CBT with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided , however , that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, first , shall be applied to the payment in full of any such L/C Borrowings, and second , shall be made available to the Borrower as provided above.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. If an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate.
(e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than three Interest Periods in effect with respect to Committed Loans.
(f) Notwithstanding anything to the contrary in this Agreement, any Lender may exchange, continue or rollover all of the portion of its Loans in connection with any refinancing, extension, loan modification or similar transaction permitted by the terms of this Agreement, pursuant to a cashless settlement mechanism approved by the Borrower, the Administrative Agent, and such Lender.
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2.03 Letters of Credit.
(a) The Letter of Credit Commitment .
(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Lenders set forth in this Section 2.03 , (1) from time to time on any Business Day during the Availability Period to issue Letters of Credit for the account of the Borrower or any of its Subsidiaries, and to amend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower or any of its Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the Aggregate Commitments, (y) the Revolving Credit Exposure of any Lender shall not exceed such Lenders Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii) The L/C Issuer shall not issue any Letter of Credit, if the expiry date of the requested Letter of Credit would occur after the Letter of Credit Expiration Date.
(iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing the Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon the L/C Issuer with respect to the Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;
(B) the issuance of the Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;
(C) [Reserved];
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(D) the Letter of Credit is to be denominated in a currency other than Dollars; or
(E) any Lender is at that time a Defaulting Lender, unless the L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, satisfactory to the L/C Issuer (in its sole discretion) with the Borrower or such Lender to eliminate the L/C Issuers actual or potential Fronting Exposure (after giving effect to Section 2.17(a)(iv )) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which the L/C Issuer has actual or potential Fronting Exposure, as it may elect in its sole discretion.
(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue the Letter of Credit in its amended form under the terms hereof.
(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue the Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of the Letter of Credit does not accept the proposed amendment to the Letter of Credit.
(vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term Administrative Agent as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.
(b) Procedures for Issuance and Amendment of Letters of Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application may be sent by facsimile, by United States mail, by overnight courier, by electronic transmission using the system provided by the L/C Issuer, by personal delivery or by any other means acceptable to the L/C Issuer. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 10:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be
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presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) the purpose and nature of the requested Letter of Credit; and (H) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.
(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuers usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lenders Applicable Percentage times the amount of such Letter of Credit.
(iii) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(c) Drawings and Reimbursements; Funding of Participations .
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 2:00 p.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an Honor Date ), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the Unreimbursed Amount ) and the amount of such Lenders Applicable Percentage thereof. In such event, the Borrower shall be
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deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
(ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available (and the Administrative Agent may apply Cash Collateral provided for this purpose) for the account of the L/C Issuer at the Administrative Agents Office in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 10:00 a.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii) , each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer.
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lenders payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03 .
(iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lenders Applicable Percentage of such amount shall be solely for the account of the L/C Issuer.
(v) Each Lenders obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c) , shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided , however , that each Lenders obligation to make Committed Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.
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(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii) , then, without limiting the other provisions of this Agreement, the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lenders Committed Loan included in the relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.
(d) Repayment of Participations .
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lenders L/C Advance in respect of such payment in accordance with Section 2.03(c) , if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Administrative Agent.
(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Obligations Absolute . The obligation of the Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
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(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv) waiver by the L/C Issuer of any requirement that exists for the L/C Issuers protection and not the protection of the Borrower or any waiver by the L/C Issuer which does not in fact materially prejudice the Borrower;
(v) honor of a demand for payment presented electronically even if such Letter of Credit requires that demand be in the form of a draft;
(vi) any payment made by the L/C Issuer in respect of an otherwise complying item presented after the date specified as the expiration date of, or the date by which documents must be received under such Letter of Credit if presentation after such date is authorized by the UCC, the ISP or the UCP, as applicable;
(vii) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(viii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any Subsidiary.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrowers instructions or other irregularity, the Borrower will promptly notify the L/C Issuer.
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(f) Role of L/C Issuer . Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided , however , that this assumption is not intended to, and shall not, preclude the Borrowers pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (viii) of Section 2.03(e) ; provided , however , that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the L/C Issuers willful misconduct or gross negligence or the L/C Issuers willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. The L/C Issuer may send a Letter of Credit or conduct any communication to or from the beneficiary via the Society for Worldwide Interbank Financial Telecommunication ( SWIFT ) message or overnight courier, or any other commercially reasonable means of communicating with a beneficiary.
(g) Applicability of ISP and UCP; Limitation of Liability . Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each commercial Letter of Credit. Notwithstanding the foregoing, the L/C Issuer shall not be responsible to the Borrower for, and the L/C Issuers rights and remedies against the Borrower shall not be impaired by, any action or inaction of the L/C Issuer required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the Law or any order of a jurisdiction where the L/C Issuer or the beneficiary is located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and TradeInternational Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
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(h) Letter of Credit Fees . The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance, subject to Section 2.17 , with its Applicable Percentage a Letter of Credit fee (the Letter of Credit Fee ) for each Letter of Credit equal to the Applicable Rate times the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . Letter of Credit Fees shall be (i) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.
(i) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer . The Borrower shall pay directly to the L/C Issuer for its own account a fronting fee (i) with respect to each commercial Letter of Credit, at the rate equal to one-eighth of one percent (0.125%) computed on the amount of such Letter of Credit, and payable upon the issuance thereof, (ii) with respect to any amendment of a commercial Letter of Credit increasing the amount of such Letter of Credit, at the rate equal to one-eighth of one percent (0.125%), computed on the amount of such increase, and payable upon the effectiveness of such amendment, and (iii) with respect to each standby Letter of Credit, at the rate per annum equal to one-eighth of one percent (0.125%), computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee referred to in the foregoing clause (iii) shall be due and payable on the first Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 of the Credit Agreement. In addition, the Borrower shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard cost, expenses and charges, of the L/C Issuer relating to letters of credit as from time to time in effect and invoiced by the L/C Issuer. Such customary fees and standard costs and charges are due and payable promptly following demand and are nonrefundable.
(j) Conflict with Issuer Documents . In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
(k) Letters of Credit Issued for Subsidiaries . Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of its Subsidiaries inures to the benefit of the Borrower, and that the Borrowers business derives substantial benefits from the businesses of such Subsidiaries.
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2.04 Term Loan Conversion; Repayment of Converted Term Loan . In the event (i) the Maturity Date is not extended on any Facility Anniversary Date pursuant to Section 2.14 or (ii) a Financial Term Out Trigger Event occurs (such Maturity Date under the foregoing clause (i) or the date of such Financial Term Out Trigger Event under the foregoing clause (ii), being a Term Out Commencement Date ; it being understood that only one Term Out Commencement Date shall result from the occurrence of any Financial Term Out Trigger Event and from and after such date the provisions of Section 7.01 shall no longer apply or have any effect hereunder), all Loans outstanding on the applicable Term Out Commencement Date shall be termed out as follows:
(a) Such Loans shall automatically convert to term loans (each, a Converted Term Loan ) and the Aggregate Commitments shall automatically terminate, in each case on the applicable Term Out Commencement Date. Upon the conversion of the Loans to Converted Term Loans, each Lender shall be deemed to hold its Applicable Percentage (determined immediately prior to giving effect to such conversion) of each of the Converted Term Loans. Each Converted Term Loan shall continue to bear interest at the same rate as provided for in this Agreement, including as set forth in Sections 2.08 and 2.10 and the definition of Applicable Rate, and contain such other terms that are identical to, the Loan from which such Converted Term Loan was converted (including, in the case of a Converted Term Loan that was converted from a Loan that was a Eurodollar Rate Loan at the time of conversion, the same Interest Period applicable to such Eurodollar Rate Loan at the time of conversion) and each reference herein to Committed Loans or Loans shall be deemed to be a reference to Converted Term Loans as appropriate; provided , however that (i) amounts paid or prepaid in respect of Converted Term Loans may not be reborrowed and (ii) the Borrower shall be required to repay the principal amount of the Converted Term Loans in the amounts, and at such times, as provided in Section 2.04(b) .
(b) In addition to interest payments as provided for herein, the Borrower shall repay the Converted Term Loans in twelve (12) equal monthly installments, each in a principal amount equal to equal to 1/12 of the aggregate principal amount of Converted Term Loans outstanding on the Term Out Commencement Date (subject to adjustment pursuant to Section 2.05 ), on the first (1 st ) day of each month commencing with the first month following the Term Out Commencement Date. To the extent not previously paid, all Converted Term Loans shall be due and payable on the date on which the twelfth (12 th ) such installment of principal is due (the Converted Term Loan Maturity Date ).
(c) No undrawn fees pursuant to Section 2.09(a) shall be paid with respect to any Converted Term Loans or otherwise from and after the Term Out Commencement Date; provided, however, the Borrower shall pay any extension fee from the Term Out Commencement Date until the Converted Term Loan Maturity Date in accordance with Section 2.09(c) .
(d) On any Term Out Commencement Date arising as a result of a Financial Term Out Trigger Event (but not any Term Out Commencement Date arising as a result of the Maturity Date not being extended), the Administrative Agent shall require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the Minimum Collateral Amount with respect thereto).
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(e) Notwithstanding any other provision of this Agreement or any Loan Documents to the contrary, the Outstanding Amount, all accrued but unpaid interest with respect to the Outstanding Amount and any other amounts which may be due pursuant to this Agreement or any other Loan Document, shall be due and payable in full on the Term Out Maturity Date.
2.05 Prepayments . The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 10:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) on the date of prepayment of Base Rate Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lenders Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided that a notice of prepayment may state that such notice is conditioned upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other event or condition, in which case such notice of prepayment may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such event does not occur or such condition is not satisfied. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid and shall be subject to any applicable requirements of Section 3.05 . Subject to Section 2.17 , each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages. Each prepayment of Converted Term Loans shall be applied to the remaining scheduled installments in direct order of maturity.
2.06 Termination or Reduction of Commitments . The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 10:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $1,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, and (iv) if, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit exceeds the amount of the Aggregate Commitments, such Sublimit shall be automatically reduced by the amount of such excess. The Administrative Agent will promptly
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notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination. A notice of termination may state that such notice is conditioned upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other event or condition, in which case such notice of termination may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of termination) if such event does not occur or such condition is not satisfied.
2.07 Repayment of Loans. Subject to Section 2.04 , the Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of Committed Loans outstanding on such date.
2.08 Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate, and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to the Base Rate plus the Applicable Rate.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iii) Upon the request of the Required Lenders, while any Event of Default exists (other than as set forth in, and without duplication of, clauses (b)(i) and (b)(ii) above), the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
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2.09 Fees. In addition to certain fees described in subsections (h) and (i) of Section 2.03 :
(a) Undrawn Fee . The Borrower shall pay to the Administrative Agent for the account of each Lender (other than any Defaulting Lender) in accordance with its Applicable Percentage, an undrawn fee equal to the Applicable Rate times the actual daily amount by which the Aggregate Commitments exceed the sum of (i) the Outstanding Amount of Committed Loans and (ii) the Outstanding Amount of L/C Obligations, subject to adjustment as provided in Section 2.17 . The undrawn fee shall accrue at all times during the Availability Period, including at any time during the Availability Period during which one or more of the conditions in Section 4.02 is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period. The undrawn fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.
(b) Other Fees . (i) The Borrower shall pay to the Arranger and the Administrative Agent for their own respective accounts fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(ii) The Borrower shall pay to each Lender any such fees as shall have been separately agreed upon by the Borrower in writing with such Lender in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(c) Extension Fee . If the Maturity Date is extended pursuant to Section 2.14 , the Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, an extension fee equal to 0.25% times such Lenders Commitment in effect on the date of any such extension. If a Term Out Commencement Date occurs, the Borrower shall continue to pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, an extension fee equal to 0.25% times such Lenders Outstanding Amount in effect on such Term Out Commencement Date; provided , that such extension fee shall be prorated accordingly with respect to extension fee amounts previously paid if a Term Out Commencement Date occurs prior to the termination of any of the one year extensions. The extension fee shall be due and payable on each date on which the then current Maturity Date is extended pursuant to Section 2.14 of the Credit Agreement, and with respect to a Term Out Commencement Date, the extension fee shall be due and payable quarterly in arrears on the last Business Day of each subsequent three month period, commencing with the first such date to occur after the Term Out Commencement Date, and on the Converted Term Loan Maturity Date.
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2.10 Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate.
(a) All computations of interest for Base Rate Loans (including Base Rate Loans determined by reference to the Eurodollar Rate) shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest (including any fees payable pursuant to the Fee Letter and any Lender Fee Letter) shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a) , bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(b) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine at any time prior to the Maturity Date that (i) the Consolidated Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders or the L/C Issuer, as the case may be, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or the L/C Issuer), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent, any Lender or the L/C Issuer, as the case may be, under Section 2.03(c)(iii) , 2.03(h) or 2.08(b) or under Article VIII . The Borrowers obligations under this paragraph shall survive until the Maturity Date.
2.11 Evidence of Debt.
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lenders Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
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(b) In addition to the accounts and records referred to in subsection (a) above, each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.12 Payments Generally; Administrative Agents Clawback.
(a) General . All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agents Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lenders Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be, solely for purposes of calculating interest and undrawn fees, deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(b) (i) Funding by Lenders; Presumption by Administrative Agent . Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Committed Borrowing of Eurodollar Rate Loans (or, in the case of any Committed Borrowing of Base Rate Loans, prior to 9:00 a.m. on the date of such Committed Borrowing) that such Lender will not make available to the Administrative Agent such Lenders share of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Committed Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02 ) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Committed Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent
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in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lenders Committed Loan included in such Committed Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Payments by Borrower; Presumptions by Administrative Agent . Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent . If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II , and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d) Obligations of Lenders Several . The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 10.04(c) .
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(e) Funding Source . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
2.13 Sharing of Payments by Lenders . If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans made by it, or the participations in L/C Obligations held by it resulting in such Lenders receiving payment of a proportion of the aggregate amount of such Committed Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and subparticipations in L/C Obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Committed Loans and other amounts owing them, provided that:
(i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii) the provisions of this Section shall not be construed to apply to (x) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), the Fee Letter or any Lender Fee Letter, (y) the application of Cash Collateral provided for in Section 2.16 , or (z) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans, Commitments or subparticipations in L/C Obligations to any assignee or participant.
Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.
2.14 Extension of Maturity Date.
(a) Generally . The Borrower shall have the right to request up to two (2) times that the Administrative Agent and the Lenders agree to extend the Maturity Date by one year for each request (a Loan Extension ). The Borrower may exercise such right only by executing and delivering to the Administrative Agent not earlier than ninety (90) days prior to the applicable Facility Anniversary Date, and not later than forty-five (45) days prior to the applicable Facility Anniversary Date, a written request for such extension (an Extension Request ); provided , however , such request shall not be made more than once during any such forty-five (45) day period. The Administrative Agent shall notify the Lenders if it receives an
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Extension Request promptly (but, in any event, within five (5) Business Days) after receipt thereof. Subject to satisfaction of the following conditions, the then current Maturity Date shall be extended for one year effective upon receipt by the Administrative Agent of the Extension Request and payment of the fee referred to in the following clause (iii): (i) the Required Lenders shall have notified the Administrative Agent of their acceptance of the Extension Request within fifteen (15) days after such Lenders receipt of the Extension Request (or such later date as Administrative Agent and the Borrower may agree); (ii) immediately prior to such extension and immediately after giving effect thereto, (A) the Borrower shall be in compliance with the financial covenants set forth in Section 7.01 , and no Default or Event of Default shall exist and (B) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of the date of such extension with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted under the Loan Documents; (iii) the Borrower shall have paid the extension fees to Lenders approving the extension in accordance with Section 2.09(c) ; and (iv) the Borrower shall have executed such documents and agreements in connection therewith as the Administrative Agent may reasonably request. At any time prior to the effectiveness of any such extension, upon the Administrative Agents request, the Borrower shall deliver to the Administrative Agent a certificate from a Responsible Officer certifying the matters referred to in the immediately preceding clauses (ii)(A) and (ii)(B). The Administrative Agent shall promptly notify the Borrower whether a request for an extension has been accepted or rejected as well as which Lender or Lenders rejected such request (each such Lender constituting a Non-Consenting Lender), it being acknowledged and agreed that any Lender that has not accepted such request within the time period set forth above shall be deemed to have rejected such Extension Request. The Borrower understands and acknowledges that (i) this Section has been included in this Agreement for the Borrowers convenience in requesting an extension of the Maturity Date; (ii) neither the Administrative Agent nor any Lender has promised (either expressly or impliedly), nor does the Administrative Agent or any Lender have any obligation or commitment whatsoever, to extend the Maturity Date; and (iii) the Administrative Agent and the Lenders may condition any such extension on such terms and conditions as they may deem appropriate in their sole and absolute discretion.
(b) Non-Consenting Lenders . Upon the Borrower receiving notice of the Non-Consenting Lenders pursuant to the preceding subsection (a), but subject to the following subsection (c), the Borrower may elect to exercise its remedies with respect to a Non-Consenting Lender pursuant to Section 10,13 .
(c) Extension . None of the Administrative Agent, any Non-Consenting Lender or any Affiliate thereof shall be obligated in any way to assist in finding an Eligible Assignee or Affiliate thereof as contemplated in Section 10.13 . If all of the assignments and
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payments contemplated in Section 10.13 have been completed, such that no Non-Consenting Lender or Affiliate thereof has outstanding any Commitment or Loans in the event of a rejected Loan Extension or other amounts owing under this Agreement to such Non-Consenting Lender in such capacity, then the Borrowers request for an extension shall be deemed to have been granted, and accordingly the Maturity Date shall be extended for a single one-year period or an additional second one-year period, as the case may be. Notwithstanding the preceding subsections, if (i) the Required Lenders do not approve a request for a Loan Extension, or (ii) any of the conditions contained in the preceding subsection (a) are not satisfied, then the Maturity Date shall not be extended. Any failure to extend the Maturity Date pursuant to an Extension Request shall result in a conversion of the Loans into a term loan on such Maturity Date as provided in Section 2.04 (unless the Aggregate Commitments are earlier terminated pursuant to Section 2.06 or otherwise).
2.15 Increase in Commitments.
(a) Request for Increase . Provided there exists no Default, upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Borrower may from time to time, request an increase in the Aggregate Commitments by an amount (for all such requests) not exceeding $50,000,000; provided that any such request for an increase shall be in a minimum amount of $5,000,000. At the time of sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the Lenders). The Borrower hereby acknowledges and agrees that the Administrative Agent and Lenders have not made any commitment to increase its respective Commitments and that neither the Administrative Agent nor any Lender is under any obligation to increase its respective Commitment or to consider any request for any such increase to its Commitment.
(b) Lender Elections to Increase . Each Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than its Applicable Percentage of such requested increase. Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment.
(c) Notification by Administrative Agent; Additional Lenders . The Administrative Agent shall notify the Borrower and each Lender of the Lenders responses to each request made hereunder. To achieve the full amount of a requested increase and subject to the approval and current (which approval and consent shall not be unreasonably withheld or delayed) of the Administrative Agent and the L/C Issuer, the Borrower may also invite additional Eligible Assignees to become Lenders pursuant to a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent and the Borrower.
(d) Effective Date and Allocations . If the Aggregate Commitments are increased in accordance with this Section, the Administrative Agent and the Borrower shall determine the effective date (the Increase Effective Date ) and the final allocation of such increase. The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such increase and the Increase Effective Date.
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(e) Conditions to Effectiveness of Increase . As a condition precedent to such increase, (i) the Borrower shall deliver to the Administrative Agent a certificate of each Loan Party dated as of the Increase Effective Date signed by a Responsible Officer of such Loan Party (x) certifying and attaching the resolutions adopted by such Loan Party (or its applicable governing body or entity) approving or consenting to such increase, and (y) in the case of the Borrower, certifying that, immediately before and immediately after giving effect to such increase, (A) the representations and warranties contained in Article V and the other Loan Documents are true and correct in all material respects on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date, (B) no Default exists and (C) the Borrower is in pro forma compliance as of the most recently ended fiscal quarter with all financial covenants set forth in Section 7.01 after giving effect to any Loans made on the date of such increase. The Borrower shall prepay any Committed Loans outstanding on the Increase Effective Date (and pay any additional amounts to the extent required pursuant to Section 3.05 ) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section.
(f) Conflicting Provisions . This Section shall supersede any provisions in Section 2.13 or 10.01 to the contrary. In connection with any such increase, the Administrative Agent and the Borrower may, without the consent of any Lenders, effect such amendments to any Loan Documents as may be necessary or appropriate to effect the provisions of this Section 2.15 .
2.16 Cash Collateral.
(a) Certain Credit Support Events . If (i) the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing that has not been repaid, (ii) as of any applicable Letter of Credit Expiration Date, any related L/C Obligation for any reason remains outstanding, (iii) the Borrower shall be required to provide Cash Collateral pursuant to Section 8.02(c) , (iv) if a Term Out Commencement Date arising as a result of a Financial Term Out Trigger Event (but not any Term Out Commencement Date arising as a result of the Maturity Date not being extended) occurs pursuant to Section 2.04 , or (v) there shall exist a Defaulting Lender, the Borrower shall immediately (in the case of clause (iii) above) or within one Business Day (in all other cases) following any request by the Administrative Agent or the L/C Issuer, provide Cash Collateral in an amount not less than the applicable Minimum Collateral Amount (determined in the case of Cash Collateral provided pursuant to clause (v) above, after giving effect to Section 2.17(a)(iv) and any Cash Collateral provided by the Defaulting Lender).
(b) Grant of Security Interest . The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grants to (and subjects to the control of) the Administrative Agent, for the benefit of the Administrative Agent, the L/C Issuer and the Lenders, and agrees to maintain, a first priority security interest in all such cash, deposit accounts and all balances therein, and all other property so provided as Cash Collateral pursuant hereto, and in all proceeds of the foregoing, all as security for the obligations to which such Cash Collateral may be applied pursuant to Section 2.16(c) . If at any time the Administrative Agent
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determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent or the L/C Issuer or the Lenders as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount required pursuant to Section 2.16(a) or otherwise hereunder, the Borrower will, promptly following demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency. All Cash Collateral (other than credit support not constituting funds subject to deposit) shall be maintained in one or more deposit accounts at CBT. The Borrower shall pay promptly following demand therefor from time to time all customary account opening, activity and other administrative fees and charges in connection with the maintenance and disbursement of Cash Collateral.
(c) Application . Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under any of this Section 2.16 or Sections 2.03 , 2.17 or 8.02 in respect of Letters of Credit shall be held and applied to the satisfaction of the specific L/C Obligations, obligations to fund participations therein (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) and other obligations for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.
(d) Release . Cash Collateral (or the appropriate portion thereof) provided to reduce Fronting Exposure or to secure other obligations shall be released promptly following (i) the elimination of the applicable Fronting Exposure or other obligations giving rise thereto (including by the termination of Defaulting Lender status of the applicable Lender (or, as appropriate, its assignee following compliance with Section 10.06(b)(vi) )) or (ii) the determination by the Administrative Agent and the L/C Issuer that there exists excess Cash Collateral; provided , however, the Person providing Cash Collateral and the L/C Issuer may agree that Cash Collateral shall not be released but instead held to support future anticipated Fronting Exposure or other obligations.
2.17 Defaulting Lenders.
(a) Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(i) Waivers and Amendments . Such Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 10.01 .
(ii) Defaulting Lender Waterfall . Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 10.08 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first , to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second , to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the L/C Issuer
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hereunder; third , to Cash Collateralize the L/C Issuers Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.16 ; fourth , as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth , if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lenders potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the L/C Issuers future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.16 ; sixth , to the payment of any amounts owing to the Lenders, the L/C Issuer as a result of any judgment of a court of competent jurisdiction obtained by any Lender or the L/C Issuer against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; seventh , so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; and eighth , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or L/C Borrowings in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Obligations owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Obligations owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations are held by the Lenders pro rata in accordance with the Commitments hereunder without giving effect to Section 2.17(a)(iv) . Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.17(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees .
(A) No Defaulting Lender shall be entitled to receive any fee payable under Section 2.09(a) for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(B) Each Defaulting Lender shall be entitled to receive Letter of Credit Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Applicable Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 2.16 .
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(C) With respect to any Letter of Credit Fee not required to be paid to any Defaulting Lender pursuant to clause(B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lenders participation in L/C Obligations that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to the L/C Issuer the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such L/C Issuers Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Applicable Percentages to Reduce Fronting Exposure . All or any part of such Defaulting Lenders participation in L/C Obligations shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable Percentages (calculated without regard to such Defaulting Lenders Commitment) but only to the extent that such reallocation does not cause the aggregate Revolving Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lenders Commitment. Subject to Section 10.20 , no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lenders increased exposure following such reallocation.
(v) Cash Collateral . If the reallocation described in clause (a)(iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under applicable Law, Cash Collateralize the L/C Issuers Fronting Exposure in accordance with the procedures set forth in Section 2.16.
(b) Defaulting Lender Cure. If the Borrower, the Administrative Agent and the L/C Issuer agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Committed Loans and funded and unfunded participations in Letters of Credit to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages (without giving effect to Section 2.17(a)(iv) ), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender.
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ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes . Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Laws. If any Loan Party or the Administrative Agent shall be required (as determined in the good faith discretion of the applicable withholding agent) by applicable Law to deduct and withhold any Tax from any such payment, then
(i) if such Tax is an Indemnified Tax, then the sum payable shall be increased as necessary so that after making all required deductions of Indemnified Taxes (including deductions and withholdings applicable to additional sums payable under this Section) the Recipient receives an amount equal to the sum it would have received had no such deductions been made,
(ii) the applicable Loan Party or Administrative Agent, as applicable, shall make such deductions, and
(iii) the applicable Loan Party or Administrative Agent, as applicable, shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Law.
(b) Payment of Other Taxes by the Loan Parties . The Loan Parties shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of any Other Taxes (upon proof of payment by the Administrative Agent of such Other Taxes).
(c) (i) Indemnification by the Loan Parties . Each of the Loan Parties shall, and does hereby, jointly and severally indemnify each Recipient, and shall make payment in respect thereof within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01 ) payable or paid by such Recipient and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability (together with reasonable supporting documentation, if any) delivered to the Borrower by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error.
(ii) Indemnification by the Lenders . Each Lender and the L/C Issuer shall, and does hereby, severally indemnify, and shall make payment in respect thereof within 10 days after demand therefor, ( x ) the Administrative Agent against any Indemnified Taxes attributable to such Lender or the L/C Issuer (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), ( y ) the Administrative Agent and the Loan Parties, as applicable, against any Taxes attributable to such Lenders failure to comply with the provisions of Section 10.06(d) relating to the maintenance of a Participant Register and ( z ) the Administrative Agent and the Loan Parties, as applicable, against any Excluded Taxes attributable to such Lender or the L/C Issuer, in each case, that are payable or paid by the
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Administrative Agent or a Loan Party in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender and the L/C Issuer hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender or the L/C Issuer, as the case may be, under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this clause (ii) .
(d) Evidence of Payments . As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority as provided in this Section 3.01 , the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. As soon as practicable after any payment of Taxes by the Administrative Agent to a Governmental Authority as provided in this Section 3.01 , the Administrative Agent shall deliver to the Borrower the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to the Borrower.
(e) Status of Lenders; Tax Documentation .
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, prior to the date on which such Lender becomes a Lender under this Agreement, and at the time or times prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent, as applicable, as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
(ii) Without limiting the generality of the foregoing,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
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(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(I) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the interest article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the business profits or other income article of such tax treaty;
(II) executed copies of IRS Form W-8ECI;
(III) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Foreign Lender is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a 10 percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a controlled foreign corporation described in Section 881(c)(3)(C) of the Code (a U.S. Tax Compliance Certificate ) and (y) executed copies of IRS Form W-8BEN-E; or
(IV) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E (or W-8BEN, as applicable), a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3 , IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
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(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. For purposes of this clause (D), FATCA shall include any amendments made to FATCA after the date of this Agreement.
(iii) Each Lender agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(f) Treatment of Certain Refunds . If any Recipient determines, that it has received a refund of any Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this Section 3.01 or Section 3.04 , it shall pay to the Loan Party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by a Loan Party under this Section 3.01 or Section 3.04 with respect to the Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses (including Taxes) incurred by such Recipient, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Loan Party, upon the request of the Recipient, agrees to repay the amount paid over to the Loan Party pursuant to this Section 3.01(f) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Recipient in the event the Recipient is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this subsection, in no event will the applicable Recipient be required to pay any amount to any Loan Party pursuant to this subsection to the extent the payment of such amount would place the Recipient in a less favorable net after-Tax position than such Recipient would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This subsection shall not be construed to require any Recipient to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to any Loan Party or any other Person.
(g) Survival . Each partys obligations under this Section 3.01 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender or the L/C Issuer, the termination of the Commitments and the repayment, satisfaction or discharge of all other Obligations.
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3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its Lending Office to perform any of its obligations hereunder or make, maintain or fund or charge interest with respect to any Credit Extension or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (i) any obligation of such Lender to issue, make, maintain, fund or charge interest with respect to any such Credit Extension or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the Eurodollar Rate component of the Base Rate, the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (x) the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Eurodollar Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the Eurodollar Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Eurodollar Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
3.03 Inability to Determine Rates. If in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof, (a) the Administrative Agent determines that (i) Dollar deposits are not being offered to banks in the London interbank market for the applicable amount and Interest Period of such Eurodollar Rate Loan, or (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan or in connection with an existing or proposed Base Rate Loan (in each case with respect to clause (a) (i) above, Impacted Loans ), or (b) the Administrative Agent or the Required Lenders determine that for any reason the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Eurodollar Rate Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended, (to the extent of the affected Eurodollar Rate Loans or Interest Periods), and (y) in the event of a determination described in the preceding sentence with respect to the Eurodollar Rate component of the Base Rate, the utilization of the Eurodollar Rate component in determining the
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Base Rate shall be suspended, in each case until the Administrative Agent upon the instruction of the Required Lenders revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans (to the extent of the affected Eurodollar Rate Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.
Notwithstanding the foregoing, if the Administrative Agent has made the determination described in clause (a) (i) of this section, the Administrative Agent, in consultation with the Borrower and the affected Lenders, may establish an alternative interest rate for the Impacted Loans, in which case, such alternative rate of interest shall apply with respect to the Impacted Loans until (1) the Administrative Agent revokes the notice delivered with respect to the Impacted Loans under clause (a) of the first sentence of this section, (2) the Administrative Agent or the Required Lenders notify the Administrative Agent and the Borrower that such alternative interest rate does not adequately and fairly reflect the cost to such Lenders of funding the Impacted Loans, or (3) any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to such alternative rate of interest or to determine or charge interest rates based upon such rate or any Governmental Authority has imposed material restrictions on the authority of such Lender to do any of the foregoing and provides the Administrative Agent and the Borrower written notice thereof.
3.04 Increased Costs.
(a) Increased Costs Generally . If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the Eurodollar Rate) or the L/C Issuer;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its Loans (or principal of Loans), Letters of Credit, Commitments, or other Obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to, continuing or maintaining any Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or
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the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer (accompanied by reasonable backup calculations), the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements . If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lenders or the L/C Issuers holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lenders or the L/C Issuers capital or on the capital of such Lenders or the L/C Issuers holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lenders or the L/C Issuers holding company could have achieved but for such Change in Law (taking into consideration such Lenders or the L/C Issuers policies and the policies of such Lenders or the L/C Issuers holding company with respect to capital adequacy), then from time to time, upon request of such Lender or the L/C Issuer (accompanied by reasonable backup calculations), the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lenders or the L/C Issuers holding company for any such reduction suffered.
(c) Certificates for Reimbursement . A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests . Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lenders or the L/C Issuers right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than six months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lenders or the L/C Issuers intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof).
3.05 Compensation for Losses. Promptly following demand by any Lender (accompanied by reasonable backup calculations) (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
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(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13 ;
(excluding any loss of anticipated profits), including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05 , each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Base Rate used in determining the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office . Each Lender may make any Credit Extension to the Borrower through any Lending Office, provided that the exercise of this option shall not affect the obligation of the Borrower to repay the Credit Extension in accordance with the terms of this Agreement. If any Lender requests compensation under Section 3.04 , or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender, the L/C Issuer, or any Governmental Authority for the account of any Lender or the L/C Issuer pursuant to Section 3.01 , or if any Lender gives a notice pursuant to Section 3.02 , then at the request of the Borrower, such Lender or the L/C Issuer shall, as applicable, use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender or the L/C Issuer, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04 , as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02 , as applicable, and (ii) in each case, would not subject such Lender or the L/C Issuer, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or the L/C Issuer, as the case may be. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the L/C Issuer in connection with any such designation or assignment.
(b) Replacement of Lenders . If any Lender requests compensation under Section 3.04 , or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 and, in each case, such Lender has declined or is unable to designate a different lending office in accordance with Section 3.06(a) , the Borrower may replace such Lender in accordance with Section 10.13 .
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3.07 Survival . All of the Borrowers obligations under this Article III shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder, and resignation of the Administrative Agent.
ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
4.01 Conditions of Initial Credit Extension. The obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:
(a) The Administrative Agents receipt of the following, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:
(i) executed counterparts of this Agreement, the Guaranty and the Governing Law Agreement, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;
(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;
(iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, validly existing and in good standing in its jurisdiction of organization and, if applicable, is qualified to engage in business in the State of California;
(v) a customary opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to such matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request; and
(vi) such other assurances, certificates, documents or consents as the Administrative Agent, the L/C Issuer or the Required Lenders reasonably may require.
(b) Any fees required to be paid by the Borrower in connection with this Agreement on or before the Closing Date shall have been paid.
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(c) Unless waived by the Administrative Agent, the Borrower shall have paid all reasonable and documented fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent), plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings ( provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent), in each case to the extent invoiced prior to the Closing Date.
(d) All due diligence with respect to the Borrower and each other Loan Party shall have been completed by the Administrative Agent.
Without limiting the generality of the provisions of the last paragraph of Section 9.03 , for purposes of determining compliance with the conditions specified in this Section 4.01 , each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of Eurodollar Rate Loans) is subject to the following conditions precedent:
(a) The representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document shall be true and correct in all material respects on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date.
(b) In the case of any Credit Extension requested after the financial statements have been (or are required to have been) provided pursuant to Section 6.01(b) with respect to the fiscal quarter ending June 30, 2017, the Borrower shall be in compliance with Section 7.01(a) through (d) as of the last day of the fiscal quarter most recently ended on or prior to the date of such proposed Credit Extension.
(c) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(d) No Potential Term Out Commencement Date or Term Out Commencement Date solely related to a Financial Term Out Trigger Event shall have occurred.
(e) The Administrative Agent and, if applicable, the L/C Issuer shall have received a Request for Credit Extension in accordance with the requirements hereof.
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Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) , (c) and (d) have been satisfied on and as of the date of the applicable Credit Extension.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and the Lenders that:
5.01 Existence, Qualification and Power. Each Loan Party (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c) , to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect.
5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Loan Party is party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Loan Partys Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien (other than any Lien pursuant to a Loan Document) under, (i) any Contractual Obligation to which such Loan Party is a party or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Loan Party or its property is subject, in each case under this clause (b) except to the extent such conflict, breach or contravention, as the case may be, would not reasonably be expected to have a Material Adverse Effect; or (c) violate any Law except to the extent any such violation would not reasonably be expected to result in a Material Adverse Effect.
5.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document to which such Loan Party is party, except (i) such as have been obtained or made and are (or will so be) in full force and effect, and (ii) those the failure to obtain or make which would not reasonably be expected to result in a Material Adverse Effect.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each Loan Party that is party thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at Law.
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5.05 Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) fairly present in all material respects the financial condition of Holdings and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein.
(b) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect.
5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened in writing, at law, in equity, in arbitration or before any Governmental Authority, against the Borrower or any of its Subsidiaries or against any of their properties or revenues that, except as disclosed in Schedule 5.06 , either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
5.07 No Default. Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to any Contractual Obligation that would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
5.08 Ownership of Property; Liens. Each of the Borrower and each Subsidiary has good title to, or valid interests in (or otherwise has the right to acquire pursuant to the DDA), all real property necessary or used in the ordinary conduct of its business, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.09 Environmental Compliance. Except as disclosed in Schedule 5.09 , the Borrower and its Subsidiaries are in substantial compliance with all applicable Environmental Laws except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.10 Insurance. The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Subsidiary operates.
5.11 Taxes. The Borrower and its Subsidiaries have filed all Federal income Tax returns and all other material Tax returns which they were or are required to file or have requested a valid extension thereof, and have paid, or made provision for the payment of, all Taxes required to be paid by the Borrower or any Subsidiary, except such Taxes, if any, (a) as are being contested
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in good faith by appropriate proceedings (and with respect to which the Borrower or one or more of its Subsidiaries has established adequate reserves for the payment of the same to the extent required by, and in accordance with, GAAP), or (b) the failure of which to pay would not reasonably be expected to have a Material Adverse Effect.
5.12 ERISA Compliance.
(a) Each Plan is operated in compliance with the applicable provisions of ERISA, the Code and other Federal or state laws except where noncompliance would not reasonably be expected to result in a Material Adverse Effect.
(b) There are no pending claims, actions or lawsuits or, to the knowledge of the Borrower, threatened in writing, by any Governmental Authority with respect to any Plan that would reasonably be expected to have a Material Adverse Effect. There is no violation of the fiduciary responsibility rules with respect to any Plan that has resulted or would reasonably be expected to result in a Material Adverse Effect.
(c) Except, in each case, as would not reasonably be expected to result in a Material Adverse Effect: (i) no ERISA Event has occurred, and neither the Borrower nor any ERISA Affiliate is aware of any fact, event or circumstance that would reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan or Multiemployer Plan; (ii) the Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained in respect of any Pension Plan; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is 60% or higher and neither the Borrower nor any ERISA Affiliate knows of any facts or circumstances that would reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60%; (iv) neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments in respect of any Pension Plan which have become due that are unpaid; (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that would reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.
5.13 Margin Regulations; Investment Company Act.
(a) No part of the proceeds of any Loan or Letter of Credit has been used or will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.
(b) None of the Borrower or any Subsidiary is or is required to be registered as an investment company under the Investment Company Act of 1940.
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5.14 Disclosure . No written report, financial statement, certificate or other information furnished in writing by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement (other than projections, financial estimates, forecasts and other forward-looking information, and other information of a general economic or industry specific nature) (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed by the Borrower to be reasonable at the time (it being understood that such projections are as to future events and are not to be viewed as facts and are subject to significant uncertainties and contingencies, many of which are beyond the Borrowers control, and that no assurance can be given that the projections will be realized and actual results during the period or periods covered by any such projections may differ significantly from the projected results and such differences may be material).
5.15 Compliance with Laws. Each Loan Party and each Subsidiary thereof is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings or (b) the failure to comply therewith, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
5.16 [Reserved]
5.17 OFAC. None of Holdings, the Borrower, nor any of the Borrowers Subsidiaries, nor, to the knowledge of the Borrower and the Borrowers Subsidiaries, any director, officer, employee, agent, or affiliate thereof, is (i) currently the subject or target of any Sanctions, (ii) included on OFACs List of Specially Designated Nationals, HMTs Consolidated List of Financial Sanctions Targets and the Investment Ban List, or any similar list enforced by any other relevant sanctions authority or (iii) located, organized or resident in a Designated Jurisdiction.
5.18 Anti-Corruption Laws. Holdings, the Borrower and the Borrowers Subsidiaries conduct their businesses in compliance in all material respects with the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and other similar anti-corruption legislation in other jurisdictions applicable to Holdings and its Subsidiaries and maintain policies and procedures designed to promote compliance in all material respects with such laws.
5.19 EEA Financial Institutions. No Loan Party is an EEA Financial Institution.
ARTICLE VI. AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent obligations such as indemnities and increased costs), or any Letter of Credit shall remain outstanding, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01 , 6.02 , and 6.03 ) cause each Subsidiary to:
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6.01 Financial Statements. Deliver to the Administrative Agent (for distribution to each Lender):
(a) within 120 days after the end of each fiscal year of Holdings (or, if earlier, 15 days after the date required to be filed with the SEC (without giving effect to any extension permitted by the SEC)) (commencing with the fiscal year ended December 31, 2017), a consolidated balance sheet of Holdings and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all prepared in accordance with GAAP, such statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any going concern or like qualification or exception or any qualification or exception as to the scope of such audit (other than any qualification or exception related to (i) an upcoming maturity date in respect of any Indebtedness or (ii) any potential inability to satisfy any financial maintenance covenant on a future date in a future period);
(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings (or, if earlier, 5 days after the date required to be filed with the SEC (without giving effect to any extension permitted by the SEC)) (commencing with the fiscal quarter ended June 30, 2017), a consolidated balance sheet of Holdings and its Subsidiaries as at the end of such fiscal quarter, the related consolidated statements of income for such fiscal quarter and for the portion of Holdings fiscal year then ended, and the related consolidated cash flows for the portion of Holdings fiscal year then ended, in each case setting forth in comparative form, as applicable, the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of Holdings as fairly presenting in all material respects the financial condition, results of operations and cash flows of Holdings and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and
(c) no later than 60 days after the beginning of each fiscal year of Holdings, forecasts prepared by management of Holdings of consolidated balance sheets and statements of profit and loss and cash flows of Holdings and its Subsidiaries on a monthly basis for such fiscal year (including, as applicable, the fiscal year in which the Maturity Date occurs, as such Maturity Date may be extended pursuant to the terms hereof).
As to any information contained in materials furnished pursuant to Section 6.02(b) , the Borrower shall not be separately required to furnish such information under subsection (a) or (b) above, but the foregoing may be provided in lieu of information and materials described in subsections (a) and (b) above at the times specified therein.
6.02 Certificates; Other Information . Deliver to the Administrative Agent (for distribution to each Lender):
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(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the fiscal quarter ended June 30, 2017), a duly completed Compliance Certificate signed by an Authorized Financial Officer (which delivery may be by electronic communication including fax or email and shall be deemed to be an original authentic counterpart thereof for all purposes);
(b) promptly after the same are publicly available, copies of all annual, regular, periodic and special reports and registration statements which Holdings files with the SEC under Section 13 or 15(d) of the Exchange Act, and not otherwise required to be delivered to the Administrative Agent pursuant hereto; and
(c) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent (or any Lender through the Administrative Agent) may from time to time reasonably request.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(b) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Holdings or the Borrower posts such documents, or provides a link thereto on the Borrowers website on the Internet at the website address listed on Schedule 10.02 (or any other address notified by the Borrower to the Administrative Agent from time to time) or www.sec.gov; or (ii) on which such documents are posted on the Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent upon its request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent and (ii) if requested by the Administrative Agent, the Borrower shall provide to the Administrative Agent by electronic mail electronic versions ( i.e. , soft copies) of such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger may, but shall not be obligated to, make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Borrower hereunder (collectively, Borrower Materials ) by posting the Borrower Materials on IntraLinks, Syndtrak, ClearPar, or a substantially similar electronic transmission system (the Platform ) and (b) certain of the Lenders (each, a Public Lender ) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons securities. The Borrower hereby agrees that, at the request of the Administrative Agent, (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (x) by marking Borrower
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Materials PUBLIC, the Borrower shall be deemed to have authorized the Administrative Agent, the Arranger, the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws ( provided , however , that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07 ); (y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated Public Side Information; and (z) the Administrative Agent and the Arranger shall be entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not designated Public Side Information.
6.03 Notices . Promptly after any Responsible Officer of the Borrower obtains actual knowledge thereof, the Borrower will furnish to the Administrative Agent (for distribution to each Lender) written notice of the following:
(a) the occurrence of any Default;
(b) any matter that has resulted or would reasonably be expected to result in a Material Adverse Effect; and
(c) the occurrence of any ERISA Event that has resulted or would reasonably be expected to result in a Material Adverse Effect.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the any of the Borrower, Holdings or its Subsidiaries, as the case may be, has taken and proposes to take with respect thereto.
6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, all Tax, assessments and governmental charges or levies imposed upon the Borrower or any of its Subsidiaries or their respective assets, except any Tax, assessment, charge, or levy (a) that is not yet past delinquent, or is being contested in good faith by appropriate proceedings, as long as the Borrower or one or more of its Subsidiaries has established and maintains adequate reserves for the payment of the same to the extent required by, and in accordance with, GAAP or (b) the failure of which to pay or discharge would not reasonably be expected to result in a Material Adverse Effect.
6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization or formation except in a transaction not prohibited by Article VII; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which would reasonably be expected to have a Material Adverse Effect.
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6.06 Maintenance of Properties . (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear and casualty events excepted; and (b) make all necessary repairs thereto and renewals and replacements thereof except, in each case pursuant to the foregoing clauses (a) and (b), where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
6.07 Maintenance of Insurance. Maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons.
6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records. Maintain proper books of record and account, in which entries true and correct in all material respects in conformity with GAAP consistently applied shall be made of all material financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be.
6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative Agent to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided , however , that the Administrative Agent shall engage in any such inspections on a cooperative basis and shall not unreasonably interfere with the normal business operations of the Borrower or any of its Subsidiaries; provided , further that (a) excluding any such visits and inspections during the continuation of an Event of Default, the Administrative Agent shall not exercise such rights more often than one time during any calendar year, which visitation and inspection shall be at the reasonable expense of the Borrower, and (b) none of the Borrower or any of its Subsidiaries will be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives or contractors) is prohibited by law or any binding third-party agreement or (iii) is subject to attorney-client or similar privilege or constitutes attorney work product.
6.11 Use of Proceeds. Use the proceeds of the Credit Extensions for general corporate purposes and working capital purposes.
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6.12 Additional Guarantors. Notify the Administrative Agent promptly if after the Closing Date (i) any Person becomes a Domestic Subsidiary of the Borrower (other than an Excluded Subsidiary), or (ii) Holdings Guarantees any Indebtedness of the Borrower or its Subsidiaries in respect of a capital markets bond issuance, and within 30 days thereafter (or such longer period as the Administrative Agent shall agree), cause such Person to (a) become a Guarantor by executing and delivering to the Administrative Agent a counterpart of the Guaranty or such other document as the Administrative Agent shall deem appropriate for such purpose, and (b) deliver to the Administrative Agent documents of the types referred to in clauses (iii) and (iv) of Section 4.01(a) and favorable customary opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clause (a) ), all in form, content and scope reasonably satisfactory to the Administrative Agent.
6.13 Anti-Corruption Laws. Conduct its businesses in compliance in all material respects with the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and other similar anti-corruption legislation in other jurisdictions applicable to Holdings and its Subsidiaries, and maintain policies and procedures designed to promote compliance in all material respects with such laws.
ARTICLE VII. NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall not, nor shall it permit any Loan Party to, directly or indirectly:
7.01 First Tier Financial Covenants. Subject to the last sentence of Section 8.02:
(a) Minimum Consolidated Adjusted Tangible Net Worth . Permit Consolidated Adjusted Tangible Net Worth as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) to be less than $1,000,000,000.
(b) Consolidated Interest Coverage Ratio; Liquidity Test . Fail to maintain as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) either (i) a Consolidated Interest Coverage Ratio equal to or greater than 1.50 to 1.0 or (ii) Liquidity equal to at least $25,000,000. For the avoidance of doubt, (A) the Borrower shall only be required to be compliance with either the foregoing clause (i) or (ii), and (B) when any provision herein or in any other Loan Document requires pro forma compliance with this Section 7.01(b) , the Borrower shall only be required to be in pro forma compliance with either the foregoing clause (i) or (ii).
(c) Maximum Consolidated Leverage Ratio . Permit the maximum Consolidated Leverage Ratio as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) to be greater than 40.0%.
(d) Minimum Consolidated Unpledged Assets . Permit the fair market value (as determined by the Borrower in good faith) of Consolidated Unpledged Assets as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) to be less than $500,000,000.
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7.02 Second Tier Financial Covenants.
(a) Minimum Consolidated Adjusted Tangible Net Worth . Permit Consolidated Adjusted Tangible Net Worth as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) to be less than $750,000,000.
(b) Consolidated Interest Coverage Ratio; Liquidity Test . Fail to maintain as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) either (i) a Consolidated Interest Coverage Ratio equal to or greater than 1.12 to 1.0 or (ii) Liquidity equal to at least $18,750,000. For the avoidance of doubt, (A) the Borrower shall only be required to be compliance with either the foregoing clause (i) or (ii), and (B) when any provision herein or in any other Loan Document requires pro forma compliance with this Section 7.02(b) , the Borrower shall only be required to be in pro forma compliance with either the foregoing clause (i) or (ii).
(c) Maximum Consolidated Leverage Ratio . Permit the maximum Consolidated Leverage Ratio as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) to be greater than 50.0%.
(d) Minimum Consolidated Unpledged Assets . Permit the fair market value (as determined by the Borrower in good faith) of Consolidated Unpledged Assets as of the last day of any fiscal quarter of Holdings (commencing with the fiscal quarter ending June 30, 2017) to be less than $375,000,000.
7.03 Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
7.04 Organization Documents. Permit any Loan Party to amend, supplement, restate or otherwise modify any provision of its Organization Documents if such amendment, supplement, restatement or other modification is materially adverse to the interests of the Lenders under this Agreement.
7.05 Sanctions. Directly or indirectly, use the proceeds of any Credit Extension, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other individual or entity, to fund any activities of or business with any individual or entity, or in any Designated Jurisdiction, that, at the time of such funding, is the subject of Sanctions, or in any other manner that will result in a violation by any individual or entity (including any individual or entity participating in the transaction, whether as Lender, Arranger, Administrative Agent, L/C Issuer, or otherwise) of Sanctions.
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7.06 Proceeds Used In Contravention of Anti-Corruption Laws. Directly or indirectly use the proceeds of any Credit Extension for any purpose which would breach the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and other similar anti-corruption legislation in other jurisdictions applicable to Holdings and its Subsidiaries.
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an Event of Default:
(a) Non-Payment . The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within ten days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder or due under the Fee Letter or any Lender Fee Letter, or (iii) within ten days after notice is provided by the Administrative Agent to the Borrower that such other amount became due, any other amount payable hereunder or under any other Loan Document; or
(b) Specific Covenants . The Borrower, Holdings or any other Loan Party fails to perform or observe any term, covenant or agreement contained in Article VII (other than Section 7.01 ) or within five Business Days after the same becomes due, the Borrower fails to perform or observe the covenants and agreements set forth in Section 6.01(a) and (b) and Section 6.02(a) ; or
(c) Other Defaults . Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document (other than Section 7.01 ) on its part to be performed or observed and such failure continues for 30 days after written notice from the Administrative Agent; or
(d) Representations and Warranties . Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein or in any other Loan Document shall be materially incorrect or misleading when made or deemed made if the same has a Material Adverse Effect, and with respect to any matter which is reasonably capable of being cured, such Loan Party shall have failed to cure the occurrence causing the representation or warranty to be materially incorrect or misleading within fifteen (15) days after notice thereof by the Administrative Agent to the Borrower; or
(e) Cross-Default . (i) The Borrower or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Recourse Indebtedness (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount (any such Indebtedness, Material Indebtedness ), or (B) defaults in the observance or performance of any other agreement or condition relating to any such Material Indebtedness the effect of which default is to (x) cause, or to permit the holder or holders of such Material Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (after the expiration of any grace period), with the giving of notice if required, such Material Indebtedness to become due prior to its scheduled maturity or (y) cause (after the expiration of any grace period), with the giving of notice if required, the Borrower or any of its Subsidiaries to purchase or redeem or make an offer
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to purchase or redeem such Indebtedness prior to its scheduled maturity; provided that this clause (B) shall not apply to (I) Indebtedness which is convertible into Equity Interests and converts to Equity Interests of the Borrower or Holdings in accordance with its terms and such conversion is not prohibited hereunder, or (II) any breach or default that is (x) remedied by the Borrower or any Subsidiary or (y) waived (including in the form of amendment) by the required holders of the applicable item of Material Indebtedness, in either case, prior to the acceleration of Loans and Commitments pursuant to this Article VIII , or (III) cash collateral provided as a result of a defaulting lender under such Indebtedness; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or
(f) Insolvency Proceedings, Etc. Holdings or any Loan Party or any of its Subsidiaries (other than an Immaterial Subsidiary) institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or a substantial part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or a substantial part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or
(g) Judgments . There is entered against the Borrower or any Subsidiary (other than an Immaterial Subsidiary) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding $50,000,000 (to the extent not paid or not covered by independent third-party insurance as to which the insurer does not dispute coverage), and the same shall remain undischarged for any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect; or
(h) ERISA . (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or would reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $50,000,000, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $50,000,000; or
(i) Invalidity of Loan Documents . Any material provision of any material Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full
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force and effect; or any Loan Party or any Subsidiary thereof contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document (in each case except as permitted hereunder or thereunder); or
(j) Change of Control . There occurs any Change of Control.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;
(b) subject to the availability of the Term Out Commencement Date as set forth in Section 2.04 , declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the Minimum Collateral Amount with respect thereto); and
(d) exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies available to it, the Lenders and the L/C Issuer under the Loan Documents;
provided , however , that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender. Notwithstanding anything to the contrary contained herein, any breach or default of any financial covenant set forth in Section 7.01 shall not constitute a Default or Event of Default but shall be subject to the applicable provisions of Section 2.04 .
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02 ), any amounts received on account of the Obligations shall, subject to the provisions of Sections 2.16 and 2.17 , be applied by the Administrative Agent in the following order:
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First , to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III ) payable to the Administrative Agent in its capacity as such;
Second , to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer and amounts payable under Article III ), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third , to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;
Fourth , to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Fourth held by them;
Fifth , to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit to the extent not otherwise Cash Collateralized by the Borrower pursuant to Sections 2.03 and 2.16 ; and
Last , the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Subject to Sections 2.03(c) and 2.16 , amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
ARTICLE IX. ADMINISTRATIVE AGENT
9.01 Appointment and Authority. Each of the Lenders and the L/C Issuer hereby irrevocably appoints CBT to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions (other than Section 9.06 and Section 9.09 ). It is understood and agreed that the use of the term agent herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
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9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02 ) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given in writing to the Administrative Agent by the Borrower, a Lender or the L/C Issuer.
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The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
9.06 Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right to appoint a successor reasonably acceptable to the
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Borrower (provided that the consent of the Borrower shall not be required if an Event of Default has occurred and is continuing), which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the Resignation Effective Date ), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above, provided that in no event shall any such successor Administrative Agent be a Defaulting Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the Removal Effective Date ), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (2) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than as provided in Section 3.01(g) and other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agents resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them (i) while the retiring or removed Administrative Agent was acting as Administrative Agent and (ii) after such resignation or removal for as long as any of them continues to act in any capacity hereunder or under the other Loan Documents, including (a) acting as collateral agent or otherwise holding any collateral security on behalf of any of the Lenders and (b) in respect of any actions taken in connection with transferring the agency to any successor Administrative Agent.
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(d) Any resignation by CBT as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer. If CBT resigns as an L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto, including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c). Upon the appointment by the Borrower of a successor L/C Issuer hereunder (which successor shall in all cases be a Lender other than a Defaulting Lender), (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer, (b) the retiring L/C Issuer shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (c) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to CBT to effectively assume the obligations of CBT with respect to such Letters of Credit.
9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, neither the Bookrunner or Arranger listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or the L/C Issuer hereunder.
9.09 Guaranty Matters . The Lenders and the L/C Issuer irrevocably authorize the Administrative Agent to, and the Administrative Agent hereby agrees to, (i) release any Guarantor that is a Subsidiary from its obligations under the Guaranty if such Person ceases to be a Subsidiary or becomes an Excluded Subsidiary as a result of a transaction not prohibited under the Loan Documents and (ii) release Holdings from its obligations under the Guaranty if Holdings ceases to Guarantee any Indebtedness of the Borrower or any of its Subsidiaries in respect of a capital markets bond issuance.
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agents authority to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.09 .
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9.10 Document Imaging. The Administrative Agent shall be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and records governing, arising from or relating to any of Borrowers Loans, including, without limitation, this Agreement and the Loan Documents, and the Administrative Agent may destroy or archive the paper originals. The parties hereto (i) waive any right to insist or require that the Administrative Agent produce paper originals, (ii) agree that such images shall be accorded the same force and effect as the paper originals, (iii) agree that the Administrative Agent is entitled to use such images in lieu of destroyed or archived originals for any purpose, including as admissible evidence in any demand, presentment or other proceedings, and (iv) further agree that any executed facsimile (faxed), scanned, or other imaged copy of this Agreement or any Loan Document shall be deemed to be of the same force and effect as the original manually executed document.
ARTICLE X. MISCELLANEOUS
10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be (or signed by the Administrative Agent with the consent of the Required Lenders), and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02 ) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any scheduled payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Documents without the written consent of each Lender directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iii) of the second proviso to this Section 10.01 ) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided , however , that only the consent of the Required Lenders shall be necessary (i) to amend the definition of Default Rate or to waive any obligation of the Borrower to pay interest or any other amount at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder;
(e) change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender directly affected thereby;
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(f) change any provision of this Section or the percentage referred to in the definition of Required Lenders or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; or
(g) release all or substantially all of the value of the Guaranty without the written consent of each Lender, except to the extent the release of any Guarantor that is a Subsidiary is permitted pursuant to Section 9.08 (in which case such release may be made by the Administrative Agent acting alone);
and, provided further , that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (iii) the Fee Letter or a Lender Fee Letter, as the case may be, may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender.
Notwithstanding any provision herein to the contrary, this Agreement may be amended with the written consent of the Required Lenders, the Administrative Agent and the Borrower (i) to add one or more additional revolving credit facilities to this Agreement, and to permit the extensions of credit and all related obligations and liabilities arising in connection therewith from time to time outstanding to share ratably in the benefits of this Agreement and the other Loan Documents with the obligations and liabilities from time to time outstanding in respect of the existing facilities hereunder, and (ii) in connection with the foregoing, to permit, as deemed appropriate by the Administrative Agent and approved by the Required Lenders, the Lenders providing such additional credit facilities to participate in any required vote or action required to be approved by the Required Lenders or by any other number, percentage or class of Lenders hereunder.
10.02 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
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(i) if to the Borrower or any other Loan Party, the Administrative Agent or the L/C Issuer, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02 ; and
(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire (including, as appropriate, notices delivered solely to the Person designated by a Lender on its Administrative Questionnaire then in effect for the delivery of notices that may contain material non-public information relating to the Borrower).
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b) .
(b) Electronic Communications . Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent, the L/C Issuer or the Borrower may each, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) , if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) Change of Address, Etc . Each of the Borrower, the Administrative Agent and the L/C Issuer may change its address, facsimile, electronic mail address or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other
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Lender may change its address, facsimile, electronic mail address or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent and the L/C Issuer. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(d) Reliance by Administrative Agent, L/C Issuer and Lenders . The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic notices, Committed Loan Notices and Letter of Credit Applications) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Loan Parties shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies; Enforcement . No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Lenders and the L/C Issuer; provided , however , that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) the L/C Issuer from exercising the rights and remedies that inure to its benefit (solely in its capacity as L/C Issuer) hereunder and under the other Loan Documents, (c) any Lender from exercising setoff rights in accordance with Section 10.08 (subject to the terms of Section 2.13 ), or (d) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided , further , that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b) , (c) and (d) of the preceding proviso and subject to Section 2.13 , any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
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10.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses . The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (in the case of fees, charges and disbursements of counsel, limited to the reasonable and documented fees, charges and disbursements of one counsel), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated thereby shall be consummated), (ii) all reasonable and documented out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer (in the case of fees, charges and disbursements of counsel, limited to the reasonable and documented fees, charges and disbursements of one counsel for the Administrative Agent, Lenders and the L/C Issuer, taken as a whole, and, if necessary, one local counsel per jurisdiction plus, in the event of any actual or potential conflict of interest, where the Person affected by such conflict of interest informs the Borrower in writing of such conflict, one additional counsel per relevant jurisdiction for each Person affected by such conflict) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee ) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and reasonable related expenses (in the case of fees, charges and disbursements of counsel, the reasonable and documented fees, charges and disbursements of counsel for the Indemnitees), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) other than such Indemnitee and its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents (including in respect of any matters addressed in Section 3.01), (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries,
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or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach of such Indemnitees obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. Without limiting the provisions of Section 3.01(c), this Section 10.4(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders . To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lenders pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lenders share of the Total Credit Exposure at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender), such payment to be made severally among them based on such Lenders Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought), provided, further that, the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or the L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d) .
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and waives, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
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(e) Payments . All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.
(f) Survival . The agreements in this Section and the indemnity provisions of Section 10.02(e) shall survive the resignation of the Administrative Agent and the L/C Issuer, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
10.05 Payments Set Aside . To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
10.06 Successors and Assigns.
(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (e) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders . Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b) , participations in L/C Obligations) at the time owing to it); provided that any such assignment shall be subject to the following conditions:
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(i) Minimum Amounts .
(A) in the case of an assignment of the entire remaining amount of the assigning Lenders Commitment and/or the Loans at the time owing to it or contemporaneous assignments to related Approved Funds (determined after giving effect to such Assignments) that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if Trade Date is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $1,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).
(ii) Proportionate Amounts . Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement with respect to the Loans or the Commitment assigned.
(iii) Required Consents . No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within ten (10) days after having received written notice thereof;
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitment or Loan if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(C) the consent of the L/C Issuer (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitment or Loan if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.
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(iv) Assignment and Assumption . The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided , however , that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons . No such assignment shall be made (A) to Holdings, the Borrower or any of the Borrowers Subsidiaries, (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B) , or (C) to a natural Person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of a natural Person).
(vi) Certain Additional Payments . In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the L/C Issuer or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01 , 3.04 , 3.05 , and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment;
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provided , that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
(c) Register . The Administrative Agent, acting solely for this purpose as an agent of the Borrower (and such agency being solely for Tax purposes), shall maintain at the Administrative Agents Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the Register ). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations . Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural Person, or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of a natural Person, a Defaulting Lender or the Borrower or any of the Borrowers Affiliates or Subsidiaries) (each, a Participant ) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lenders participations in L/C Obligations) owing to it); provided that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 10.04(c) without regard to the existence of any participation.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01 , 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section (it being understood that the documentation required under Section 3.01(e) shall be delivered to the Lender who sells the participation) to the same extent as if it were a Lender and had acquired its
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interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Sections 3.06 and 10.13 as if it were an assignee under paragraph (b) of this Section and (B) shall not be entitled to receive any greater payment under Sections 3.01 or 3.04 , with respect to any participation, than the Lender from whom it acquired the applicable participation would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrowers request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Sections 3.06 and 10.13 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other obligations under the Loan Documents (the Participant Register ); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participants interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(f) Resignation as L/C Issuer after Assignment . Notwithstanding anything to the contrary contained herein, if at any time CBT assigns all of its Commitment and Loans pursuant to subsection (b) above, CBT may, upon 30 days notice to the Borrower and the Lenders, resign as L/C Issuer. In the event of any such resignation as L/C Issuer, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer hereunder; provided , however , that no failure by the Borrower to appoint any such successor shall affect the resignation of CBT as L/C Issuer. If CBT resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c) ). Upon the appointment of a successor L/C Issuer, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties
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of the retiring L/C Issuer, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to CBT to effectively assume the obligations of CBT with respect to such Letters of Credit.
10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates, its auditors and its Related Parties who need to know such Information in connection with the transactions contemplated hereby (such Person being responsible for its Affiliates, its auditors and its Related Parties compliance with this paragraph) (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), in which case such Person agrees (except with respect to any audit or examination conducted by bank accountants or any self-regulatory authority or governmental or regulatory authority exercising examination or regulatory authority), to the extent practicable and not prohibited by applicable law, to inform you promptly thereof prior to disclosure, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process (in which case such disclosing Person agrees, to the extent practicable and not prohibited by applicable law, to inform the Borrower promptly thereof prior to disclosure), (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement or any Eligible Assignee invited to be a Lender pursuant to Section 2.15(c) or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the credit facilities provided hereunder or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the credit facilities provided hereunder, (h) with the consent of the Borrower or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower that is not, to such Persons knowledge, subject to contractual or fiduciary confidentiality obligations owing to Holdings, the Borrower or any Subsidiary with respect to such Information. In addition, the Administrative Agent and the Lenders may disclose the existence of this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Administrative Agent and the Lenders in connection with the administration of this Agreement, the other Loan Documents, and the Commitments.
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For purposes of this Section, Information means all information received from the Borrower or any Subsidiary relating to Holdings, the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary that is not, to such Persons knowledge, subject to contractual or fiduciary confidentiality obligations owing to Holdings, the Borrower or any Subsidiary with respect to such Information. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws.
10.08 Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time, and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer or their respective Affiliates, irrespective of whether or not such Lender, L/C Issuer or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a branch, office or Affiliate of such Lender or the L/C Issuer different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided, that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.17 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the L/C Issuer and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
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10.09 Interest Rate Limitation . Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate ). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
10.10 Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall be deemed an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, any Lender or the L/C Issuer, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01 , this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic imaging means (e.g. pdf or tif) shall be effective as delivery of a manually executed counterpart of this Agreement.
10.11 Survival of Representations and Warranties . All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
10.12 Severability . If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 10.12 , if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent or the L/C Issuer, as applicable, then such provisions shall be deemed to be in effect only to the extent not so limited.
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10.13 Replacement of Lenders . If the Borrower is entitled to replace a Lender pursuant to the provisions of Section 3.06 , or if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06 ), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01 and 3.04 ) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(a) the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 10.06(b) ;
(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05 ) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01 , such assignment will result in a reduction in such compensation or payments thereafter;
(d) such assignment does not conflict with applicable Laws; and
(e) in the case of an assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
10.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
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(b) SUBMISSION TO JURISDICTION . THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER, THE L/C ISSUER, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF CALIFORNIA SITTING IN ORANGE COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE CENTRAL DISTRICT OF CALIFORNIA, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CALIFORNIA STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE . THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS . EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02 . NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
10.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
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DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.16 California Judicial Reference . Subject to the Governing Law Agreement, if any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a provisional remedy as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) without limiting the generality of Section 10.04 , the Governing Law Agreement shall govern payment of all fees and expenses of any referee appointed in such action or proceeding.
10.17 No Advisory or Fiduciary Responsibility . In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Borrower and the other Loan Parties acknowledges and agrees, and acknowledges its Subsidiaries understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Arranger, and the Lenders are arms-length commercial transactions between the Borrower each other Loan Party, on the one hand, and the Administrative Agent, the Arranger, and the Lenders, on the other hand, (B) each of the Borrower and the other Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower and each other Loan Party is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) the Administrative Agent, the Arranger and each Lender is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower, any other Loan Party or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent, the Arranger nor any Lender has any obligation to the Borrower, any other Loan Party or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Arranger and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Loan Parties and their respective Affiliates, and neither the Administrative Agent, the Arranger, nor any Lender has any obligation to disclose
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any of such interests to the Borrower, any other Loan Party or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and each other Loan Party hereby waives and releases any claims that it may have against the Administrative Agent, the Arranger or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
10.18 Electronic Execution of Assignments and Certain Other Documents . The words execute, execution, signed, signature, and words of like import in or related to any document to be signed in connection with this Agreement and the transactions contemplated hereby (including without limitation Assignment and Assumptions, amendments or other modifications, Committed Loan Notices, waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, or any similar state laws based on the Uniform Electronic Transactions Act; provided that notwithstanding anything contained herein to the contrary the Administrative Agent is under no obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it.
10.19 USA PATRIOT Act . Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act ), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. The Borrower shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the Act.
10.20 Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Solely to the extent any Lender or L/C Issuer that is an EEA Financial Institution is a party to this Agreement and notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender or L/C Issuer that is an EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any Lender or L/C Issuer that is an EEA Financial Institution; and
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(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
FIVE POINT OPERATING COMPANY, LLC , a Delaware limited liability company |
By: /s/ Michael P. White |
Name: Michael P. White |
Title: Vice President, Treasurer |
By: /s/ Michael Alvarado |
Name: Michael Alvarado |
Title: Vice President and Secretary |
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ZB, N.A. dba CALIFORNIA BANK & TRUST , as Administrative Agent
By: /s/ Aegea Lee |
Name: Aegea Lee |
Title: Senior Vice President |
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ZB, N.A. dba CALIFORNIA BANK & TRUST , as a Lender and L/C Issuer
By: /s/ Aegea Lee |
Name: Aegea Lee |
Title: Senior Vice President |
S - 3
SCHEDULE 1.01(a)
GUARANTORS
The Shipyard Communities, LLC
Five Point Land, LLC
Five Point Communities Management, Inc.
Five Point Communities, LP
Five Point Heritage Fields, LLC |
SCHEDULE 2.01
COMMITMENTS
AND APPLICABLE PERCENTAGES
Lender |
Commitment |
Applicable
Percentage |
||||||
ZB, N.A. dba California Bank &Trust |
$ | 50,000,000 | 100.000000000 | % | ||||
Total |
$ | 50,000,000 | 100.000000000 | % |
SCHEDULE 5.06
LITIGATION
None.
SCHEDULE 5.09
ENVIRONMENTAL MATTERS
None.
SCHEDULE 10.02
ADMINISTRATIVE AGENTS OFFICE;
CERTAIN ADDRESSES FOR NOTICES
BORROWER:
c/o Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, CA 92656
Attention: Treasury Department
Telephone: 949-349-1000
Facsimile: 949-349-0718
Electronic Mail: Mike.White@fivepoint.com
Website Address: www.fivepoint.com
With a copy to:
c/o Five Point Holdings, LLC
25 Enterprise, Suite 300
Aliso Viejo, CA 92656
Attention: Legal Department
Telephone: 949-349-1000
Facsimile: 949-349-0718
Electronic Mail: Mike.Alvarado@fivepoint.com
Website Address: www.fivepoint.com
ADMINISTRATIVE AGENT:
Administrative Agents Office
(for payments and Requests for Credit Extensions):
ZB, N.A. dba California Bank & Trust
Street Address 1900 Main Street, Suite 350
City, State ZIP Code Irvine, CA 92614
Attention: Jennifer McIver
Telephone: 949-862-7379
Facsimile: 949-251-7731
Electronic Mail: Jennifer.McIver@cbt.com
Loan No.: 9557000759-1
Ref: Five Point Operating Company, LLC
ABA# 121002042
Account # 6966007650
A-1
Form of Committed Loan Notice
Other Notices as Administrative Agent and Lender :
ZB, N.A. dba California Bank & Trust
Agency Management
Street Address 1900 Main Street, Suite 200
City, State ZIP Code Irvine, CA 92614
Attention: Aegea Lee
Telephone: 949-251-7704
Facsimile: 949-251-7730
Electronic Mail: Aegea.Lee@cbt.com
L/C ISSUER:
ZB, N.A. dba California Bank & Trust
Trade Operations
Street Address 1900 Main Street, Suite 200
City, State ZIP Code Irvine, CA 92614
Attention: Aegea Lee
Telephone: 949-251-7704
Facsimile: 949-251-7730
Electronic Mail: Aegea.Lee@cbt.com
A-1
Form of Committed Loan Notice
EXHIBIT A
FORM OF COMMITTED LOAN NOTICE
Date: ___________, _____
To: | ZB, N.A. dba California Bank & Trust, |
as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of April 18, 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined unless otherwise defined herein), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
The undersigned hereby requests (select one):
☐ A Borrowing of Committed Loans ☐ A conversion or continuation of Loans | ||||
1. | On | (a Business Day). | ||
2. | In the amount of $ | . | ||
3. | Comprised of | |||
[Type of Committed Loan requested] |
||||
4. | For Eurodollar Rate Loans: with an Interest Period of months. |
The Committed Borrowing, if any, requested herein complies with the provisos to the first sentence of Section 2.01 of the Agreement.
FIVE POINT OPERATING COMPANY, LLC , a Delaware limited liability company |
By: |
Name: |
Title: |
A-1
Form of Committed Loan Notice
EXHIBIT B
[ Intentionally Omitted]
B-1
EXHIBIT C
FORM OF NOTE
$_________________ |
______________, 20__ |
FOR VALUE RECEIVED, the undersigned (the Borrower ), hereby promises to pay to or registered assigns (the Lender ), in accordance with the provisions of the Agreement (as hereinafter defined), the principal sum of DOLLARS ($ ) or, if less, the unpaid principal amount of all Loans from time to time made by the Lender to the Borrower under that certain Credit Agreement, dated as of April 18, 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined unless otherwise defined herein), among the Borrower, the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agents Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Note is one of the Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. This Note is also entitled to the benefits of the Guaranty. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives, to the extent permitted by applicable Law, diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
C-1
Form of Note
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
FIVE POINT OPERATING COMPANY, LLC , a Delaware limited liability company |
By: |
Name: |
Title: |
By: |
Name: |
Title: |
C-2
Form of Note
LOANS AND PAYMENTS WITH RESPECT THERETO
Date |
Type of Loan
|
Amount of Loan Made |
End of Interest Period |
Amount of
|
Outstanding
|
Notation Made By |
C-3
Form of Note
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ,
To: | ZB, N.A. dba California Bank & Trust, as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of April 18, 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein (including the Schedule hereto) as therein defined unless otherwise defined herein), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
The undersigned Authorized Financial Officer hereby certifies as of the date hereof that he/she is the of the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:
[Use following paragraph 1 for fiscal year-end financial statements]
1. The Borrower has delivered the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of Holdings ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.
[Use following paragraph 1 for fiscal quarter-end financial statements]
1. The Borrower has delivered the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of Holdings ended as of the above date. Such financial statements fairly present in all material respects the financial condition, results of operations and cash flows of Holdings and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.
[select one:]
2. [to the knowledge of the undersigned, no Default has occurred and is continuing as of the date here.]
--or--
[to the knowledge of the undersigned, the following is a list of each Default that has occurred and is continuing as of the date hereof and its nature and status as of the date hereof:]
D-1
Form of Compliance Certificate
3. The financial covenant analyses and information set forth on Schedule 1 1 attached hereto are true and accurate on and as of the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of , .
FIVE POINT OPERATING COMPANY, LLC , a Delaware limited liability company |
By: |
Name: |
Title: |
1 | Calculations of Consolidated Interest Coverage Ratio and Consolidated EBITDA only required to be provided if the Liquidity test is not satisfied |
D-2
Form of Compliance Certificate
SCHEDULE 1
to the Compliance Certificate
[to be attached]
D-3
Form of Compliance Certificate
EXHIBIT E-1
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this Assignment and Assumption ) is dated as of the Effective Date set forth below and is entered into by and between [the][each] 2 Assignor identified in item 1 below ([the][each, an] Assignor ) and [the][each] 3 Assignee identified in item 2 below ([the][each, an] Assignee ). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] 4 hereunder are several and not joint.] 5 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the Credit Agreement ), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto in the amount [s] and equal to the percentage interest [s] identified below of all the outstanding rights and obligations under the respective facilities identified below (including, without limitation, the Letters of Credit included in such facilities 6 ) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] Assigned Interest ). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.
2 | For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. |
3 | For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language. |
4 | Select as appropriate. |
5 | Include bracketed language if there are either multiple Assignors or multiple Assignees. |
6 | Include all applicable subfacilities. |
E-1 - 1
Form of Assignment and Assumption
1. | Assignor[s]: | ___________________ | ||
___________________ | ||||
[Assignor [is] [is not] a Defaulting Lender] | ||||
2. | Assignee[s] : | ___________________ | ||
___________________ | ||||
[for each Assignee, indicate [Affiliate][Approved Fund] of [ identify Lender ]] | ||||
3. | Borrower(s) : Five Point Operating Company, LLC | |||
4. | Administrative Agent : ZB, N.A. dba California Bank & Trust, as the administrative agent under the Credit Agreement | |||
5. | Credit Agreement : Credit Agreement, dated as of April 18, 2017, among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer |
E-1 - 2
Form of Assignment and Assumption
6. | Assigned Interest[s] : |
Assignor[s] 7 |
Assignee[s] 8 |
Facility
Assigned 9 |
Aggregate
Amount of Commitment/Loans for all Lenders 10 |
Amount of
Commitment/ Loans Assigned |
Percentage
Assigned of Commitment/ Loans 11 |
CUSIP
Number |
||||||||||||||||||
$ | ________________ | $ | _________ | ____________ | % | |||||||||||||||||||
$ | ________________ | $ | _________ | ____________ | % | |||||||||||||||||||
$ | ________________ | $ | _________ | ____________ | % |
[7. | Trade Date : __________________] 12 |
Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR[S] 13 [NAME OF ASSIGNOR] |
||
By: |
7 | List each Assignor, as appropriate. |
8 | List each Assignee and, if available, its market entity identifier, as appropriate. |
9 | Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. Revolving Credit Commitment etc.). |
10 | Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
11 | Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
12 | To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. |
13 | Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable). |
E-1 - 3
Form of Assignment and Assumption
[NAME OF ASSIGNOR] | ||
By: |
|
|
Title: | ||
ASSIGNEE[S] 14 | ||
[NAME OF ASSIGNEE] | ||
By: |
|
|
Title: | ||
[NAME OF ASSIGNEE] | ||
By: |
|
|
Title: |
[Consented to and] 15 Accepted:
ZB, N.A. DBA CALIFORNIA BANK & TRUST, as Administrative Agent |
||
By: |
|
|
Title: | ||
[Consented to:] 16 | ||
By: |
|
|
Title: |
14 | Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable). |
15 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement. |
16 | To be added only if the consent of the Borrower and/or other parties (e.g. L/C Issuer) is required by the terms of the Credit Agreement. |
E-1 - 4
Form of Assignment and Assumption
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties .
1.1. Assignor . [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is [not] a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee . [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it is an Eligible Assignee and meets all the requirements to be an assignee under Section 10.06(b)(iii) and (v) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
E-1 - 5
Form of Assignment and Assumption
2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date. Notwithstanding the foregoing, the Administrative Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Effective Date to [the][the relevant] Assignee.
3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of California.
E-1 - 6
Form of Assignment and Assumption
EXHIBIT E-2
FORM OF ADMINISTRATIVE QUESTIONNAIRE
FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company
Credit Agreement, dated as of April 18, 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer
Please provide the following administrative details with respect to your participation in the above-referenced Agreement:
1. Identification . The full name (indicating punctuation and upper and lower case letters), address, contact, and telephone, telex, and fax numbers of your institution as they are to appear in documentation.
2. Payment instructions . The name, address and account numbers, together with any necessary reference, of your (correspondent) banks for payment of fees, interest and principal under the Credit Agreement. Unless individual details are provided, it will be assumed that all such items are to be paid to the same account.
3. Notice . The name, address, and telephone, telex, and fax numbers of the Person to whom notices should be sent upon receipt from the borrower.
Please direct your responses regarding administration details to the Administrative Agents contact information as set forth on Schedule 10.02 of the Agreement.
E-2 - 1
Form of Administrative Questionnaire
EXHIBIT F
FORM OF GUARANTY
This GUARANTY (this Guaranty ) is executed as of April 18, 2017 by THE SHIPYARD COMMUNITIES, LLC, a Delaware limited liability company, FIVE POINT LAND, LLC, a Delaware limited liability company, FIVE POINT COMMUNITIES MANAGEMENT, INC., a Delaware corporation, FIVE POINT COMMUNITIES, LP, a Delaware limited partnership, and FIVE POINT HERITAGE FIELDS, LLC, a Delaware limited liability company (together with each other Person who becomes a party hereto as Guarantor pursuant to Section 1.17 of this Guaranty, collectively, the Guarantors and each a Guarantor ), for the benefit of ZB, N.A. dba CALIFORNIA BANK & TRUST, as administrative agent (in such capacity, the Administrative Agent ) for the Lenders (as defined in the Credit Agreement referred to below, the Lenders ).
RECITALS
A. Concurrently herewith the Administrative Agent and the Lenders are entering into that certain Credit Agreement dated as of even date herewith (said agreement, as it may hereafter be amended, restated, amended and restated, supplemented or otherwise modified from time to time, being called the Credit Agreement ) with Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ).
B. Under the terms of the Credit Agreement, the Borrower is required to cause the Guarantors to execute and deliver this Guaranty. The Guarantors hereunder are Domestic Subsidiaries of the Borrower. The Guarantors therefore desire to execute this Guaranty because of financial interest in the success of the Borrower.
C. Terms defined in the Credit Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Section 1.02 of the Credit Agreement are incorporated herein by reference.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Guarantors hereby agree as follows:
ARTICLE 1
AGREEMENTS
1.1 Guaranty . Each Guarantor hereby unconditionally, continually and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, and performance of all Obligations of the Borrower now or hereafter existing under the Credit Agreement and the other Loan Documents, whether for principal, interest, fees, expenses or otherwise and whether accruing before or after the filing of a petition initiating any insolvency, bankruptcy, reorganization or similar proceeding affecting the Borrower (collectively, the Guaranteed Obligations ). This is a guarantee of payment and performance and not of collection or collectability only and the obligations under this Guaranty shall be absolute, independent and unconditional under any and all circumstances except as otherwise set forth herein. Without limiting the generality of the foregoing, this Guaranty
F-1
Form of Guaranty
guarantees, to the extent provided herein, the payment of all amounts which constitute part of the Guaranteed Obligations and would be owed by the Borrower to the Administrative Agent or the Lenders under any Loan Document but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. Expenses . After the occurrence and during the continuance of a Default, the Guarantors, jointly and severally, agree to pay or reimburse the Administrative Agent for all its reasonable and documented costs and out-of-pocket expenses incurred in connection with the enforcement or preservation of any rights under this Guaranty and the other Loan Documents, including reasonable and documented legal fees and disbursements of one outside counsel to the Administrative Agent and the Lenders (including any local counsel deemed reasonably necessary by the Administrative Agent). The agreements in this Section shall survive the termination of this Guaranty.
1.3 Obligations Absolute . Each Guarantor guarantees the Guaranteed Obligations will be paid strictly in accordance with the Credit Agreement and the other Loan Documents, regardless of any applicable laws, rules, regulations and orders now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or the Lenders with respect thereto. The obligations of the Guarantors hereunder shall remain fully effective without regard to, and shall not be affected or impaired by the following, any of which may be taken, at any time, without the consent of, or notice to, the Guarantors, nor shall any of the following give the Guarantors any recourse or right of action against the Administrative Agent or any Lender:
(a) Any lack of validity or enforceability of, or any release or discharge of the Borrower or any other Loan Party from liability under, the Credit Agreement or any other Loan Document.
(b) Any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other amendment or waiver of, or any consent to departure from, the Credit Agreement or any other Loan Document;
(c) Any subordination, compromise, exchange, release, nonperfection or liquidation of any collateral, or any release, amendment or waiver of, or consent to departure from, any other guaranty, for any or all of the Guaranteed Obligations;
(d) Any express or implied amendment, modification, renewal, supplement, extension (including, without limitation, extensions beyond the original term) or acceleration of the Guaranteed Obligations or any of the Loan Documents;
(e) Any exercise or non-exercise by the Administrative Agent or any Lender of any right or privilege under this Guaranty or any of the other Loan Documents;
(f) Any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding (each, an Insolvency Proceeding ) relating to the Guarantors, the Borrower or any other guarantor of the Guaranteed Obligations or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any Insolvency Proceeding, whether or not the Guarantors shall have had notice or knowledge of any of the foregoing;
(g) Any assignment or other transfer of this Guaranty in whole or in part or of any of the other Loan Documents in the manner provided in the Credit Agreement;
F-2
Form of Guaranty
(h) Any acceptance of partial performance of the Guaranteed Obligations or the obligations of the Borrower under the Loan Documents or of any obligation of the Guarantors under this Guaranty; or
(i) Any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any guarantor (other than the payment in full in cash by the Borrower or any other Loan Party of the Guaranteed Obligations).
Each Guarantor understands and acknowledges that by virtue of this Guaranty, it has specifically assumed any and all risks of a bankruptcy or reorganization case or proceeding with respect to the Borrower. As an example and not in any way of limitation, a subsequent modification of the Guaranteed Obligations in any reorganization case concerning the Borrower shall not affect the obligation of the Guarantors to pay and perform the Guaranteed Obligations in accordance with their respective terms prior to such reorganization case. If claim is ever made upon the Administrative Agent or the Lenders for repayment of any amount or amounts received by them in payment of the Guaranteed Obligations and the Administrative Agent or the Lenders, as applicable, repays all or any part of said amount, then, notwithstanding any revocation or termination of this Guaranty or any other instrument evidencing the Guaranteed Obligations, the Guarantors shall be and remain liable to the Administrative Agent or the Lenders in accordance with the terms of this Guaranty for the amount so repaid to the same extent as if such amount had never originally been received by the Administrative Agent or the Lenders.
1.4 Waivers . Each Guarantor unconditionally waives, to the extent permitted by applicable Law, all defenses to the enforcement of this Guaranty, including, without limitation:
(a) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty;
(b) Any right to require the Administrative Agent or the Lenders to proceed against the Borrower or any other guarantor of the Guaranteed Obligations at any time, or to proceed against or exhaust any security held by the Administrative Agent or any Lender at any time, or to pursue any other remedy whatsoever at any time;
(c) The defense of any statute of limitations affecting the liability of the Guarantors hereunder, the liability of the Borrower or any other guarantor of the Guaranteed Obligations, or the enforcement hereof, to the extent permitted by law;
(d) Any defense arising by reason of any invalidity or unenforceability of any of the Loan Documents or any provision thereof, or any disability of the Borrower or any guarantor of the Guaranteed Obligations or of any manner in which the Administrative Agent or any Lender has exercised its rights and remedies under the Loan Documents, or by any cessation from any cause whatsoever of the liability of the Borrower or any guarantor of the Guaranteed Obligations;
(e) Any defense based on any action taken or omitted by the Administrative Agent or any Lender in any Insolvency Proceeding involving the Borrower or the Guarantors, including any election to have the Administrative Agents or any Lenders claim allowed as being secured, partially secured or unsecured, any extension of credit by the Administrative Agent or any Lender to the Borrower in any Insolvency Proceeding and the taking and holding by the Administrative Agent or such Lender of any security for any such extension of credit;
F-3
Form of Guaranty
(f) Any defense based upon an election of remedies by the Administrative Agent or the Lenders, including, without limitation, any election to proceed by judicial or nonjudicial foreclosure of any Lien, whether on real property or personal property, or by deed in lieu thereof, and whether or not every aspect of any foreclosure sale is commercially reasonable, or any election of remedies, including but not limited to, remedies relating to real property or personal property security, that destroys or otherwise impairs any subrogation rights of the Guarantors or the rights of the Guarantors to proceed against the Borrower or any other guarantor of the Guaranteed Obligations for reimbursement, or both (including California Code of Civil Procedure Sections 580a, 580b, 580d and 726);
(g) Any right the Guarantors may have under applicable law to a hearing with respect to the fair market value of any real property collateral securing the Guaranteed Obligations (the Property ), either before or after foreclosure;
(h) Any duty of the Administrative Agent or any Lender to advise the Guarantors of any information known to the Administrative Agent or such Lender, as the case may be, regarding the financial condition of the Borrower and all other circumstances affecting the Borrowers ability to perform its obligations to the Administrative Agent or the Lenders; it being agreed that the Guarantors assume the responsibility for being and keeping informed regarding such condition or any such circumstances;
(i) Any right of subrogation, reimbursement, exoneration, contribution, indemnity or otherwise against the Borrower that may arise out of or be caused by this Guaranty, all rights and/or claims against the Borrower which may arise against the Borrower by reason of this Guaranty, any right to enforce any remedy that the Administrative Agent or the Lenders now have or may hereafter have against the Borrower and any benefit of, and any right to participate in, any security now or hereafter held by the Administrative Agent or the Lenders;
(j) Any right the Guarantors might have to revoke this Guaranty as to any advances made by the Administrative Agent or any Lender to or on behalf of the Borrower or pursuant to the terms of any of the Loan Documents;
(k) Any failure by the Administrative Agent or the Lenders to perfect or continue the perfection of any lien or security interest in any collateral, including, but not limited to, the collateral given under the Loan Documents or any failure by the Administrative Agent or the Lenders to protect the property covered by any such lien or security interest;
(l) any right to interpose any defense, counter-claim or offset (other than payment in full) of any nature and description which the Guarantors may now have or which may exist between and among the Administrative Agent, the Lenders and the Loan Parties; and
(m) without limiting the generality of the foregoing or any other provision hereof, any rights and benefits that might otherwise be available to the Guarantors under California Civil Code Section 2809, 2810, 2815, 2819, 2845, 2848, 2849, 2850, 2899 or 3433.
1.5 Waivers to Be Effective to Maximum Permissible Extent . Each Guarantor acknowledges and agrees that all waivers of defenses arising from any impairment of its rights of subrogation, reimbursement, contribution and indemnification and waivers of any other rights, privileges, defenses or protections available to it under applicable law are intended by it to be effective to the maximum extent permitted by applicable law.
F-4
Form of Guaranty
1.6 Waiver of Defense Based on Elimination of Right of Subrogation .
(a) Each Guarantor waives, to the extent permitted by applicable Law, all rights and defenses arising out of an election of remedies by the Administrative Agent, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed any right of such Guarantor to subrogation and reimbursement against the Borrower by the operation of Section 580d of the California Code of Civil Procedure or otherwise.
(b) In furtherance of the foregoing, the Guarantors waive, to the extent permitted by applicable Law, all rights and defenses that the Guarantors may have because the Borrowers debt to the Administrative Agent and the Lenders is or may be, secured by real property. This means, among other things:
(1) The Administrative Agent, for the benefit of the Lenders, may collect from the Guarantors, jointly or severally, without first foreclosing on any real or personal property collateral pledged by the Borrower.
(2) If the Administrative Agent forecloses on any other real property collateral pledged by the Borrower:
(A) The amount of the debt may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if such Collateral is worth more than the sale price.
(B) The Administrative Agent, for the benefit of the Lenders, may collect from the Guarantors, jointly or severally, even if the Administrative Agent, by foreclosing on the Property or other real property collateral, has destroyed any right the Guarantors may have to collect from the Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses the Guarantors may have because the Borrowers debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure.
1.7 Subrogation . Each Guarantor understands that the exercise by the Administrative Agent of certain rights and remedies under the Loan Documents may affect or eliminate its right of subrogation against the Borrower or any other guarantor and that it may therefore incur partially or totally nonreimbursable liability hereunder. Nevertheless, each Guarantor hereby authorizes and empowers the Administrative Agent, its successors, endorsees and/or assigns to exercise in its or their sole discretion, any rights and remedies, or any combination thereof, which may then be available, it being the purpose and intent of each Guarantor that the obligations hereunder shall be absolute, continuing, independent and unconditional under any and all circumstances. Notwithstanding any other provision of this Guaranty to the contrary, each Guarantor hereby waives, until such time as the Guaranteed Obligations (other than contingent indemnification obligations under which there is no outstanding claim) have been paid in full in cash and all Obligations thereunder paid in full, and the Aggregate Commitments shall have been terminated or shall have expired, any claim or other rights which such Guarantor may now have or
F-5
Form of Guaranty
hereafter acquire against the Borrower or any other guarantor of all or any of the obligations of such Guarantor hereunder that arise from the existence or performance of such Guarantors obligations under this Guaranty or any of the other Loan Documents, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification, any right to participate in any claim or remedy of the Administrative Agent or any Lender against the Borrower the Administrative Agent or any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, including, without limitation, the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim or other rights.
1.8 Independent and Separate Obligations . The obligations of the Guarantors hereunder are independent of the obligations of the Borrower and in the event of an Event of Default, a separate action or actions may be brought and prosecuted against the Borrower, whether or not the Guarantors are joined therein or a separate action or actions are brought against the Guarantors. The Administrative Agent and the Lenders rights hereunder shall not be exhausted until all of the Guaranteed Obligations (other than contingent indemnification obligations under which there is no outstanding claim) shall have been fully paid in cash and fully performed and the Aggregate Commitments shall have been terminated or shall have expired.
1.9 Subordination . To the extent required by the Credit Agreement, any indebtedness of the Borrower now or hereafter held by the Guarantors is hereby subordinated in the manner set forth in this Section 1.9 to the prior payment in full in cash and performance in full of the Guaranteed Obligations (other than contingent indemnification obligations under which there is no outstanding claim). While an Event of Default exists, the Guarantors agree not to ask for, demand, sue for, take or receive from the Borrower, directly or indirectly, in cash or other property, by setoff or in any other manner (including, without limitation, from or by way of collateral), payment of all or any of such indebtedness of the Borrower unless and until the Guaranteed Obligations (other than contingent indemnification obligations under which there is no outstanding claim) shall have been fully paid in cash and fully performed and the Aggregate Commitments shall have been terminated or shall have expired. If the Guarantors shall receive any payments from the Borrower while an Event of Default exists in violation of the preceding sentence, the Guarantors shall act as trustee for the Administrative Agent and the Lenders and immediately pay over to the Administrative Agent for the benefit of the Lenders any amounts received by the Guarantors to be applied against the Obligations.
1.10 Payments . It is understood that the Obligations may at any time and from time to time exceed the aggregate liability of the Guarantors hereunder without impairing this Guaranty. The Guarantors agree that whenever any Guarantor shall make any payment to the Administrative Agent for the benefit of the Lenders hereunder on account of the liability hereunder, such Guarantor will deliver such payment to the Administrative Agent at the address provided for it in Section 3.1 below and notify the Administrative Agent in writing that such payment is made under this Guaranty for such purpose. It is understood that the Administrative Agent, without impairing this Guaranty, may apply payments from the Borrower to the Guaranteed Obligations in such amounts and in such order as the Administrative Agent in its discretion determines. No payment made hereunder by any Guarantor to the Administrative Agent or the Lenders shall constitute such Guarantor as a creditor of the Administrative Agent, the Lenders or the Borrower.
1.11 Payments in Trust . If any amount shall be paid to any Guarantor contrary to the provisions of Section 1.4(i) , such amount shall be held in trust for the benefit of the Lenders and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement.
F-6
Form of Guaranty
1.12 Continuing Guaranty; Successors . Subject to Section 1.13 , the obligations of the Guarantors under this Guaranty and any other documents executed by the Guarantors in connection herewith shall continue in full force and effect until the Guaranteed Obligations (other than contingent indemnification obligations under which there is no outstanding claim) shall have been fully paid in cash and fully performed and the Aggregate Commitments shall have been terminated or shall have expired. This Guaranty shall be binding upon the Guarantors and its successors and assigns (provided that, except as permitted by the Credit Agreement, the Guarantors may not assign this Guaranty without the prior written consent of the Administrative Agent and each of the Lenders) and shall inure to the benefit of the Administrative Agent and the Lenders and their successors, transferees and assigns to the extent permitted by the Credit Agreement. Without limiting the generality of the foregoing, and without notice to the Guarantors, the Administrative Agent and/or the Lenders may assign or otherwise transfer any of their rights and obligations under the Loan Documents to any other Person in accordance with the terms of the Credit Agreement, and such other Person shall thereupon become vested with all the rights in respect thereof granted to the Administrative Agent or the Lenders, as applicable, herein or otherwise.
1.13 Release of the Guarantor s. Subject to the last paragraph of Section 1.3 and Section 9.09 of the Credit Agreement, this Guaranty and the obligations of the Guarantors hereunder shall be terminated when the Guaranteed Obligations (other than contingent indemnification obligations under which there is no outstanding claim) shall have been fully paid in cash and fully performed, and the Aggregate Commitments shall have been terminated or shall have expired.
1.14 [ Reserved ].
1.15 Fraudulent Conveyance . Subject to Section 1.16, notwithstanding the foregoing, it is the intention of each Guarantor, the Lenders and the Administrative Agent that the amount of the Guaranteed Obligations by such Guarantor under this Guaranty shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer or similar laws applicable to such Guarantor. Accordingly, notwithstanding anything to the contrary contained in this Guaranty or any other agreement or instrument executed in connection with the payment of any of the Obligations, the amount of the Obligations shall be limited to an aggregate amount equal to the largest amount that would not render any Guarantors obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provision of any applicable state law.
1.16 Right of Contribution . Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of all payments made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of all such payments. The provisions of this Section 1.16 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders hereunder, and each Guarantor shall remain liable to the Administrative Agent for the full amount guaranteed by such Guarantor hereunder. The proportionate share of any Guarantor shall be a fraction (which shall in no event exceed 1.00) the numerator of which is the excess, if any, of the fair value of the assets of such Guarantor over a fair estimate of the liabilities of such Guarantor and the denominator of which is the excess (but not less than $1.00) of the fair value of the aggregate assets (without duplication) of all Guarantors over a fair estimate of the aggregate liabilities (without duplication) of all Guarantors. All relevant calculations shall be made as of the date such Guarantor became a Guarantor.
1.17 Joinder . Pursuant to Section 6.12 of the Credit Agreement, any other Person may become a Guarantor under and become bound by the terms and conditions of this Guaranty by executing and delivering to the Administrative Agent a Joinder substantially in the form attached hereto as Exhibit A , accompanied by such documentation as the Administrative Agent may reasonably request to establish the due organization, valid existence and good standing of such Person, in its jurisdiction of organization, its authority to execute, deliver and perform this Guaranty, and the identity, authority and capacity of each Responsible Officer thereof authorized to act on its behalf.
F-7
Form of Guaranty
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each Guarantor makes the representations and warranties in the Credit Agreement as they relate to such Guarantor at the times required by the Credit Agreement, each of which is hereby incorporated by reference, and the Administrative Agent shall be entitled to rely on each of them as if they were fully set forth herein. In addition to the above, each Guarantor makes the following representations and warranties, which shall be continuing representations and warranties until this Guaranty terminates in accordance with its terms:
2.1 Financial or other Benefit or Advantage . Each Guarantor hereby acknowledges and warrants that such Guarantor has derived or expects to derive a financial or other benefit or advantage from the credit facilities extended to the Borrower under the Credit Agreement and from each and every renewal, extension or other relinquishment of legal rights made or granted or to be made or granted by the Administrative Agent or any Lender to the Borrower in connection with such credit facilities. Each Guarantor acknowledges that Borrower is not merely the agent, instrumentality or alter ego of such Guarantor, and that the Borrower is independent and separate business entities, fully and adequately capitalized for its own business purposes.
2.2 Advice of Counsel . Each Guarantor has consulted with its attorneys regarding the terms and conditions and waivers set forth in this Guaranty.
ARTICLE 3
MISCELLANEOUS
3.1 Notices . All notices and other communications provided for hereunder shall be given in the manner, and to the respective addresses, set forth in Schedule 10.02 of the Credit Agreement; provided , however , any such notice to the Guarantors shall be given to it in care of the Borrower as provided in Schedule 10.02 of the Credit Agreement.
3.2 Amendments; Successors; Miscellaneous . Neither this Guaranty nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed in accordance with the terms of the Credit Agreement. All of the terms of this Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The term Borrower shall mean both the named Borrower and any other Person at any time assuming or otherwise becoming primarily liable for all or any part of the Obligations. No delay or failure by the Administrative Agent or any Lender to exercise any remedy against the Borrower or the Guarantors will be construed as a waiver of that right or remedy. All remedies of the Administrative Agent or any Lender are cumulative. No Guarantor shall have the right to assign any of its rights or obligations under this Guaranty except as permitted by the Credit Agreement.
3.3 No Waiver; Remedies . No failure on the part of the Administrative Agent or the Lenders to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and no single or partial exercise of any right hereunder shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
F-8
Form of Guaranty
3.4 Governing Law . THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE OF LAW RULES).
3.5 Assignability by Administrative Agent and Lenders . The Administrative Agent and any Lender may, at any time and from time to time, assign all of the rights of the Administrative Agent or such Lender under the Loan Documents and under this Guaranty in accordance with the provisions of the Credit Agreement, whereupon such assignee shall succeed to all rights of the Administrative Agent or such Lender, as the case may be, hereunder to the extent of such assignment.
3.6 Demands . Each demand by the Administrative Agent for performance or payment hereunder shall be in writing and shall be made in the manner set forth in Section 3.1 . A dated statement signed by an officer of the Administrative Agent setting forth the amount of indebtedness at the time owing to the Administrative Agent or the Lenders by the Borrower under the Loan Documents shall, absent manifest error, be conclusive evidence thereof as between the Guarantors and the Administrative Agent or the Lenders in any legal proceedings against the Guarantors in connection with this Guaranty.
3.7 Complete Agreement . This Guaranty, together with all other Loan Documents to which the Guarantors are party, supersedes any prior negotiations, discussions or communications among the Guarantors, the Administrative Agent and the Lenders and constitutes the entire agreement between the Administrative Agent and the Lenders, on the one hand, and the Guarantors on the other hand, with respect to the Guaranteed Obligations.
3.8 Severability . Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.
3.9 Judicial Reference; Consent to Jurisdiction . All claims, causes of action or other disputes concerning the Loan Documents, including any and all questions of law or fact relating thereto and consent to any jurisdiction relating thereto, shall, be subject to the Governing Law Agreement.
[Remainder of page intentionally left blank]
F-9
Form of Guaranty
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date first above written.
GUARANTORS : | ||||
THE SHIPYARD COMMUNITIES, LLC, a Delaware limited liability company | ||||
By: | ||||
Name: | ||||
Title: | ||||
By: | ||||
Name: | ||||
Title: | ||||
FIVE POINT LAND, LLC, | ||||
a Delaware limited liability company | ||||
By: Five Point Operating Company, LLC, as manager |
||||
By: | ||||
Name: | ||||
Title: | ||||
By: | ||||
Name: | ||||
Title: | ||||
FIVE POINT COMMUNITIES MANAGEMENT, INC., a Delaware corporation | ||||
By: | ||||
Name: | ||||
Title: | ||||
By: | ||||
Name: | ||||
Title: |
F-10
Form of Guaranty
FIVE POINT COMMUNITIES, LP, a Delaware limited partnership |
||
By: Five Point Communities Management, Inc., as general partner | ||
By: | ||
Name: | ||
Title: | ||
By: | ||
Name: | ||
Title: | ||
FIVE POINT HERITAGE FIELDS, LLC, a Delaware limited liability company |
||
By: Five Point Operating Company, LLC, as member | ||
By: | ||
Name: | ||
Title: | ||
By: | ||
Name: | ||
Title: |
F-11
Form of Guaranty
EXHIBIT A
TO
GUARANTY
JOINDER TO GUARANTY
THIS JOINDER TO GUARANTY ( Joinder ) is executed as of , , by, , a ( Joining Party ), and delivered to ZB, N.A. dba CALIFORNIA BANK & TRUST, as the Administrative Agent (in such capacity, the Administrative Agent ), pursuant to the Guaranty dated as of April 18, 2017, made by THE SHIPYARD COMMUNITIES, LLC, a Delaware limited liability company, FIVE POINT LAND, LLC, a Delaware limited liability company, FIVE POINT COMMUNITIES MANAGEMENT, INC., a Delaware corporation, FIVE POINT COMMUNITIES, LP, a Delaware limited partnership, and FIVE POINT HERITAGE FIELDS, LLC, a Delaware limited liability company (together with each other Person who becomes a party thereto pursuant to Section 1.17 of the Guaranty, collectively, the Guarantors and each a Guarantor ), in favor of the Administrative Agent (as amended, restated, amended and restated, extended, renewed, supplemented or otherwise modified from time to time, the Guaranty ). Terms used but not defined in this Joinder shall have the meanings defined for those terms in the Guaranty.
RECITALS
A. The Guaranty was made by the Guarantors in favor of the Administrative Agent on behalf of itself and the Lenders described therein in connection with that certain Credit Agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ) dated as of April 18, 2017 among FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company ( Borrower ), the lenders from time to time a party thereto (each a Lender and collectively, the Lenders ), and the Administrative Agent.
B. Joining Party [has become a Subsidiary of Borrower][is the parent of the Borrower], and as such is required pursuant to Section 6.12 of the Credit Agreement to become a Guarantor under the terms and conditions of the Guaranty.
C. Joining Party expects to realize direct and indirect benefits as a result of the availability to Borrower of the credit facilities under the Credit Agreement.
NOW THEREFORE, Joining Party agrees as follows:
AGREEMENT
1. By this Joinder, Joining Party becomes a Guarantor under and pursuant to Section 1.17 of the Guaranty. Joining Party agrees that, upon its execution hereof, it will become a Guarantor under the Guaranty with respect to all Guaranteed Obligations as further set forth therein, and will be bound by all terms, conditions, and duties applicable to a Guarantor under the Guaranty. Without limiting the generality of the foregoing, the Joining Party hereby:
(a) makes to the Administrative Agent and the Lenders as of the date hereof each of the representations and warranties and agrees to be bound by each of the covenants contained in Article 2 of the Guaranty; and
F-12
Form of Guaranty
(b) consents and agrees to each other provision set forth in the Guaranty.
2. The terms of Section 3.9 of the Guaranty with respect to governing law, venue and waiver of jury trial are incorporated herein by reference, mutatis mutandis , and each Joining Party hereto agrees to such terms. Notwithstanding the foregoing, Joining Party agrees that, upon its execution hereof, it will become a Party under the Governing Law Agreement and will be bound by all terms, conditions, and duties applicable to a Party under the Governing Law Agreement.
3. The effective date of this Joinder is , .
JOINING PARTY: | ||
[_______________________], | ||
a[_______________________] | ||
By: | ||
Name: | ||
Title: |
ACKNOWLEDGED: | ||
ZB, N.A., dba CALIFORNIA BANK & TRUST, as Administrative Agent | ||
By: |
|
|
Name: | ||
Title: |
F-13
Form of Guaranty
EXHIBIT G
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 18, 2017 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
Pursuant to the provisions of Section 3.01(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] |
By: |
Name: |
Title: |
Date: , 20[ ]
G-1
U.S. Tax Compliance Certificate
EXHIBIT G
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 18, 2017 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
Pursuant to the provisions of Section 3.01(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] |
By: |
Name: |
Title: |
Date: ________ __, 20[ ]
G-2
U.S. Tax Compliance Certificate
EXHIBIT H
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 18, 2017 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
Pursuant to the provisions of Section 3.01(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members/owners are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members/owners is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members/owners is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN-E (or W-8BEN, as applicable) or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN-E (or W-8BEN, as applicable) from each of such partners/members/owners beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] |
By: |
Name: |
Title: |
Date: ________ __, 20[ ]
G-3
U.S. Tax Compliance Certificate
EXHIBIT G
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 18, 2017 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Five Point Operating Company, LLC, a Delaware limited liability company (the Borrower ), the Lenders from time to time party thereto, and ZB, N.A. dba California Bank & Trust, as Administrative Agent and L/C Issuer.
Pursuant to the provisions of Section 3.01(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members/owners are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members/owners is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members/owners is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN-E (or W-8BEN, as applicable) or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN-E (or W-8BEN, as applicable) from each of such partners/members/owners beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] |
By: |
Name: |
Title: |
Date: ________ ___, 20[ ]
1
Exhibit 10.32
SECOND AMENDED AND RESTATED
DEVELOPMENT MANAGEMENT AGREEMENT
Dated as of April 21, 2017
Property: Heritage Fields, City of Irvine, Orange County, California
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I DEFINITIONS | 1 | |||||||
Section 1.1 |
Definitions |
1 | ||||||
ARTICLE II ENGAGEMENT OF MANAGER AND MANAGER SERVICES | 10 | |||||||
Section 2.1 |
Development Functions |
10 | ||||||
Section 2.2 |
Acceptance of Engagement |
10 | ||||||
Section 2.3 |
Intentionally Omitted |
14 | ||||||
Section 2.4 |
Owner Decisions |
14 | ||||||
Section 2.5 |
Owner Approval |
15 | ||||||
Section 2.6 |
Communication with Government Officials and Contractors |
15 | ||||||
Section 2.7 |
Contracting Subsidiary |
15 | ||||||
ARTICLE III IMPLEMENTATION AND RESTRICTIONS | 16 | |||||||
Section 3.1 |
Cooperation of Owner |
16 | ||||||
Section 3.2 |
Authorized Representatives |
16 | ||||||
Section 3.3 |
Approved Business Plan |
17 | ||||||
Section 3.4 |
Emergencies |
18 | ||||||
Section 3.5 |
Employees and Staffing |
18 | ||||||
Section 3.6 |
Minimum Ownership Requirements |
19 | ||||||
ARTICLE IV MANAGERS COMPENSATION AND REIMBURSABLES | 19 | |||||||
Section 4.1 |
Base Fee |
19 | ||||||
Section 4.2 |
Project Team Budget; Project Team Reimbursements |
20 | ||||||
Section 4.3 |
Intentionally Omitted |
21 | ||||||
Section 4.4 |
Incentive Compensation |
21 | ||||||
Section 4.5 |
Costs and Expenses |
21 | ||||||
Section 4.6 |
Subordination |
21 | ||||||
Section 4.7 |
Manager Organizational Structure; Payment Recipient |
21 | ||||||
Section 4.8 |
Incentive Compensation Assignment |
21 | ||||||
ARTICLE V ACCOUNTING; BUDGETS; TAXES | 22 | |||||||
Section 5.1 |
Accounting and Financial Services |
22 | ||||||
Section 5.2 |
Reports |
22 | ||||||
ARTICLE VI TERM; TERMINATION | 23 | |||||||
Section 6.1 |
Term |
23 | ||||||
Section 6.2 |
Termination by Owner for Cause |
24 | ||||||
Section 6.3 |
Intentionally Omitted |
26 | ||||||
Section 6.4 |
Termination in Owners Discretion; Non-Compete |
27 | ||||||
Section 6.5 |
Termination for Property Transfer |
27 | ||||||
Section 6.6 |
Intentionally Omitted |
28 | ||||||
Section 6.7 |
Intentionally Omitted |
28 | ||||||
Section 6.8 |
Termination by Manager for Owners Failure to Pay Fees and Certain Material Breaches |
28 | ||||||
Section 6.9 |
Expiration |
29 | ||||||
Section 6.10 |
Actions Upon Termination and Expiration |
29 | ||||||
ARTICLE VII INSURANCE, DAMAGES AND INDEMNITY | 30 | |||||||
Section 7.1 |
Managers Insurance |
30 | ||||||
Section 7.2 |
Mutual Indemnity |
30 | ||||||
Section 7.3 |
Notice |
31 | ||||||
Section 7.4 |
Limitations on Damages which may be Collected from Manager by Owner; Exclusive Remedy |
32 |
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ARTICLE VIII LAWS | 33 | |||||||
Section 8.1 |
Construction |
33 | ||||||
ARTICLE IX MISCELLANEOUS | 33 | |||||||
Section 9.1 |
Entire Agreement |
33 | ||||||
Section 9.2 |
No Partnership; Competition |
33 | ||||||
Section 9.3 |
Disputes |
33 | ||||||
Section 9.4 |
Notice |
33 | ||||||
Section 9.5 |
Assignment |
34 | ||||||
Section 9.6 |
Successors and Assigns |
35 | ||||||
Section 9.7 |
Certain Interpretation Matters |
35 | ||||||
Section 9.8 |
Waivers |
35 | ||||||
Section 9.9 |
Partial Invalidity |
35 | ||||||
Section 9.10 |
Survival |
36 | ||||||
Section 9.11 |
Amendment |
36 | ||||||
Section 9.12 |
Jurisdiction; Venue; Service of Process |
36 | ||||||
Section 9.13 |
Jury Trial Waiver |
36 | ||||||
Section 9.14 |
Confidentiality |
36 | ||||||
Section 9.15 |
Counterparts |
37 |
ii
SECOND AMENDED AND RESTATED DEVELOPMENT MANAGEMENT AGREEMENT
THIS SECOND AMENDED AND RESTATED DEVELOPMENT MANAGEMENT AGREEMENT made effective as of April 21, 2017 (the Effective Date ), by and among HERITAGE FIELDS EL TORO, LLC, a Delaware limited liability company ( Owner ), FIVE POINT COMMUNITIES MANAGEMENT, INC., a Delaware corporation ( Manager ), for the purpose of Section 4.8 only, FIVE POINT OPERATING COMPANY, LLC, a Delaware limited liability company (the Operating Company ) and, for the purpose of Sections 4.7 and 4.8 only, FIVE POINT COMMUNITIES, LP, a Delaware limited partnership (the Manager Partnership ). Manager and Owner are sometimes referred to each as a Party and collectively as the Parties .
W I T N E S S E T H :
WHEREAS, Owner is the owner of the Property (as hereinafter defined);
WHEREAS, Owner and Manager are parties to that certain Amended and Restated Development Management Agreement dated as of May 2, 2016 ( Existing DMA );
WHEREAS, Owner desires to continue to engage Manager as the exclusive independent contractor (i) to manage on Owners behalf the development of the Property, (ii) to generally supervise the day-to-day affairs of the Property, (iii) to perfect on Owners behalf the existing entitlements and pursue and perfect on Owners behalf additional entitlements for the Property, and (iv) in connection with the foregoing, to furnish and perform the functions and services necessary as hereinafter described;
WHEREAS, Manager desires to accept such engagement upon the terms and subject to the conditions hereinafter set forth; and
WHEREAS, the Parties desire to amend and restate in full the Existing DMA pursuant to the terms of this Agreement as of the Effective Date.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and of other good and valuable consideration, Owner and Manager hereby amend and restate in full the Existing DMA and mutually agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions . The following terms, when used in this Agreement, shall have the respective meanings indicated:
Affiliate shall mean, with respect to the Person in question, any other Person directly or indirectly, through one or more intermediaries, Controlling, Controlled by or under common Control with the Person in question. In no event shall Owner and Manager be deemed Affiliates of one another for purposes of this Agreement.
Affiliate Party shall mean, with respect to a Person: (a) 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; (b) 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; (c) any Person Controlling, Controlled by or under common Control with such Person; (d) any officer, director, employee, member or partner of such Person; (e) if such Person is an officer, director, employee, member or partner, any Entity for which such Person acts in any such capacity; and (f) any sibling, direct descendant (including adopted children or grandchildren), parent, grandparent or spouse of such Person, or any trust or limited partnership created solely for the benefit of any such Person. In all events, CEO and Manager shall be considered Affiliate Parties of one another and Lennar and Manager shall be considered Affiliate Parties of one another. Notwithstanding the foregoing, in no event shall Owner and Manager be deemed Affiliate Parties of one another for purposes of this Agreement.
Affiliate Property Transfer means any Property Transfer that is not a Non-Affiliate Property Transfer.
Agreement shall mean this Second Amended and Restated Development Management Agreement, together with all Exhibits, as the same (including such Exhibits) may be amended and/or restated from time to time in accordance with the terms hereof.
Amended and Restated Development Agreement shall mean that certain Amended and Restated Development Agreement by and between Owner and the City of Irvine, dated as of December 27, 2010, recorded in the official records of Orange County, California, as amended or supplemented from time to time.
Amended and Restated Master Implementation Agreement shall mean that certain Amended and Restated Master Implementation Agreement by and between Owner and the City of Irvine, dated as of December 27, 2010, as recorded in the official records of the Orange County, California recorder.
Annual Budget shall have the meaning set forth in the JV Agreement.
Approved Budget shall mean, at the time in question, the Annual Budget set forth in the Approved Business Plan in effect at such time.
Approved Business Plan shall mean any Business Plan and any Revised Business Plan Approved by Owner in accordance with the terms hereof, as the same may be modified (or further modified) from time to time in accordance with the terms hereof. The Approved Business Plan for Fiscal Year 2017 was approved by written consent of the Members, dated April 21, 2017.
Approved by Owner and Approval by Owner (and words of similar import) shall have the meaning set forth in Section 2.5 .
Approved Costs shall have the meaning set forth in Section 4.5 .
Approved Project Team Budget shall mean, for any Fiscal Year, a Project Team Budget Approved by Owner in accordance with the terms hereof, as the same may be modified by any Revised Project Team Budget Approved by Owner in accordance with the terms hereof, for such Fiscal Year. The Approved Project Team Budget for Fiscal Year 2017 is included within the Approved Business Plan. The Project Team Budget shall be a component of the Approved Budget.
Architect shall mean any licensed architect, engineer, architectural firm or engineering firm engaged by Owner in accordance with the terms hereof to assist with respect to all or any portion of the Project.
Audited Financial Statements shall have the meaning set forth in Section 5.2(a) .
Available Cash shall have the meaning set forth in the JV Agreement.
Available Insurance Proceeds shall have the meaning set forth in Section 7.4(a) .
Available Insurance Proceeds Amount shall have the meaning set forth in Section 7.4(a) .
Bankruptcy shall mean, with respect to the affected party: (i) the entry of an Order for Relief under the Bankruptcy Code; (ii) the admission by such party in writing of its inability to pay its debts as they mature; (iii) the making by it of an assignment for the benefit of creditors; (iv) the filing by it of a petition in bankruptcy or a petition for relief under the Bankruptcy Code or any other applicable federal or state bankruptcy or insolvency statute or any similar Law; (v) the expiration of sixty (60) days after the filing of an involuntary petition under the Bankruptcy Code or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other federal or state insolvency Law, provided that the same shall not have been vacated, set aside or stayed within such sixty (60)-day period; or (vi) an application by such party for the appointment of a receiver for the assets of such party.
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Bankruptcy Code means Title 11 of the United States Code (11 U.S.C. Sections 101 et seq.), as amended from time to time.
Base CPI shall have the meaning set forth in the definition of CPI Index Factor.
Base Fee shall have the meaning set forth in Section 4.1 .
Business Day shall mean any day that is not a Saturday, Sunday or a day on which the Federal Reserve Bank in New York or California is closed for business.
Business Plan has the meaning set forth in the JV Agreement, which includes, for the avoidance of doubt, the Annual Budget.
Cash Flow Participation Agreements shall mean, collectively, (i) that certain Option for Cash Flow Participation Agreement (LBHI) between Owner and Lehman Brothers Holdings Inc., a Delaware corporation, as debtor and debtor in possession in its chapter 11 case in the United States Bankruptcy Court for the Southern District of New York, Case No. 08-13555 (JPM), dated as of December 29, 2010, and (ii) that certain Cash Flow Participation Agreement (PCCP) between Owner and El Toro LLC, a Delaware limited liability company, dated as of December 29, 2010.
Categories means, collectively, each of the following four (4) categories within the Approved Business Plan: (i) all hard construction costs relating to the Project (or any portion thereof) that are required under any development or other agreement between Owner or any of its Affiliates and any Governmental Authority; (ii) all hard construction costs relating to the Project (or any portion thereof) other than those described in clause (i) of this definition; (iii) all costs and expenditures not described in clauses (i) or (ii) of this definition; and (iv) revenues from the sale or lease of the Property or any portion thereof.
Cause Event shall have the meaning set forth in Section 6.2(a) .
CEO shall have the meaning set forth in Section 3.5(a) .
Change in Control shall mean a Transfer (or series of Transfers) or an Affiliate Property Transfer (or series of Affiliate Property Transfers) in Owner that results in more than fifty percent (50%) of the total Votes (as defined in the JV Agreement) being held, directly or indirectly, by one or more Persons who do not hold a direct or indirect interest in Owner as of the Effective Date; provided , however , that for purposes of this definition, (i) Permitted Dispositions (as defined in the JV Agreement) shall not constitute a Transfer for purposes of this definition and (ii) any change in or Transfer of Votes as a result of a Permitted Disposition (as defined in the JV Agreement) shall not count toward the fifty (50%) threshold referenced above.
Claim shall mean any and all actions, suits, claims, penalties, losses, liabilities or damages, whether or not arising out of third-party claims.
Commercial Property shall mean, as of any date, those portions of the Property that are designated for the following uses: industrial, office, business park, warehouse, R&D, flex space, retail uses or other non-residential uses permitted under the Entitlements.
Competency shall have the meaning set forth in Section 3.5(b) .
Confidential Information shall have the meaning set forth in Section 9.14(a) .
Consistent with the Approved Business Plan shall mean that (a) in the case of costs and expenses set forth in the Approved Budget, the incurrence of amounts that exceed any Category by an amount that is five percent (5%) or less (for the Categories described in clauses ( i ) , (ii) and (iii) of the definition thereof) and the sale or lease of the Property or any portions thereof at a price or rents, as applicable, no less than ninety-five percent (95%) of the price set forth in the Approved Business Plan (for the Category described in clause (iv) of the definition thereof), in each case in any Fiscal Year.
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Construction Contract shall mean any construction contract between Owner (or a Contracting Subsidiary) and a Contractor to be entered into with respect to all or any portion of the Project in accordance with the terms hereof.
Contracting Officer Capacity shall have the meaning set forth in Section 2.2(f) .
Contracting Subsidiary shall mean any direct or indirect subsidiary of Owner that is licensed (or operates under a license in accordance with Laws) created for the purpose of entering into any Construction Contracts and certain other contracts with an Independent Contractor.
Contractor shall mean a licensed contractor (other than Manager) engaged with respect to the development of all or any portion of the Project pursuant to a Construction Contract.
Control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, equity interests or by contract. The terms Controlling and Controlled shall have the meanings correlative thereto.
Corporate Team shall mean the individuals selected by the CEO to perform the senior management functions, which management functions are identified on Exhibit A , and any replacements thereof or changes thereto made in accordance with this Agreement. For the sake of clarification, in no event shall the CEO be deemed a member of the Corporate Team for purposes of this Agreement.
CPI Index shall mean the California Consumer Price Index for All Urban Consumers, All Items (1982-84=100), issued and published by the Bureau of Labor Statistics of the United States Department of Labor, or a successor substitute index, appropriately adjusted, as reasonably determined by Owner, if such Consumer Price Index is not available.
CPI Index Factor shall mean the fraction, expressed as a percentage, the numerator of which fraction is (i) the CPI Index published for the October period of the Fiscal Year immediately preceding the Fiscal Year for which the calculation is being made (the Prior Year CPI Period ), minus (ii) the CPI Index published for the October period one year prior to the Prior Year CPI Period (the Base CPI ), and the denominator of which is the Base CPI.
Disinterested Sellers shall have the meaning set forth in the definition of Non-Affiliate Property Transfer.
Documents shall have the meaning set forth in Section 5.1(b) .
Due Care shall mean the standard of care required of Manager in performing the Manager Services hereunder. Due Care shall require Manager to use its commercially reasonable skill and judgment to perform in good faith the Manager Services (i) in the best interests, and for the benefit, of Owner, within the scope of Managers authority granted hereunder, and (ii) with the care, skill, prudence and diligence (including diligent inquiry) under the circumstances then prevailing that a prudent asset manager of a company experienced in such matters would use in the management of assets similar to the Property for its own account. The Parties acknowledge and agree that the use of Due Care shall not require Manager to expend any amounts not Consistent with the Approved Business Plan, unless (a) Approved by Owner and approved by Manager or (b) expressly provided for in this Agreement, nor shall it be construed to guaranty that any particular result can or will be achieved.
EC Consent shall have the meaning set forth in Section 2.5 .
Effective Date shall have the meaning set forth in the introductory paragraph.
4
Entitlements shall mean all land use entitlements, permits and rights to develop the Property, whether or not granted and perfected as of the Effective Date, that either exist as of the Effective Date or are contemplated by the Approved Business Plan, including any remaining entitlements, permits and rights necessary to implement and perfect the Existing Entitlements, all as from any and all Governmental Authorities under all applicable zoning and land use restrictions and requirements and all other Laws.
Entity shall mean a firm, corporation, partnership, limited liability company, association, trust or other legal entity.
Event of Default shall mean a default under any Loan Documents then in effect that has continued beyond the expiration of any applicable notice, cure or grace period (if any).
Exchange Act shall have the meaning set forth in Section 2.1(c) .
Excess shall have the meaning set forth in Section 7.4(a) .
Executive shall have the meaning set forth in the JV Agreement.
Executive Committee shall have the meaning set forth in the JV Agreement.
Existing DMA shall have the meaning set forth in the second Whereas clause.
Existing Entitlements shall mean all Entitlements in effect as of the Effective Date.
Family Member shall mean each, and Family Members shall mean more than one, of the spouse, parent, grandparent, child (natural or adopted), a spouse of any such child, grandchild and/or a lineal descendant of any of the foregoing.
First Renewal Term shall have the meaning set forth in Section 6.1(b) .
First Renewal Term Modification shall have the meaning set forth in Section 6.1(b) .
Fiscal Year shall mean each yearly period (beginning January 1 and ending December 31).
Force Majeure shall mean any delays due to: (i) labor strikes, lockouts or other labor disturbances or shortages; (ii) acts of God (including tornados, floods, earthquakes and hurricanes), fires, accidents and other casualties not caused by Manager; (iii) governmental restrictions, enemy action or civil commotion; (iv) fire or explosion; (v) unavoidable casualty; (vi) unusual delays in transportation, embargos, shortages or unavailability of materials, supplies, equipment and/or systems (unless such shortage is caused by, or results from, any action or inaction of Manager or any of its Affiliates); (vii) adverse abnormal weather conditions, power outages; (viii) acts of terrorism (including bio-chemical attacks), war, sabotage, vandalism, civil disturbances, insurrections or riots; (ix) any cause or circumstance resulting in delays, stoppage or any other interference caused by other Persons (other than the Affiliates of Manager) beyond Managers reasonable control; (x) any Claims other than Claims commenced or sponsored by Manager or any of its Affiliates and Claims resulting from Managers gross negligence, willful misconduct or breach of this Agreement; (xi) the failure of or delay by Owner (other than failures or delays caused by, or at the direction of, Manager) to take any action pursuant to this Agreement, including any cooperation, consent, approval, funding, payment, action or execution described herein, including with respect to (1) the Entitlements in accordance with the terms of this Agreement, (2) the Approved Budget or (3) the Approved Business Plan; (xii) the Bankruptcy of any Lender, Owner or the Joint Venture; (xiii) the Bankruptcy, acts or omissions of and/or delays by any Contractor, Subcontractor or Independent Contractor; (xiv) the acts or omissions of and/or delays by Governmental Authorities, any Lender (including any failure or delay in providing funds) or other Third Parties in each case beyond Managers reasonable control, (xv) Laws or other legal requirements enacted by any Governmental Authority after December 29, 2010 that could not be reasonably anticipated by Manager; (xvi) judicial or governmental orders or final judgments entered by courts of competent jurisdiction relating to the Entitlements; (xvii) material adverse changes after December 29, 2010 in U.S., world or applicable state real estate
5
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 any similar acts or events; or (xviii) any other delays that constitute any Force Majeure Event (as defined in any of the Loan Documents) or any analogous term in any Loan Documents in effect on the date of determination.
GAAP means generally accepted accounting principles set forth in the Accounting Standards Codification of the Financial Accounting Standards Board in effect from time to time, consistently applied.
GAAP Exceptions shall mean the lack of footnotes required under GAAP and, with respect to interim financial statements, the lack of normal year end and other adjustments to such interim financial statements.
Governmental Authority or Governmental Authorities shall mean the United States of America, the State of California, the County of Orange, the City of Irvine, and any agency, 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 the Property or any portion thereof.
Haddad shall mean Emile Haddad.
Incentive Compensation shall have the meaning set forth in Section 4.4 .
Independent Contractor shall mean any Architect, consultant, supplier or other independent consultant or independent contractor who is party to a contract with Owner (or any Contracting Subsidiary) in respect of the Project, other than a Contractor or Manager.
Initial Term shall have the meaning set forth in Section 6.1(a) .
Involuntary Property Transfer shall mean a Property Transfer by foreclosure, deed in lieu of foreclosure, short sale, or similar transaction, or in connection with a Bankruptcy of Owner, in each case where Available Cash resulting from such Property Transfer, if distributed by the Joint Venture to the Members in accordance with the terms of the JV Agreement, would not result in any Incentive Compensation Distributions to Manager under this Agreement and where no Incentive Compensation has been paid or is payable prior to the date of such Property Transfer.
Joint Venture shall mean Heritage Fields LLC, a Delaware limited liability company. The Joint Venture is the sole member of the sole member of Owner.
JV Agreement shall mean that certain Fourth Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of April 21, 2017.
Key Members shall mean the members of the Corporate Team who, at the time in question, perform the functions of Chief Executive Officer, Chief Financial Officer and Chief Legal Officer.
Laws shall mean all applicable federal, state and/or local statutes, case law, rules, regulations, ordinances, codes and the like which are in full force and effect from time to time and affecting or binding on the Property, the Project or the performance by Manager of the Manager Services.
LBHI Participation Agreement means that certain Option for Cash Flow Participation Agreement dated as of December 29, 2010 between Owner and Lehman Brothers Holdings, Inc. ( LBHI ), which has been assigned to the Joint Venture.
Legacy Incentive Compensation means all Incentive Compensation to the extent such Incentive Compensation is attributable to payments under the LBHI Participation Agreement.
6
Lender shall mean any lender or lenders providing a Loan.
Lender Remedy Event shall mean that the matter in question has resulted in an Event of Default, and, as a result thereof (by itself or together with any one or more other Events of Default) either (i) there has been an Involuntary Transfer or (ii) a receiver has been appointed with respect to all or substantially all of the Property.
Lennar shall mean, collectively or individually as the context requires, Lennar Parent and each of its direct or indirect wholly-owned subsidiaries.
Lennar Parent shall mean (i) Lennar Corporation, a Delaware corporation, (ii) in the event of the merger of Lennar Corporation, a Delaware corporation, with or into any other Entity, the Entity resulting from such merger and (iii) in the event that any Entity acquires all or substantially all of the assets of Lennar Corporation, a Delaware corporation, such acquiring Entity.
Liability Reserve Availability Amount shall mean, at the time in question, (x) seven hundred and fifty thousand dollars ($750,000) less (y) any amounts paid by Manager to Owner in accordance with Section 7.4(b) hereof.
Licensee shall have the meaning given to such term in Section 2.7(a) .
Lien shall mean any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any part of the Property, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanics, materialmens and other similar liens and encumbrances.
Liquidated Damages Payment shall mean a payment in the amount of $5,000,000 (or, during any renewal term, the amount (if any) identified as the Liquidated Damages Payment set forth in the First Renewal Modification Term or the Second Renewal Modification Term, as applicable.)
Loan shall mean any loan in respect of the Property made to Owner or to any Entity or Entities owning (or owning collectively), directly or indirectly, 100% of the equity interests in Owner that is secured by the Property and/or such equity interests.
Loan Documents shall mean the documents evidencing or securing any Loan.
Losses shall have the meaning set forth in Section 7.2(a) .
Manager shall have the meaning set forth in the introductory paragraph.
Manager Authorized Representative shall have the meaning set forth in Section 3.2 .
Manager Liquidated Damages Payment shall have the meaning set forth in Section 6.2(i) .
Manager Partnership shall have the meaning set forth in the introductory paragraph.
Manager Services shall mean any and all duties and obligations of Manager under this Agreement.
Members shall have the meaning set forth in the JV Agreement.
Non-Affiliate Property Transfer is a Property Transfer where (i) there are one or more Persons at the time of such Property Transfer holding in the aggregate, directly or indirectly, twenty-five percent (25%) or more of all Percentage Interests (as defined in the JV Agreement) in the Joint Venture none of whom is an Affiliate of the transferee of such Property Transfer (such Persons collectively, the Disinterested Sellers ) and (ii) the Disinterested
7
Sellers are not receiving any consideration in exchange for consenting to such Property Transfer beyond their share(s) of proceeds from such Property Transfer, or other consideration received by Owner or the Joint Venture, that are distributed by the Joint Venture in accordance with the terms of the JV Agreement.
Non-Legacy Incentive Compensation means all Incentive Compensation, other than Legacy Incentive Compensation.
Operating Company shall have the meaning set forth in the introductory paragraph.
Operating Company Guaranty means the guaranty attached hereto as Exhibit C executed by the Operating Company.
Owner shall have the meaning set forth in the introductory paragraph.
Owner Authorized Representative shall have the meaning set forth in Section 3.2 .
Owner Decisions shall have the meaning set forth in Section 2.4 .
Owner Liquidated Damages Payment shall have the meaning set forth in Section 6.2(i) .
Party or Parties shall have the meaning set forth in the introductory paragraph.
Permitted Encumbrances shall mean (i) any Lien for taxes and assessments (or any installment of an assessment that may be paid in installments) not yet due and payable, or being contested in good faith, (ii) any Liens that secure indebtedness that are Approved by Owner (including any Liens in favor of any current Lender), (iii) mechanics, carriers, workers, repairers, materialmens, warehousemens and other similar statutory Liens arising or incurred in the ordinary course of the Owners business, provided that Manager is using Due Care to promptly remove such Liens; (iv) any Liens which do not and are not reasonably expected to materially delay or increase the cost of development of the Property in a manner not contemplated by the Business Plan; (v) all Liens required by any Governmental Authority in connection with any Entitlements or by any utility provider in connection with the development of the Property; (vi) all pre-printed exclusions from coverage under a standard policy of owners title insurance as promulgated by the American Land Title Association except to the extent the same are removable upon delivery of a commercially-reasonable title affidavit, to the extent not otherwise addressed in items (i) through (v) above; and (vii) all exceptions listed on Schedule B of Owners title insurance policy, to the extent not otherwise addressed in items (i) through (vi) above; and (viii) any Lien existing on December 29, 2010; provided , however , that in no event shall any of the items described in clauses (i)-(viii) of this definition constitute Permitted Encumbrances to the extent any such items are not permitted under the Loan Documents.
Person or Persons shall mean any natural person or Entity.
Prior Year CPI Period shall have the meaning set forth in the definition of CPI Index Factor.
Project shall mean the development of the Property Consistent with the Approved Business Plan.
Project Team shall mean the individuals designated by Manager to perform the Manager Services, and any replacements thereof or changes thereto made in accordance with this Agreement, all of which is consistent with the Project Team Budget.
Project Team Budget shall mean a budget for the Project Team, including salaries, bonuses (which Owner acknowledges may increase from Fiscal Year to Fiscal Year), payroll expenses, rent and related occupancy costs, and other administrative expenses with respect, and fairly allocable, to the Project Team, for any applicable Fiscal Year ( Project Team Costs ). In no event shall a Project Team Budget include (i) any projected profit or margin (above actual out-of-pocket costs) for Manager on any Project Team Costs or (ii) any costs allocable to the Corporate Team (other than as otherwise permitted pursuant to an EC Consent or an Approved Budget).
8
Project Team Costs shall have the meaning set forth in the definition of Project Team Budget .
Project Team Reimbursements shall have the meaning set forth in Section 4.2(b) .
Property shall mean, as of any date, the various properties and other assets owned or leased by Owner. For the sake of clarification, the term Property shall be deemed modified from time to time to reflect any property and assets acquired or disposed of by Owner from time to time after December 29, 2010.
Property Transfer shall mean the sale, conveyance, exchange or other transfer of all or substantially all of the Property (whether voluntarily or involuntarily) or a Transfer of all or substantially all of the ownership interests in Owner (whether voluntarily or involuntarily).
Reminder Notice shall have the meaning set forth in Section 3.3(c) .
Renewal Term shall mean each of the First Renewal Term or the Second Renewal Term, as applicable.
Renewal Term Matters shall have the meaning set forth in Section 6.1(b) .
Revised Business Plan shall have the meaning set forth in Section 3.3(e) .
Revised Project Team Budget shall have the meaning set forth in Section 4.2(c) .
Second ALA means that certain Second Agreement with City of Irvine as Adjacent Landowner between Owner and the City, dated November 26, 2013.
Second Renewal Term shall have the meaning set forth in Section 6.1(c) .
Second Renewal Term Modification shall have the meaning set forth in Section 6.1(c) .
Subcontractor shall mean any contractor or supplier of any tier providing services or materials to the Project who is party to a contract with Contractor or any other Subcontractor.
Term shall mean the Initial Term as the same may be extended pursuant to Section 6.1 or terminated earlier as provided herein.
Third Party shall mean any Person that is not an Affiliate of Owner, any Member, the Joint Venture, the CEO, Manager or the Manager Partnership.
Transfer shall mean the direct or indirect sale, conveyance, exchange, abandonment, assignment, transfer, or other disposition of direct or indirect equity interests in a Person. For the avoidance of doubt, the definition of Transfer shall not include any collateral assignment, hypothecation, pledge, grant of a security interest or encumbrance of any such direct or indirect equity interests.
TSA shall mean the Transition Services Agreement, dated as of May 2, 2016, by and between Lennar Homes of California, Inc. and the Operating Company, as amended from time to time.
Voluntary Property Transfer shall mean any Property Transfer that is not an Involuntary Property Transfer.
Working Capital shall mean funds which are reasonably necessary for the day-to-day operation of the Property.
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ARTICLE II
ENGAGEMENT OF MANAGER AND MANAGER SERVICES
Section 2.1 Development Functions .
(a) Subject to the terms and conditions of this Agreement, Owner hereby engages Manager as an independent contractor and grants to Manager the right and authority necessary to perform the Manager Services Consistent with the Approved Business Plan (including the Approved Budget set forth therein).
(b) Manager shall use Due Care in performing all Manager Services. So long as Manager uses Due Care in the performance of the services required hereunder to achieve a particular result or to perform a particular service but, notwithstanding Managers Due Care, such result is not achieved or such service is not performed, such lack of achievement or performance shall not in and of itself constitute a breach by Manager of any of the Manager Services or this Agreement. The absence of the modifier Due Care in any provision hereof (or portion thereof) is for convenience and ease in reading and is not to be interpreted as creating a lesser or greater duty or responsibility than that of Due Care with respect to any and all Manager Services. Manager acknowledges that it shall have no authority to act on behalf of Owner except as expressly provided pursuant to the terms hereof or as otherwise Approved by Owner.
(c) The Parties acknowledge and agree that the duties of, and services to be performed by, Manager pursuant to this Agreement are intended to apply solely to Owner as a private Entity that is not subject to any reporting requirements under the Securities Exchange Act of 1934, as amended (the Exchange Act ). In the event that, for any reason, whether intentional or inadvertent, Owner becomes subject to reporting requirements pursuant to Section 13 or 15(d) of the Exchange Act (or any successor provision of any statute, rule or regulation having substantially the same effect as either of such sections), Owner and Manager shall negotiate in good faith to determine and agree upon (i) any reasonable additional reporting and other additional duties of Manager in connection with such additional requirements; (ii) the additional time and, to the extent necessary, members of the Project Team that are needed to perform such additional services; and (iii) any additional fees that will be paid to Manager to compensate Manager for the additional time and costs for Manager to perform such additional services. In addition, to the extent the scope of the Project is materially increased from that contemplated in the Approved Business Plan as of the Effective Date, Owner and Manager shall negotiate in good faith to determine and agree upon (i) the addition of, or reduction in, the duties of Manager in connection with any such material change in scope, (ii) any additions to the Project Team and the Corporate Team that are necessary to perform such material change in scope and (iii) any increase in the Base Fee and/or the Approved Project Team Budget that are necessary to pay for such material change in scope. In no event shall any matter that is subject to the negotiation of Owner and Manager under this Section 2.1(c) be modified in connection with Owner becoming subject to any reporting requirements under the Exchange Act or any material increase in the scope of the Project unless and until all of the foregoing has been Approved by Owner and approved by Manager.
(d) Manager represents and warrants to Owner that it has obtained all licenses required by Law and/or Governmental Authorities in order to perform the Manager Services. Manager hereby covenants with Owner that it will maintain the same for as long as this Agreement is in effect and that, from and after the Effective Date and for so long as this Agreement is in effect, it will maintain all other licenses required by Law and/or Governmental Authorities.
Section 2.2 Acceptance of Engagement . Manager hereby accepts the engagement described in this Agreement and agrees to act as an independent contractor of Owner and, subject to the further terms and conditions more particularly set forth herein, to use Due Care to perform (or cause to be performed) the Manager Services Consistent with the Approved Business Plan (including the Approved Budget), in accordance with Laws and the requirements of any Governmental Authorities, and in accordance with the terms of this Agreement (including the limitations imposed by Section 2.4 ), including the following services:
(a) oversee and direct the development of the Project in accordance with the Existing Entitlements and make recommendations from time to time to Owner for modifications to the Existing Entitlements which it believes are in the best interest of Owner;
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(b) [intentionally omitted];
(c) cause the CEO, the Corporate Team and the Project Team to devote attention to the Project in accordance with the requirements set forth in this Agreement (including Section 3.5 ) ;
(d) develop, manage, operate, manage the administration of any financing secured by, and maintain the Property and the Project, and comply with the appropriate Governmental Authorities regarding applicable building codes, environmental, traffic flow, zoning and land use and other Laws relating to the development of the Project and management of the Property;
(e) subject to Section 2.1(d) , secure or cause to be secured (with the cooperation of Owner), all necessary governmental permits, licenses, certificates, approvals and authorizations necessary to perfect and maintain the Existing Entitlements and (if applicable) perfect and maintain any additional Entitlements obtained from time to time;
(f) manage the procurement of goods and services, and enter into contracts, as agent for the Owner or, in the case of Construction Contracts and certain other contracts with Independent Contractors designated by Owner, cause certain employees of Manager to agree to become officers of a Contracting Subsidiary, and, acting in such officer capacity (a Contracting Officer Capacity ), enter into contracts on behalf of such Contracting Subsidiary subject to the terms of this Agreement and the organizational documents of such Contracting Subsidiary, in either case using competitive bidding processes for contracts anticipated to have an aggregate contract price of Five Million Dollars ($5,000,000) or more; provided , however , Manager may accept a bid price that is not the lowest bid price without the Approval of Owner if (i) the accepted bid is for Fifteen Million Dollars ($15,000,000) or less, (ii) the accepted bid price is Consistent with the Approved Business Plan, (iii) the Person who submitted the accepted bid is not an Affiliate Party of Manager, Owner, the Joint Venture or any Member and (iv) Manager provides prior notice, containing a brief explanation as to Managers rationale for not accepting the lowest bid, to Owner; provided , further , that upon Managers presentation of reasonable and appropriate evidence to the Owner Authorized Representative evidencing that Manager has sufficient market knowledge with respect to the goods or services that are the subject of such bid, Manager may accept a bid that is not the lowest bid without complying with the immediately preceding proviso clause, provided that the Owner Authorized Representative consents thereto (which consent shall not be unreasonably withheld) and the accepted bid price is Fifteen Million Dollars ($15,000,000) or less and is Consistent with the Approved Business Plan. If Manager enters into any document, instrument or agreement on behalf of Owner, it shall execute such document, instrument or agreement as agent for Owner. Notwithstanding anything to the contrary in this Agreement, in no event shall Manager be required to (I) enter into any document, instrument or agreement on behalf of Owner, (II) enter into any such contracts, documents and agreements in its own name (other than the Loan Documents to which it is a party and other than such other documents where the context clearly requires Manager (and not Owner or a Contracting Subsidiary) to be the party thereto), (III) execute or enter into any Loan Document as agent for Owner or certify (or performing a similar function) in writing which is delivered to Lender as to any information provided by Owner to Lender, unless such certificate or document clearly and expressly provides that it is provided solely to and for the sole benefit of Owner and may not be relied upon by any other Person, including Lender, regardless of whether such certification and the delivery thereof by Owner to Lender is required under the applicable Loan Documents; or (IV) act as a general contractor in connection with the Project. Nothing in the foregoing shall derogate from the obligations of the officers of any Contracting Subsidiary to execute documents in a Contracting Officer Capacity on behalf of a Contracting Subsidiary in accordance with Section 2.7 . Owner acknowledges that certain Manager Services may be performed by Lennar pursuant to the TSA. Manager shall not materially increase the scope of Manager Services performed by Lennar other than with respect to any administrative or other back office services, without the Approval of Owner, which Approval shall not be unreasonably withheld, conditioned or delayed.
(g) maintain title to the Property free and clear of any and all Liens other than Permitted Encumbrances and remove, satisfy and/or discharge of record (or cause to be removed, satisfied and/or discharged of record) as soon as practicable (and in any event prior to the same ripening into an Event of Default) any such Liens (other than Permitted Encumbrances) that are filed against the Property notwithstanding Managers Due Care efforts to the contrary;
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(h) subject to the terms of this Agreement, retain on Owners behalf (or, in the case of a Contracting Subsidiary, through the Managers employees acting in a Contracting Officer Capacity, engage (to the extent permitted by the organizational documents of such Contracting Subsidiary)) all Independent Contractors necessary and appropriate to inspect, test and evaluate the Property; arrange for and review each Architects preparation of, all plans and revisions thereto for the Project and submit the same for Approval by Owner, and arrange for and review surveys, engineering reports, environmental assessments, property condition reports, soils and structural reviews, historic evaluations and any similar documents for, and to facilitate the pre-development and development of, the Property and the Project, and coordinate all such parties and recommend to Owner, based upon consultation with any Contractor or Independent Contractor any required special testing;
(i) coordinate and supervise all phases of the construction and development of the Project including (1) reviewing and monitoring construction schedules for the Project or any portion thereof approved by Lender and facilitate the orderly processing of construction and completion thereof in accordance therewith, (2) reviewing all requests for change orders from each Contractor, Independent Contractor and Subcontractor, (3) reviewing all requests for payment from any Contractor or Independent Contractor and submit the same for Approval by Owner to the extent not Consistent with the Approved Business Plan and comply with any requirements of any Lender with respect thereto, (4) reviewing all materials prepared and submitted to Owner by any Contractor or Independent Contractor, (5) reviewing, monitoring and coordinating the resolution of all contract claims, and (6) acting as the representative of Owner as construction manager in dealing with all Contractors, Independent Contractors and Subcontractors.
(j) negotiate or supervise the negotiation with all applicable utility companies, whether public or private, for the utility service to be provided to the Property for the installation of all utility equipment in connection therewith;
(k) monitor on a regular and continuing basis the cost of materials, labor, equipment and other items used in the planning, development, operation, construction, maintenance and marketing of the Property or any portion thereof, Consistent with the Approved Business Plan and, where increases in costs will cause the applicable line item in the Approved Budget to be exceeded, make recommendations to Owner as to the most appropriate method of limiting the effect of such cost increases;
(l) with respect to any Loan, (1) consult with and keep reasonably informed the Lender as to the status of the Project, the Property and/or Owner; (2) consult with any construction consultant selected by any such Lender, and (3) prepare and submit to Owner for Owners Approval and, if applicable, its execution and delivery, so that Manager can deliver to Lender any and all periodic statements or other documents required to be submitted in connection with any Loan or any disbursement requests thereunder or otherwise;
(m) establish a procedure for making payments due from Owner to any Contractor and the Independent Contractors in order to review, verify and make progress payments to the same; for approving of all bills and expenditures and paying and discharging all costs, expenses, liabilities and obligations on behalf of Owner, subject to any requirements under the Loan Documents and supervise the disbursement of each Loan for the payment of any Contractor and Independent Contractor;
(n) procure insurance for Owner and the Property through an agent Approved by Owner in its reasonable discretion, pursuant to the provisions of Article VII , require that all Contractors, Subcontractors and Independent Contractors maintain such insurance as Manager reasonably deems necessary to the extent such insurance is customarily maintained by such parties with respect to assets similar to the Property and review, monitor and coordinate the resolution of all insurance claims;
(o) retain on Owners behalf such accountants Approved by Owner or provided for in the Business Plan as are necessary to comply with the Manager Services, and utilize such accounting and disbursement systems as reasonably Approved by Owner;
(p) collect from each Contractor and deliver to Owner the originals of all permits, licenses, guaranties, warranties, bills of sale and any other contracts, agreements, or commitments obtained or received by any Contractor for the account or benefit of Owner;
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(q) maintain, or cause to be maintained, appropriate security for the Property and the Project;
(r) maintain separate books and records with respect to Owner, all Contracting Subsidiaries and the Property;
(s) administer disputes with Third Parties in respect of the Property;
(t) engage counsel for non-litigation matters (including any non-litigation matters relating to the Entitlements);
(u) engage counsel, subject to the Approval of Owner (except to the extent provided in the immediately preceding subsection above), for any litigation matter, and oversee the management of any such legal matter on behalf of Owner, subject to the Approval by Owner with respect thereto;
(v) collect from any Contractor all operating instructions, manuals, field record information, samples, shop-drawings and product data required to be provided by such Contractor to Owner in connection with the Project;
(w) oversee the public relations effort for the Property as the representative of Owner;
(x) [intentionally omitted];
(y) maintain a continuing relationship and conduct and supervise all dealings with any Governmental Authorities and oversee the governmental relations effort for the Property as the representative of Owner;
(z) oversee the sales and marketing effort for the Property, recommending such advisors and agents for Owner to engage as may be necessary and appropriate and negotiate all sales contracts;
(aa) perform all duties of the Administrative Member (as defined in the JV Agreement) so as not to create any violation of the JV Agreement;
(bb) monitor local commercial market conditions and trends for all commercial product types, including mixed-use developments;
(cc) provide recommendations to Owner on strategy with respect to the Commercial Property, including market timing and appropriate product mix;
(dd) conduct financial feasibility analyses, including land residual market studies, investment return analyses and business planning assumptions for construction costs and rental rates with respect to the Commercial Property;
(ee) provide information, financial analysis and recommendations necessary to update the commercial components of the Approved Business Plan and related financial pro forma as necessary from time to time;
(ff) provide recommendations for a commercial consulting team, including brokers, architects, market experts and other consultants, to assist in development and implementation of the Approved Business Plan with respect to the Commercial Property;
(gg) direct such recommended commercial consulting team in the planning, parcelization, design, marketing and sale of the parcels of Commercial Property;
(hh) recommend procedures for the sale of the Commercial Property pursuant to the Approved Business Plan;
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(ii) coordinate the Commercial Property sale process; providing to Owner information on potential commercial land purchasers, including prior performance and ability to access financing;
(jj) within the Approved Business Plan and other land sale program parameters, and subject to requisite approvals by Owner, negotiate purchase and sale agreements for sale of Commercial Property; and
(kk) provide strategy, financial analysis, recommendations and reports pertaining to the Commercial Property as may be requested from time to time by Owner for Executive Committee actions.
Section 2.3 Intentionally Omitted .
Section 2.4 Owner Decisions . Except to the extent expressly provided to the contrary in this Agreement (but without expanding the scope of Managers authority under the other provisions of this Agreement), Manager shall take no action, expend any sum, make any decision, or incur any obligation respect to any matter within the scope of the actions enumerated below (the Owner Decisions ) without Approval by Owner:
(a) taking any action, expending any sum, making any decision or incurring any obligation not Consistent with the Approved Business Plan, including the Project Team Budget which is part of the Approved Business Plan;
(b) acquiring any additional land or interest therein on behalf of Owner or any Contracting Subsidiary (other than right of way acquisitions for the construction of backbone improvements, boundary line adjustments and/or exchanges of land with the City of Irvine that are contemplated in written agreements approved by Owner, such as those contemplated under the Amended and Restated Development Agreement and the Second ALA), entering into any lease or other agreement granting rights to occupy all or any portion of the Property and/or the Project (whether as the lessor/grantor or lessee/grantee) other than temporary license or lease agreements (such as agricultural leases or access licenses) that are terminable when necessary to allow Owner to develop the areas subject to any such lease or license;
(c) undertaking any of the following but only to the extent it requires a discretionary approval or is not otherwise contemplated in the Approved Business Plan: entering into any written agreement with a Governmental Authority on behalf of Owner or any Contracting Subsidiary, entering into any written amendment or modification thereto or to any existing written agreement with a Governmental Authority (including the Amended and Restated Development Agreement and the Amended and Restated Master Implementation Agreement), entering into any written modification to the Existing Entitlements, or accepting in writing any mitigation measures or conditions or requirements of approval imposed by any Governmental Authorities in connection therewith;
(d) entering into, or entering into any modification or amendment of, any Loan Document on behalf of Owner or any Contracting Subsidiary or taking any action prohibited by any Loan Document;
(e) any matter requiring the Approval of Owner under this Agreement;
(f) mortgaging or the placing of any other encumbrance on the Property or any portion thereof except for Permitted Encumbrances;
(g) selling or Transferring, or entering into of any agreement to sell or Transfer, all or any portion of the Property (in the case of a sale) or all or any portion of any direct or indirect equity interest in Owner or any Contracting Subsidiary (in the case of a Transfer);
(h) instituting any legal action on behalf of Owner, any Contracting Subsidiary or the Joint Venture; settling any claims, suits, debts, demands or judgments against Owner, any Contracting Subsidiary or the Joint Venture in excess of Fifty Thousand Dollars ($50,000); or retaining any counsel for Owner, any Contracting Subsidiary or the Joint Venture for litigation matters;
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(i) constructing any improvements or the making of any capital improvements in, to or of the Property or the Project or any portion of either except to the extent Consistent with the Approved Business Plan;
(j) performing any act or conducting any transaction with respect to the Property or the Project outside the ordinary course of Managers duties under this Agreement or otherwise prohibited hereunder;
(k) any matter under Article VI expressly requiring the Approval by Owner;
(l) subcontracting of any duties by Manager under this Agreement; provided that (i) nothing in the foregoing shall be interpreted so as to prevent Manager from engaging any Third Party independent contractors with a particular area of expertise in order to assist Manager in performing any of the Manager Services requiring such expertise and (ii) to the extent the costs and expenses of engaging any such Third Party independent contractor are borne by Owner, such engagement is Consistent with the Approved Business Plan; and
(m) entering into any agreement with respect to the Property or the Project or any portion of either with an Affiliate Party of Manager or with any Member or an Affiliate Party of any Member, except for any agreement expressly approved hereunder.
Section 2.5 Owner Approval . Approved by Owner or Approval by Owner or words of similar import or any matter or thing in this Agreement requiring Owner to make a determination, approval or consent (or word or words of similar import) shall mean the approval by the Executive Committee in a writing and executed by the Executive Committee or at a meeting held in accordance with the provisions of the JV Agreement in advance of the matter, thing or action requiring such determination, approval or consent, and any action so taken by the Executive Committee shall be binding on Owner and any Contracting Subsidiary for all purposes. For purposes of clarification, the execution of such written instrument by the Executive Committee shall mean the execution of such written instrument by the requisite Executives in accordance with the requirements of the JV Agreement (hereinafter, an EC Consent ). Unless the term reasonable is used herein with respect to the Approval or determination (or, in each case, a word or words of similar import) by Owner or the determination, approval or consent (or, in each case, a word or words of similar import) by Manager of a particular action or decision, such Party shall have the right in its sole and absolute discretion to withhold its Approval or approval, as applicable, of such action or decision with respect to which its Approval or approval, as applicable, is required. In furtherance of the foregoing, the Parties acknowledge and agree that prior to the Effective Date, the Executive Committee adopted several EC Consents some of which approved and/or clarified certain Owner Decisions, all of which remain in full force and effect and are not superseded or nullified by this Agreement.
Section 2.6 Communication with Government Officials and Contractors . Provided that no Event of Default and no default (beyond any applicable notice or grace period) under any documents evidencing the Existing Entitlements (including the Amended and Restated Development Agreement and the Amended and Restated Master Implementation Agreement) shall then exist, Owner covenants and agrees that it shall not (a) enter into any conversations with contractors and consultants involving material substantive discussions with respect to the Project; or (b) enter into any conversations with governmental officials involving substantive discussions with respect to the Project or which would have the effect of undermining in any material respect Managers ability to effectively represent Owner before governmental officials. Owner agrees that a breach of the covenant in clause (b) of this Section 2.6 shall constitute a material breach of this Agreement. In the event of a breach of either of the foregoing covenants, if Manager has the right, as a matter of Law, to terminate this Agreement as a result of such breach, and if Manager in fact terminates this Agreement, Manager shall have all rights and remedies available under Law or in equity in respect of a breach by Owner of the covenants set forth in this Section 2.6 .
Section 2.7 Contracting Subsidiary .
(a) A Contracting Subsidiary has been formed with the intent that it and/or Owner shall enter into Construction Contracts and certain other contracts with Independent Contractors. Manager agrees to provide one of its employees who has (and Manager represents, warrants and covenants that such employee has), a general contracting license and/or a general engineering contracting license (collectively, a Contracting License ) who has agreed to permit and qualify the Contracting Subsidiary to utilize his Contracting License (and any such employee (or any other individual) who permits a Contracting Subsidiary to utilize his or her Contracting License, a
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Licensee ) so that, after complying with all procedures required under California Law for a Licensee to qualify an Entity to utilize the Licensees Contracting License, such Contracting Subsidiary can, in compliance with Law, enter into Construction Contracts; provided , however , that if Manager does not employ a Licensee, Manager shall use its commercially reasonable efforts to identify and, if one is not then employed by Manager, employ or engage another individual with a Contracting License to act as Licensee. Owner agrees to appoint (or to cause such Contracting Subsidiary to appoint) Licensee as an officer of such Contracting Subsidiary so that (i) Licensee will be a Responsible Managing Officer (as defined under applicable California Law) and (ii) such Contracting Subsidiary can, after compliance with all procedures required by Law, lawfully be qualified for and utilize his or her Contracting License to enter into Construction Contracts. Owner and Manager agree to cooperate with one another to appoint CEO and/or one or more additional employees of Manager as officers of such Contracting Subsidiary in order to facilitate the execution and delivery of Construction Contracts and such other contracts with Independent Contractors. Manager agrees to provide a substitute employee to act as Licensee if at any applicable time the existing Licensee no longer holds a Contracting License, is no longer employed by Manager or no longer agrees to act as Licensee ( provided , however , that if, at the time in question, Manager does not employ an individual with a Contracting License who agrees to act as Licensee, Manager shall use commercially reasonable efforts to identify and engage another individual with a Contracting License to act as Licensee).
(b) The organizational documents of the Contracting Subsidiary shall impose restrictions on the authorization of the CEO and/or such other employees of Manager who are appointed as officers of such Contracting Subsidiary to enter into Construction Contracts and any other applicable contracts with an Independent Contractor (and without derogating from any act, matter or thing requiring Approval of Owner in accordance with the terms hereof), which restrictions shall be Approved by Owner, which Approval shall not be unreasonably withheld, conditioned or delayed. Owner shall have the right (or shall grant such to the Contracting Subsidiary the right), in its or their sole and absolute discretion, to remove any officers of the Contracting Subsidiary for any reason or no reason in its or their sole and absolute discretion.
(c) Any employees of Manager appointed as officers of any Contracting Subsidiary shall be insured under the same directors and officers liability insurance policies (which shall have commercially reasonable coverage) that it provides to any other officers or directors of any Contracting Subsidiary.
(d) The organizational documents of the Contracting Subsidiary shall provide for standard indemnification of their officers and directors; provided , however , that the scope of any indemnification shall be subject to the carve-outs from Owners indemnification obligations under Section 7.2(a) and Manager shall be obligated to indemnify the Contracting Subsidiary on the terms and conditions set forth in Section 7.2(b) , including the limitations set forth in Section 7.4 .
ARTICLE III
IMPLEMENTATION AND RESTRICTIONS
Section 3.1 Cooperation of Owner . Upon request by Manager at any time and from time to time, Owner shall furnish Manager with any and all information and documents reasonably available to Owner and required by Manager to perform the Manager Services.
Section 3.2 Authorized Representatives . The CEO shall represent Manager and act as its exclusive representative for all purposes hereunder (the Manager Authorized Representative ). Alan Epstein shall represent Owner and act as its exclusive representative for the expressly enumerated purposes hereunder (the Owner Authorized Representative ). The Owner Authorized Representative shall coordinate matters requiring Approval by Owner under this Agreement, and Manager shall be entitled to rely on any notice from the Owner Authorized Representative that any action, thing or matter has been Approved by Owner. Either Party may at any time and from time to time remove, replace or otherwise change the identity of the Manager Authorized Representative or the Owner Authorized Representative, as applicable, by giving notice to the other. Effective upon delivery of such notice, references to the Manager Authorized Representative or the Owner Authorized Representative, as the case may be, shall mean such replacement.
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Section 3.3 Approved Business Plan .
(a) [Intentionally omitted].
(b) In addition to the review of the Approved Business Plan contemplated in Section 3.3(e) below, on or before November 1 of each Fiscal Year, Manager shall prepare and deliver to Owner for review and Approval by Owner an updated Business Plan (including a new Annual Budget) for the immediately succeeding Fiscal Year. Each such Annual Budget shall contain the type of information set forth in the Approved Budget that is attached as an exhibit to the Approved Business Plan for Fiscal Year 2017, except to the extent such information is no longer applicable.
(c) Such Business Plan shall be subject to the review and Approval by Owner and Owner shall provide Manager with any objections to such Business Plan in writing, in reasonable detail, within thirty (30) days after delivery thereof by Manager. If Owner does not provide its Approval or written objections within such thirty (30) day period, and Manager gives notice (the Reminder Notice ) to Owner of such failure by Owner, then, if Owner still does not provide its Approval or written objections within twenty (20) days following delivery of such Reminder Notice, Owner shall be deemed to have objected to such Business Plan as submitted by Manager. If Owner has any objections to such Business Plan, Owner and Manager shall meet or speak within fourteen (14) days following Managers receipt of Owners objections and shall discuss any objections made by Owner, and Manager shall submit within seven (7) days after such discussion, written revisions to such Business Plan following such discussion. Such Business Plan, as modified to reflect the revisions Approved by Owner, shall become, upon such Approval by Owner, the Approved Business Plan for the next Fiscal Year. The Business Plan shall be prepared by Manager based on its good faith assumptions, estimations and projections. 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 Owner to achieve any projected results in any Approved Business Plan. The Approved Business Plan for each Fiscal Year shall supersede in its entirety the Approved Business Plan for the immediately preceding Fiscal Year.
(d) During each Fiscal Year during the Term, Manager shall adhere to, and not exceed, the Approved Budget with respect to the expense items set forth therein for such Fiscal Year; provided that Manager shall be permitted, at any time and from time to time, to deviate from the Approved Budget for expenditures or obligations involving amounts Consistent with the Approved Budget and as permitted pursuant to Section 3.4 and, accordingly, all references in this Agreement with respect to Manager making or causing Owner to make expenditures that are within (or words of similar meaning) the Approved Budget that do not expressly permit such expenditures to be made Consistent with the Approved Business Plan shall be deemed to permit Manager to make or cause Owner to make expenditures that are Consistent with the Approved Business Plan.
(e) At each quarterly meeting of the Executive Committee contemplated under the JV Agreement, Manager shall review with Owner the status of the operations of the Project and its consistency with the Approved Business Plan, including whether Manager recommends any changes to the then-Approved Business Plan. Additionally, if at any time during the then current Fiscal Year Manager shall, in the performance of the Manager Services, determine that the Approved Business Plan relating to such Fiscal Year is no longer appropriate, in whole or in any material part, for any reason, Manager shall submit to Owner an amendment to or a revision of the Approved Business Plan (the Revised Business Plan ). Owner shall give its Approval or a written disapproval (and in the case of disapproval, specifying in reasonable detail its objections in accordance with Section 3.3(c)) of the proposed Revised Business Plan. If Owner does not give its Approval or written disapproval and Manager gives the Reminder Notice to Owner, then Owner shall give Approval or written disapproval (and in the case of disapproval, specifying in reasonable detail its objections in accordance with Section 3.3(c)) ; provided that if Owner still has not provided Approval or written disapproval within twenty (20) days after delivery of the Reminder Notice, Owner shall be deemed to have objected to such proposed Revised Business Plan as submitted by Manager.
(f) Owner and Manager agree that the Approved Business Plan for Fiscal Year 2017 shall govern unless and until it is superseded by a subsequent Business Plan Approved by Owner. Thereafter, if, despite the good faith efforts of Owner and Manager, there is no (i) Approved Business Plan by January 1 of the applicable Fiscal Year (i.e. by January 1, 2018 for Fiscal Year 2018) or (ii) Revised Business Plan Approved by Owner on or prior to the sixtieth (60th) day after Manager first submitted such Revised Business Plan, then those portions of the proposed Business Plan or such Revised Business Plan, as the case may be, submitted by Manager for such Fiscal
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Year or balance of such Fiscal Year, as the case may be, that are Approved by Owner shall become effective on January 1 of such Fiscal Year (in the case of a Business Plan) or on the first day of the month immediately following the date of Owners Approval (with respect to a Revised Business Plan). Pending resolution of any disputed item in any proposed Business Plan or Revised Business Plan, the prior Fiscal Years Approved Business Plan (in the case of a proposed Business Plan) or the current Fiscal Years Approved Business Plan (in the case of a Revised Business Plan) shall remain in effect with respect to committed expenditures (including committed capital expenditures) and general overhead expenses.
Section 3.4 Emergencies . Notwithstanding anything contained in Section 3.3 or this Agreement to the contrary, in the event of any emergency condition affecting the Property or Owner, which could reasonably be expected to result in material physical damage to the Property or injury or death to persons located on the Property, and during such occurrence Manager reasonably believes that it is not feasible to contact Owner and obtain the required Approval by Owner for taking certain action in response to such condition in the applicable time frame requiring such action, Manager shall act in a manner intended to mitigate or prevent threatened damage or loss which would result in greater expense to Owner than if no such action was taken and shall be entitled to make expenditures in connection therewith that are not provided in the Approved Budget or otherwise Approved by Owner, without the prior Approval by Owner. In such a case, Manager shall use its good faith efforts to make telephonic contact with the Owner prior to, or as soon as practicable after, taking any actions under this Section 3.4 and thereafter keep Owner reasonably informed of any such actions.
Section 3.5 Employees and Staffing .
(a) Haddad is the current chief executive officer of Manager (the CEO ). Manager shall cause the Project Team to perform the Manager Services and to dedicate all of their normal working hours to the Project (except for certain individuals who will primarily be performing the Manager Services but may also spend time on other matters for Manager, and whose compensation is allocated proportionately as part of the Project Team Budget Approved by Owner). Manager shall cause the Corporate Team to perform the Manager Services described on Exhibit A and to dedicate such time to the Project as required (which may or may not be on a full-time basis) in order to perform such Manager Services.
(b) To the extent Owner, in its reasonable judgment, desires to cause the removal of any member of the Project Team as a result of Owners concerns over such persons degree of skill, professional behavior and/or competency (individually or collectively, as the case may be Competency ), Owner shall first notify Manager in writing, including a detailed explanation of Owners concerns. In such event, unless, in Owners and Managers judgment, the nature and gravity of Owners Competency concerns and the actions of such Project Team member require immediate termination of such Project Team member, Manager shall counsel such Project Team member with respect to Owners Competency concerns and inform the Project Team Member that unless the problem is addressed, the employment of such Project Team member may be terminated. If, after a reasonable period, notwithstanding such counseling (or if Owner and Manager have agreed that such counseling is not required), Owner desires to remove such Project Team member because of such Project Team members lack of Competency, Owner and Manager shall thereafter determine a mutually acceptable resolution to the issue, absent which resolution, Owner shall have the right to require Manager to (in Managers discretion) either terminate the employment of such Project Team member or remove such employee from the Project Team so that such employee is no longer permitted to perform any Manager Services hereunder.
(c) Owner hereby agrees that Manager shall have the right, without Owners Approval, to replace, substitute or reduce the number of the members of the Project Team or the Corporate Team as Manager determines necessary for the continued provision of the Manager Services required hereunder. Manager shall not have the right, without the Approval of Owner, to add any members of the Project Team to the extent such action causes Project Team Costs to not be in accordance with the Approved Business Plan. Manager shall use Due Care to ensure that any replacements, substitutions and/or additions to the Project Team or the Corporate Team have the necessary skill, knowledge, and experience to provide the services required hereunder. Manager hereby agrees that it will provide Owner with notice of any replacements, substitutions, additions or any reductions to members of the Project Team or the Corporate Team made in accordance with this Section 3.5(c) , which notice will include an explanation of how such replacements, substitutions, additions or reductions to the Project Team or the Corporate Team, as the case may be, will continue to have the necessary skill, knowledge, and experience to provide the services required hereunder.
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(d) The CEO, the members of the Project Team and the members of the Corporate Team shall be employees of Manager and not Owner. Subject to Section 2.4 , Manager may engage any other independent contractors (provided that no such independent contractors shall be deemed in any respect to be employees (or independent contractors) of Owner). In addition, Manager shall have the right to engage one or more Independent Contractors or Contractors on behalf of Owner or a Contracting Subsidiary. For the avoidance of doubt, any such Independent Contractors engaged by Manager on behalf of Owner in accordance with the immediately preceding sentence shall be at Owners sole cost and expense, and any Contractor or Independent Contractor engaged by a Contracting Subsidiary shall be at such Contracting Subsidiarys sole cost and expense. The compensation, retention and performance of the CEO, the members of the Project Team, the members of the Corporate Team and any independent contractors engaged by Manager on its own behalf shall be determined by Manager and (subject to Section 4.2 ) payable solely by Manager, provided that in the case of the Project Team and any Independent Contractors engaged by Manager on Owners behalf and expense (or by any Contracting Subsidiarys at such Contracting Subsidiarys cost and expense), compensation shall be Consistent with the Approved Business Plan. Except as permitted in any EC Consents, in no event shall compensation paid by Manager to members of the Corporate Team result in any increase of costs or expenses to Owner (it being agreed and understood that the Base Fee payable pursuant to Section 4.1 shall be Owners sole obligation with respect to compensation of the members of the Corporate Team). Manager shall be responsible for complying with all Laws and regulations and collective bargaining agreements affecting such employment, including the provision at Managers expense of any benefits or compensation required by statute or contract, subject to Owners obligation to pay the Project Team Costs Consistent with the Approved Business Plan.
(e) Manager shall cause CEO to meet with the Owner Authorized Representative and such other Person or Persons Approved by Owner, on a monthly basis (either in person or via telephone) in order to apprise Owner as to the status of the Property and consult with Owner on ongoing strategy relating thereto, including providing or making available to Owner copies of all material correspondence and other material information received by Manager with respect to the Property.
Section 3.6 Minimum Ownership Requirements . At all times during the Term, the Operating Company, together with its successors (including any successor by merger or reorganization) shall (i) own, directly or indirectly, in the aggregate, not less than 20% of the equity ownership interest in Manager, and (ii) maintain Control of Manager.
ARTICLE IV
MANAGERS COMPENSATION AND REIMBURSABLES
Section 4.1 Base Fee . For and in consideration of the services rendered or to be rendered by Manager hereunder, Owner shall, subject to and in accordance with the terms and provisions of this Agreement, pay to Manager during the Term a fee (the Base Fee ) in the following amounts:
(a) For the 2017 Fiscal Year, a Base Fee equal to $513,096.26 per month;
(b) for each subsequent Fiscal Year in the Initial Term, a Base Fee equal to the sum of (x) the Base Fee during the immediately preceding Fiscal Year plus (y) the product of the Base Fee during the immediately preceding Fiscal Year multiplied by the CPI Index Factor;
(c) during the First Renewal Term, if any, a Base Fee in the amount agreed upon by Owner and Manager as set forth in the First Renewal Term Modification; and
(d) during the Second Renewal Term, if any, a Base Fee in the amount agreed upon by Owner and Manager as set forth in the Second Renewal Term Modification.
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Section 4.2 Project Team Budget; Project Team Reimbursements .
(a) Manager has prepared a Project Team Budget for Fiscal Year 2017 that has been Approved by Owner, which is part of the Approved Business Plan for Fiscal Year 2017. In addition to any update that may be a part of a Revised Business Plan presented by Manager in accordance with Section 3.3(e) above or a revised Project Team Budget in accordance with Section 4.2(c) below, on or before November 1 of each Fiscal Year commencing with Fiscal Year 2017, Manager shall prepare and deliver to Owner for its review and approval, a Project Team Budget for the next succeeding Fiscal Year. Such Project Team Budget shall indicate the amount of any increase in each line item as compared to (i) the corresponding line item from the Approved Project Team Budget for the immediately preceding Fiscal Year and (ii) the actual Project Team Costs for the corresponding line item from the immediately preceding Fiscal Year, together with reasonable supporting documentation and an explanation, in reasonable written detail, for each increase and/or decrease. The Project Team Budget shall be subject to Approval by Owner, which approval shall not unreasonably be withheld, conditioned or delayed, and Owner shall provide Manager with any objections thereto in writing, in reasonable detail, within thirty (30) days after delivery thereof from Manager. If Owner does not provide its Approval or such written objections within such thirty (30) day period, and Manager gives notice to Owner of such failure by Owner, then, if Owner still does not provide its Approval or such written objections within twenty (20) days following such second notice, Owner shall be deemed to have objected to such Project Team Budget. If Owner has notified Manager of any written objections to the Project Team Budget, Owner and Manager shall meet or speak within fourteen (14) days following Owners delivery of such notice to Manager and shall discuss any objections made by Owner, and Manager shall submit, within seven (7) days after such discussion, written revisions to the Project Team Budget following such discussion, as modified to reflect the revisions requested by Owner, which Project Team Budget with such revisions shall become the Approved Project Team Budget for the next Fiscal Year. Each Project Team Budget shall be prepared by Manager based on its good faith assumptions, estimations and projections.
(b) During each Fiscal Year, Owner shall pay Manager for the amount of the Approved Project Team Budget, payable in equal monthly installments, in advance (the Project Team Reimbursements ). Within thirty (30) days after written demand by Owner (but not more frequently than two times per Fiscal Year), Manager shall reconcile the actual Project Team Costs for the current Fiscal Year against the then current Project Team Budget for such year.
(c) Each of Owner and Manager shall have the right at any time during any Fiscal Year to request an interim update to the Approved Project Team Budget if it believes actual Project Team Costs will be higher or lower than the amounts set forth in the Approved Project Team Budget. In the event of the exercise of such right by either Party, Manager shall submit to Owner an updated Project Team Budget (a Revised Project Team Budget ) reflecting the revised Project Team Costs for the remainder of such Fiscal Year, together with such reasonable supporting documentation evidencing the basis for its belief that actual Project Team Costs for the balance of such Fiscal Year will be higher or lower than that set forth in the Approved Project Team Budget; provided , that in the case of an Owner request, Manager shall submit such Revised Project Team Budget within ten (10) Business Days after such request by Owner. Owner shall give Approval or written disapproval of the proposed Revised Project Team Budget within sixty (60) days after Manager first submitted such Revised Project Team Budget. If Owner does not give its Approval or written disapproval within such period, and Manager gives notice to Owner of such failure by Owner, then, if Owner still does not provide its Approval or written objections within twenty (20) days following such second notice, Owner shall be deemed to have objected to such Revised Project Team Budget as submitted by Manager.
(d) If, despite the good faith efforts of Owner and Manager, there is no (i) Approved Project Team Budget by January 1 of the applicable Fiscal Year or (ii) Revised Project Team Budget Approved by Owner on or prior to the sixtieth (60) day after Manager first submitted such Revised Project Team Budget, then those portions of the proposed Project Team Budget or Revised Project Team Budget submitted by Manager that have been Approved by Owner shall become effective on January 1 of such Fiscal Year (in the case of a Project Team Budget) or on the first day of the month immediately following the date of Owners Approval (in the case of a Revised Project Team Budget). Pending resolution of any disputed item in any proposed Project Team Budget or Revised Project Team Budget, the Approved Project Team Budget from the immediately preceding Fiscal Year (in the case of a proposed Project Team Budget) or the existing Approved Project Team Budget (in the case of a proposed Revised Project Team Budget) shall govern all items in dispute, except that in the case of a proposed Project Team Budget, the existing Approved Project Team Budget shall be increased by the CPI Index Factor.
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Section 4.3 Intentionally Omitted .
Section 4.4 I ncentive Compensation . In addition to the Base Fee, Manager shall be entitled to incentive compensation ( Incentive Compensation ) in accordance with the incentive compensation provisions set forth on Exhibit B and the further terms and conditions of Section 6.2(f)(3) , Section 6.4(b)(3) , Section 6.5(b)(3) , and Section 6.9(a)(3) . Subject to Article VI , Managers right to Incentive Compensation is hereby deemed vested one hundred percent (100%). In the event of any conflict between this Section 4.4 and Article VI , the terms and conditions of Article VI shall govern and control.
Section 4.5 Costs and Expenses . Unless otherwise expressly provided in this Agreement to the contrary, all costs and expenses that are incurred (i) Consistent with the Approved Business Plan or (ii) otherwise Approved by Owner (including through EC Consents) ((i) and (ii) collectively, Approved Costs ) shall, in each case, be the obligations of Owner and not Manager. To the extent that Owner has not advanced funds to Manager therefor, Owner shall reimburse Manager for all of Managers out-of-pocket Approved Costs. Subject to Owners obligation to advance funds to Manager for Approved Costs or to reimburse Manager for Managers out-of-pocket Approved Costs, all costs and expenses incurred by Manager for the Manager Services, the employment of Managers employees, including the CEO, the Project Team and the Corporate Team, the ownership and operation of Manager and Managers internal administrative and overhead costs and expenses shall be borne solely by Manager.
Section 4.6 Subordination . This Agreement, and the rights of Manager hereunder, are subordinate to the Liens created under any Loan Document executed in connection with any Loan, whether now or hereafter existing; provided that such subordination shall not delay, diminish or otherwise affect the right of Manager to seek performance by Owner of its obligations under this Agreement.
Section 4.7 Manager Organizational Structure; Payment Recipient . Manager represents and warrants to Owner that Manager is the sole general partner of the Manager Partnership. Notwithstanding anything to the contrary herein, Owner, in reliance on such representation and warranty, acknowledges and agrees that (i) Manager, as the sole general partner of the Manager Partnership, is receiving all payments hereunder, including the Base Fee and the Incentive Compensation, pursuant to this Agreement for applicable state regulatory purposes as the licensed Entity, and as nominee for the benefit of the Manager Partnership; and, upon receipt, Manager will immediately remit to the Manager Partnership all such payments hereunder to the Manager Partnership; and (ii) such remission to the Manager Partnership as described in clause ( i ) of this Section 4.7 shall not constitute a breach by Manager under this Agreement. In consideration of Owners agreement to enter into this Agreement with Manager as nominee of the Manager Partnership, Manager and Manager Partnership agree and acknowledge that they shall be jointly and severally liable for and bound by any and all monetary obligations of Manager under this Agreement now existing or hereafter arising, subject to any and all limitations on liability contained herein (including in Section 7.2 and Section 7.4 ).
Section 4.8 Incentive Compensation Assignment . In recognition of previous assignments, Owner shall (i) pay twelve and one-half percent (12.5%) of any Legacy Incentive Compensation that would otherwise have been paid to Manager directly to the Manager Partnership, at the same time and in the same manner as such Legacy Incentive Compensation would have been paid to Manager, and (ii) pay twelve and one-half percent (12.5%) of any Non-Legacy Incentive Compensation that would have been paid to Manager directly to the Operating Company, at the same time and in the same manner as such Non-Legacy Incentive Compensation would otherwise have been paid to Manager. Any amendment of this Section 4.8 or the terms of the Incentive Compensation payable hereunder shall require the prior written consent of the Manager Partnership and the Operating Company.
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ARTICLE V
ACCOUNTING; BUDGETS; TAXES
Section 5.1 Accounting and Financial Services .
(a) Manager shall perform or cause to be performed those accounting and financial services as Owner may reasonably require for Owner to comply with its obligations under the provisions of any applicable Loan Documents and the Cash Flow Participation Agreements.
(b) Manager shall keep proper books and records of all transactions hereunder with respect to the Property and the development and construction of the Project as reasonably required by Owner in accordance with the provisions of any applicable Loan Documents or as otherwise reasonably requested by Owner (including all material invoices, contracts with Contractors, Subcontractors and Independent Contractors) (collectively, the Documents ). Originals of the Documents shall be kept for such purposes at Managers address stated herein during the term of this Agreement. Without limitation of any other provisions of this Agreement, Owner and its representatives, including Owners accountants, shall have the right, at Owners sole cost and expense, upon reasonable notice to Manager, to inspect, copy and audit the Documents during Managers business hours for the Term and for the applicable retention period required by any applicable Law or by any Governmental Authority. Manager shall cooperate with Owners accountants in any inspection and audit of the Documents and the preparation of financial statements and tax returns; provided that no more than one such inspection and audit shall be conducted in any calendar year unless Manager has materially breached this Agreement or Owner has a reasonable cause to believe that a material breach of this Agreement by Manager will occur.
Section 5.2 Reports .
(a) Annual Reports . Manager shall cause to be delivered to Owner (and to the extent required under the Loan Documents or the Cash Flow Participation Agreements, to Lender or the parties thereto, respectively), within ninety (90) days after the expiration of each Fiscal Year, (i) audited financial statements for Owner and the Joint Venture on a consolidated basis (the Audited Financial Statements ) for the immediately prior Fiscal Year, and (ii) any other items required under Loan Documents, Cash Flow Participation Agreements and/or reasonably requested by Owner or the Joint Venture. The Audited Financial Statements shall include an audited balance sheet, an audited profit and loss statement showing the results of operations for such Fiscal Year, together with the results of operations for the period from the beginning of the Fiscal Year to the end of such Fiscal Year with an unaudited comparison of such results to the Approved Budget, an audited statement of cash flows, an audited statement of the Members capital and capital accounts and an audited summary of distributions. The Audited Financial Statements shall contain an opinion of Owners or the Joint Ventures accountant to the effect that, subject to any qualifications contained therein, the financial statements fairly present, in conformity with GAAP, the results of operations, and cash flows of the Property for the Fiscal Year then ended. Manager shall cause to be delivered to Owner drafts of the Audited Financial Statements to Owner for review prior to finalization.
(b) Quarterly . Manager shall cause to be delivered to Owner (and to the extent required under the Loan Documents or the Cash Flow Participation Agreements, to Lender or the parties thereto, respectively), within forty-five (45) days after the end of each quarter during a Fiscal Year, the following unaudited financial statements of Owner and the Joint Venture (on a consolidated basis): (i) a balance sheet as of the end of such quarter, (ii) an income and expense statement as of the end of such quarter, (iii) a summary of the Members capital and capital accounts, (iv) a summary of distributions and (v) any other items required under any Loan Documents, any Cash Flow Participation Agreements or reasonably requested by Owner. All of the foregoing items shall be certified to by Manager as being, to the best of its knowledge, true and correct.
(c) Monthly . Manager shall cause to be delivered to Owner (and to the extent required under the Loan Documents or the Cash Flow Participation Agreements, to Lender or the parties thereto, respectively), within thirty (30) days after the end of each month, the following unaudited financial statements of the Owner and the Joint Venture (on a consolidated basis): (i) an unaudited balance sheet as of the end of such month, (ii) an income and expense statement as of the end of such month, (iii) a cash flow statement showing the results of operations for such month, (iv) a summary of the Members capital and capital accounts, (v) an executive summary
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of the progress of the planning, entitlement, development, public relations and sales and marketing, including an updated construction schedule, (vi) any other significant developments, which reports shall include copies of all reports, requisitions and other informational items that shall be furnished by Owner during such month to any of Lender, and (vii) any other items reasonably requested by Owner. All of the foregoing items shall be certified to by Manager as being, to the best of its knowledge, true and correct.
(d) Additional Items . Manager will prepare and distribute to Owner (and to the extent required under the Loan Documents or the Cash Flow Participation Agreements, to Lender or the parties thereto, respectively), the following items within three (3) Business Days after Managers receipt of the same (unless otherwise specified below or such sooner period as may be required in order to respond to any such item): (i) copies of any default notices received by Manager from any Lender or other third parties to which Owner is contractually bound, (ii) copies of any reports and written notices delivered by Manager to any Lender, as and when same are delivered to such Lender, (iii) written notices of violations, lawsuits and other material Claims received by Manager affecting the Property or Owner, (iv) without derogating from Managers obligations under Section 2.2 , material changes relating to the City of Irvine, to the Orange County Supervisors office or any other political agency of which Manager has actual knowledge and that could reasonably be expected to have an adverse effect upon the Existing Entitlements and, if obtained, upon any additional Entitlements, or the ability to complete development of the Project in conformity with the Existing Entitlements and, if obtained, any additional Entitlements, and (v) any material written notices relating to, or information of which Manager otherwise has actual knowledge relating to environmental conditions on the Property and any releases or spills of hazardous substances or other environmental related conditions occurring at the Property which may result in any citation, fine or other violation of applicable Laws.
(e) Generally . The third party out-of-pocket Approved Costs incurred by Manager in preparing the reports and statements required under this Section 5.2 shall be reimbursed by Owner. Notwithstanding anything to the contrary in this Section 5.2 , all financial statements required under Sections 5.2(a) , (b) and (c) shall be prepared in accordance with GAAP subject to the GAAP Exceptions to the extent applicable thereto.
(f) Tax Returns . Manager shall arrange for the preparation and timely filing of all tax and information returns of income, gains, deductions, losses and other items required to be filed by Owner and the Joint Venture for federal, state and local income tax purposes and shall submit to Owner for its approval a draft of all such tax returns at least thirty (30) days in advance of the due date (taking into account extensions). If Owner does not object to the treatment of any item set forth on the draft return within thirty (30) days after delivery thereof, Manager shall cause such tax and information returns to be timely filed with the appropriate authorities. Copies of such tax and information returns shall also be kept at the principal office of Owner where they shall be available for inspection by Owner, the Joint Venture, the Members and their representatives during normal business hours. Manager shall cause Owners or the Joint Ventures accountants to furnish, within seventy-five (75) days of the close of each taxable year of Owner, the tax information reasonably required by them and their respective members, including Form K-ls, for federal and state income tax reporting purposes.
ARTICLE VI
TERM; TERMINATION
Section 6.1 Term .
(a) The Initial Term shall mean the period that commenced as of December 29, 2010 and ends December 31, 2021, unless terminated sooner in accordance with the provisions of this Agreement.
(b) Not later than ninety (90) days prior to the expiration of the Initial Term, Owner or Manager may notify the other that the notifying Party desires to extend the term of this Agreement for a period of three (3) years (the First Renewal Term ) beyond the expiration of the Initial Term. Within thirty (30) days after the giving of any such notice, Owner and Manager shall meet (in person or telephonically) to attempt to agree upon (i) the Base Fee that would be payable under Section 4.1 , (ii) the Base Fee that would be applicable under Section 6.4(b)(1)(B) and (iii) the Liquidated Damages Payment (the matters described in the foregoing clauses (i) , (ii) and (iii) , the Renewal Term Matters ) that would be payable, in each case during the First Renewal Term. If
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the Parties reach agreement as to the Renewal Term Matters the same shall be memorialized in an executed amendment to this Agreement (the First Renewal Term Modification ) whereupon the Term of this Agreement shall be extended for the First Renewal Term on all the same terms and conditions of this Agreement as were applicable during the Initial Term, other than as set forth in the First Renewal Term Modification. If, prior to the expiration of the Initial Term, Owner and Manager are for any reason unable to agree, in their respective sole and absolute discretion, as to the Renewal Term Matters for the First Renewal Term, the Term of this Agreement shall expire at the end of the Initial Term.
(c) Not later than ninety (90) days prior to the expiration of the First Renewal Term, if any, Owner or Manager may notify the other that the notifying Party desires to extend the Term of this Agreement for a period of two (2) years (the Second Renewal Term ) beyond the expiration of the First Renewal Term. Within thirty (30) days after the giving of any such notice, Owner and Manager shall meet (in person or telephonically) to attempt to agree upon the Renewal Term Matters for the Second Renewal Term. If the Parties reach agreement as to Renewal Term Matters, the same shall be memorialized in an executed amendment to this Agreement (the Second Renewal Term Modification ) whereupon the Term of this Agreement shall be extended for the Second Renewal Term on all the same terms and conditions of this Agreement as were applicable during the First Renewal Term, other than as set forth in the Second Renewal Term Modification. If prior to the expiration of the First Renewal Term Owner and Manager are for any reason unable to agree, in their respective sole and absolute discretion, as to the Renewal Term Matters, the Term of this Agreement shall expire at the end of the First Renewal Term.
(d) Section 6.9 shall govern the duties and obligations of Owner and Manager to one another upon such expiration.
Section 6.2 Termination by Owner for Cause .
(a) Subject to the further terms and conditions of this Section 6.2 (including any applicable notice and cure periods), Owner shall have the right to terminate this Agreement for the following reasons (each, a Cause Event ):
(i) except as set forth elsewhere in this Section 6.2(a) , a monetary or non-monetary breach by Manager of the Manager Services;
(ii) the commission of gross negligence, fraud or willful misconduct by Manager (including if committed by the CEO, a member of the Corporate Team or a member of the Project Team) in the performance of the Manager Services, or the conviction of Manager, the CEO or a member of the Corporate Team of a felony; and
(iii) a breach of Section 3.6 .
(b) In the case of a Cause Event under Section 6.2(a)(i) , Owner shall have no right to terminate this Agreement unless Owner shall have given notice of any such event to Manager and such event shall continue unremedied for a period of (A) in the event of a monetary Cause Event under Section 6.2(a)(i) , seven (7) Business Days after notice or if not cured within such seven (7) Business Day period, within five (5) Business Days following a second notice of such monetary breach expressly stating that Owner shall have the right to terminate this Agreement pursuant to this Section 6.2 if such monetary breach is not cured within five (5) Business Days after such second notice is given; provided , however , that so long as Manager cures any monetary breach within the applicable grace period provided herein, Manager may thereafter dispute the underlying breach relating to such cure; and (B) in the event of a non-monetary Cause Event under Section 6.2(a)(i) reasonably susceptible of cure, ninety (90) days after notice from Owner; provided , however , if Manager is unable to cure such non-monetary Cause Event within such ninety (90) day period and such non-monetary Cause Event is still reasonably susceptible of cure, then so long as Manager diligently pursues the cure thereof, the cure period shall be extended for such additional period as shall be reasonably necessary to cure such default; provided further that (x) Managers right to cure a non-monetary Cause Event shall terminate upon the occurrence of a Lender Remedy Event and (y) Manager shall have no right to cure any Cause Event under Section 6.2(a)(i) that (i) is directly caused by the intentional acts of CEO or (ii) is caused by a Person other than the CEO acting at, and in substantial conformity with, the express direction of the CEO (as distinguished from, e.g., an act of a member of the Project Team, a member of the Corporate Team or any other
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Person that is not acting at, and in substantial conformity with, the express direction of the CEO). Notwithstanding the foregoing, Manager shall be deemed not to have committed a non-monetary Cause Event under Section 6.2(a)(i) to the extent such non-monetary Cause Event results from a Force Majeure event for so long as such Force Majeure event continues in accordance with the terms hereof, unless the continuance of such Cause Event results in a Lender Remedy Event, in which case the same shall be a Cause Event notwithstanding that such Force Majeure Event is continuing.
(c) In the case of a Cause Event under Section 6.2(a)(ii) , Manager shall be deemed to have cured such Cause Event if, and only if, all of the following conditions are satisfied: (i) the gross negligence, fraud or willful misconduct shall not have been committed by the CEO and the CEO shall not have directed, or actively colluded with, another Person to commit such gross negligence, fraud or willful misconduct and, in the case of a Cause Event resulting from the conviction of a felony, the CEO shall not have been the Person so convicted, (ii) promptly following the acquisition of actual knowledge by the CEO of such Cause Event, each member of the Project Team and Corporate Team that committed gross negligence, fraud or willful misconduct and/or that was convicted of a felony is removed from the Project Team (in the case of a member of the Project Team) or is prohibited from providing any services with respect to the Property or the Project (in the case of a member of the Corporate Team), and a replacement or replacements to perform the duties of such member (which may be an existing member of the Project Team or the Corporate Team, another employee of Manager and/or a temporary worker during the period in which a permanent replacement is sought by Manager) is appointed within thirty (30) days after such Cause Event; (iii) if such Cause Event shall have been committed by a Key Member of the Corporate Team or if a Key Member of the Corporate Team shall have directed, or actively colluded with, another Person to commit such Cause Event, Manager shall have cured such Cause Event (and, for the avoidance of doubt, to the extent such Cause Event is curable by the payment of a monetary sum to compensate for Losses, Manager shall pay Owner the amount of such Losses; provided that Managers cure of such Cause Event shall not be subject to any limitation on damages set forth in this Agreement except as set forth in Section 9.3) ; and (iv) no Lender Remedy Event has occurred.
(d) Owner may exercise its right to terminate this Agreement in accordance with Section 6.2(a) , Section 6.2(b) and/or Section 6.2(c) immediately upon the occurrence of the applicable Cause Event (after the expiration of any applicable cure period) by providing notice of the same to Manager. Failure by Owner to give any such notice as described above will not constitute a waiver of the rights of Owner to terminate this Agreement by reason of the particular occurrence which would have been the basis for such termination and shall not limit Owners other rights and remedies, if any, arising out of such occurrence, unless Manager shall (i) provide to Owner a notice specifying such Cause Event (after the expiration of any applicable cure period) and stating that Owner has the right to terminate this Agreement pursuant to Section 6.2 and (ii) if Owner does not terminate this Agreement within one hundred ten (110) days after delivery of such notice from Manager, and Manager sends a second notice to Owner stating that Owners right to terminate this Agreement by reason of the particular Cause Event referred to in the first notice shall expire unless Owner terminates this Agreement pursuant to this Section 6.2(d) within ten (10) Business Days after Manager delivers such second notice, in which case Owner shall be deemed to have waived its right to terminate this Agreement by reason of the particular Cause Event referred to on the first notice unless Owner terminates this Agreement pursuant to this Section 6.2(d) within ten (10) Business Days after delivery of such second notice (provided that if at the time Manager gives any such notice under this Section 6.2(d) a Lender Remedy Event has not occurred but thereafter occurs and the Cause Event in question is by itself or together with any one or more other Events of Default the basis for such Lender Remedy Event, then Owners right to terminate shall be re-instated (if it has then lapsed) and in any event shall continue unless Owner fails to terminate this Agreement after Managers delivery of new notices described in, and in accordance with, clauses (i) and (ii) of this Section 6.2(d) ).
(e) [intentionally omitted]
(f) Upon the termination of this Agreement following a Cause Event (and the expiration of any applicable cure period), Owner shall be liable to Manager for:
(1) Base Fee/Project Team Reimbursements: Owner shall pay to Manager any unpaid portion of the Base Fee and/or Project Team Reimbursements and/or any other reimbursements or payments that have accrued and are due and payable in accordance with the terms of this Agreement through the effective date of such termination and are otherwise not described in this Section 6.2(f) ;
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(2) [Intentionally omitted]; and
(3) Incentive Compensation:
(A) Owner shall pay to Manager any unpaid Incentive Compensation that is due and payable in accordance with the terms hereof as of the effective date of such termination based on all Available Cash as of the effective date of such termination whether or not such Available Cash has been distributed; and
(B) Owner shall continue to make payments to Manager of Incentive Compensation payments in accordance with Section 4.4 of this Agreement following the effective date of termination as if this agreement had not been terminated, but limited to fifty percent (50%) of the payments of Incentive Compensation that would otherwise be payable pursuant to Section 4.4 (the Parties acknowledging that Manager is 100% vested pursuant to Section 4.4 ).
(g) Except as set forth in clauses (1) - (3) of Section 6.2(f) , no other payments, compensation or reimbursements shall thereafter under any circumstances be due or payable to Manager on account of the Base Fee, Project Team Reimbursements, or the Incentive Compensation, hereunder or otherwise, it being agreed that other than the payments specifically described in clauses (1) - (3) of Section 6.2(f) , Manager shall have no further rights under Sections 4.1 , 4.2 , and 4.4 .
(h) The provisions of this Section 6.2 , Section 7.2 and Section 7.4 , if applicable, shall be the sole and exclusive remedies of Owner as a result of any Cause Event (other than a Cause Event under Section 6.2(a)(iii) for which other remedies are available pursuant to the express terms of this Agreement).
(i) If Owner gives notice to Manager terminating this Agreement pursuant to this Section 6.2 and Manager disputes the right of Owner to terminate this Agreement pursuant to this Section 6.2 , this Agreement shall nevertheless terminate but such termination shall not preclude Manager from asserting in good faith a breach of contract claim against Owner for monetary damages by reason of Owners wrongful termination of this Agreement on the basis that the Cause Event(s) that served as the basis for Owners termination of this Agreement never existed or that Owner terminated this Agreement prior to the expiration of the applicable grace period. If Manager is successful in any such claims, Owner shall pay to Manager an amount of liquidated damages equal to aggregate of the following (the Owner Liquidated Damages Payment ); (i) all amounts that would have been payable to Manager had Owner terminated this Agreement pursuant to Section 6.4 (rather than pursuant to this Section 6.2 ) as of the date that Owner gave a termination notice to Manager pursuant to this Section 6.2 and (ii) all amounts to which Manager is entitled pursuant to the first sentence of Section 9.3 in connection with bringing such claim(s); (iii) interest at the rate of 10% per annum on all amounts determined to be due and owing to Manager pursuant to the preceding clause (i) calculated from the date the payment in question became due to Manger until it is paid to Manager (it being agreed that such interest shall be lieu of any other interest on unpaid amounts due to Manager under this Agreement and in lieu of any statutory post-judgment interest); plus (iv) the sum of Five Million Dollars ($5,000,000). If Manager does not prevail in any such claims, Manager shall pay to Owner an amount of liquidated damages equal to aggregate of the following (the Manager Liquidated Damages Payment ); (I) all amounts to which Owner is entitled pursuant to the first sentence of Section 9.3 in connection with bringing such claim(s) plus (II) the sum of Five Million Dollars ($5,000,000). Owner and Manager agree that each of the Owner Liquidated Damages Payment and the Manager Liquidated Damages Payment (as applicable) constitutes an agreed upon and fair measure of the damages that such party shall have incurred as a result of such claim and does not constitute a penalty.
Section 6.3 Intentionally Omitted .
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Section 6.4 Termination in Owners Discretion; Non-Compete .
(a) Owner shall have the right to terminate this Agreement in its sole and absolute discretion at any time during the Term.
(b) Upon a termination pursuant to this Section 6.4 , Owner shall be liable to Manager for:
(1) Base Fee/Project Team Reimbursements:
(A) Owner shall pay to Manager on the effective date of such termination any portion of the Base Fee and/or Project Team Reimbursements and/or any other reimbursements or payments that, in accordance with the terms of this agreement, have accrued and are due and payable through the date of such termination and are otherwise not described in this Section 6.4(b) ;
(B) Owner shall pay to Manager the Base Fee for a period of two (2) years immediately following the effective date of such termination; provided , however , that for purposes of this Section 6.4(b)(1)(B) , the aggregate Base Fee for such two (2) year period shall be equal to Five Million Dollars ($5,000,000) and shall be due and payable to Manager within thirty (30) days after the effective date of termination. The amount of the Base Fee under this Section 6.4(b)(1)(B) shall be subject to the terms of the First Renewal Term Modification or the Second Renewal Term Modification, if applicable.
(2) [Intentionally omitted].
(3) Incentive Compensation:
(A) Owner shall pay to Manager any unpaid Incentive Compensation that is both vested and due and payable in accordance with this Agreement as of the effective date of such termination; and
(B) Manager shall be deemed to be 100% vested in all Incentive Compensation pursuant to Section 4.4 and Owner shall continue to make Incentive Compensation payments in accordance with Section 4.4 following the effective date of termination of this Agreement as if this Agreement had not been terminated;
(c) Except as set forth in clauses (1) - (3) of Section 6.4(b) , no other payments, compensation or reimbursements shall thereafter under any circumstances be due or payable to Manager on account of the Base Fee, Project Team Reimbursements or the Incentive Compensation, hereunder or otherwise, it being agreed that other than the payments specifically described in clauses (1) - (3) of Section 6.4(b) , Manager shall have no further rights under Sections 4.1 , 4.2 , and 4.4 .
Section 6.5 Termination for Property Transfer . In the event of a Non-Affiliate Property Transfer, this Agreement shall terminate as of the effective date of such Non-Affiliate Property Transfer.
(a) Upon termination of this Agreement in connection with a Non-Affiliate Property Transfer that is an Involuntary Property Transfer, Owner shall be liable to Manager for:
(1) Base Fee/Project Team Reimbursements: Owner shall pay to Manager any unpaid portion of the Base Fee and/or Project Team Reimbursements and/or any other reimbursements or payments that, in accordance with the terms of this Agreement, have accrued and are due and payable through the effective date of such termination and are otherwise not described in this Section 6.5(a) ;
(2) [Intentionally omitted];
(3) Incentive Compensation: Consistent with the definition of Involuntary Property Transfer, no Incentive Compensation shall be payable in connection with an Involuntary Property Transfer.
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(b) Upon termination of this Agreement in connection with a Non-Affiliate Property Transfer that is a Voluntary Property Transfer, Owner shall be liable to Manager for:
(1) Base Fee/Project Team Reimbursements: Owner shall pay to Manager any unpaid portion of the Base Fee and/or Project Team Reimbursements and/or any other reimbursements or payments that have accrued in accordance with the terms of this Agreement and are due and payable through the effective date of such termination and are otherwise not described in this Section 6.5(b) ;
(2) [Intentionally omitted].
(3) Incentive Compensation: Manager shall be deemed to be 100% vested in all Incentive Compensation pursuant to Section 4.4 and Owner shall pay to Manager (i) all unpaid Incentive Compensation due and payable prior to the effective date of termination, (ii) any Incentive Compensation that becomes due and payable on the effective date of termination as a result of such Voluntary Property Transfer based on all Available Cash as of the effective date of such termination, whether or not such Available Cash has been distributed, and (iii) all unpaid Incentive Compensation pursuant to Section 4.4(b) , in each case in accordance with the terms hereof.
(c) Except as set forth in Section 6.5(a) and Section 6.5(b) , as applicable, no other payments, compensation or reimbursements shall thereafter under any circumstances be due or payable to Manager on account of the Base Fee, Project Team Reimbursements or the Incentive Compensation, hereunder or otherwise, it being agreed that other than the payments specifically described in Section 6.5(a) or Section 6.5(b) , as applicable, Manager shall have no further rights under Sections 4.1 , 4.2 , and 4.4 .
Section 6.6 Intentionally Omitted .
Section 6.7 Intentionally Omitted .
Section 6.8 Termination by Manager for Owners Failure to Pay Fees and Certain Material Breaches .
(a) In the event that Owner fails to timely pay all or any portion of the Base Fee, the Project Team Reimbursements and/or the Incentive Compensation or any other amounts owed to Manager under this Agreement in each case within thirty (30) days after notice and if after the expiration of such thirty (30) day period, Manager shall give to Owner a second notice of such breach, Manager shall have the right to suspend providing the services required hereunder from and after the expiration of such second thirty (30) day period until the date such overdue portion of such amounts is paid to Manager; provided , however , that in the event that all such payments are not made within three (3) months after they are due and payable, Manager may, within sixty (60) days following the expiration of such three (3) month period, terminate this Agreement by giving notice thereof to Owner (provided that such payments with all accrued interest thereon in accordance with the further terms of this Section 6.8(a) have not been made on or prior to the delivery of such sixty (60) day notice). Any amount owed to Manager by Owner pursuant to this Agreement that is not paid within fifteen (15) days after delivery to Owner of such second notice with respect thereto shall accrue interest at an annual rate equal to the Prime Rate as announced by JPMorgan Chase or its successors from time to time plus two percent (2%) per annum, from the original due date of such payment until the date such payment is paid. Notwithstanding the foregoing, in no event shall the interest rate payable hereunder exceed the maximum legal contract rate. If JPMorgan Chase ceases to exist or no longer publishes its prime rate, Owner and Manager shall reasonably agree on a comparable substitute index rate.
(b) In the event that Owner continues to be in material breach of this Agreement (other than a monetary breach which is the subject of Section 6.8(a) and other than the covenant set forth in clause (b) of Section 2.6 and, to the extent the same is determined to be a material breach, the covenant set forth in clause (a) of Section 2.6 ) during the thirty (30) day period after notice, and if after the expiration of such thirty (30) day period,
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Manager shall give to Owner a second notice of such material breach, Manager shall have the right to suspend providing the services required hereunder from and after the expiration of such second thirty (30) day period until the date such material breach has been cured; provided , however , that in the event that such material breach is not cured within three (3) months after first occurring, Manager may, within sixty (60) days following the expiration of such three (3) month period, terminate this Agreement by giving notice thereof to Owner (provided that such material breach remains uncured on or prior to the delivery of such sixty (60) day notice).
(c) A termination by Manager under this Section 6.8 shall be treated for all purposes of this Agreement as if Owner terminated Manager pursuant to Section 6.4 (and all payments thereunder shall be due and payable as and when due under Section 6.4) effective as of the effective date of such termination. Notwithstanding anything to the contrary in this Section 6.8(c) , no such termination shall preclude Owner from asserting in good faith a breach of contract claim against Manager by reason of Managers wrongful termination of this Agreement under this Section 6.8 and if Owner is successful in any such claim, such termination shall instead be treated for all purposes of this Agreement as if Owner terminated Manager pursuant to Section 6.2 .
(d) Other than a monetary suit for damages (subject to Section 9.3) in the case of a monetary breach by Owner under Section 6.8(a) , the remedies under Section 6.8 are Managers sole remedies in the event of a monetary breach by Owner under Section 6.8(a) or any other material breach by Owner that is subject to Section 6.8(b) .
Section 6.9 Expiration .
(a) If the Term of this Agreement expires at the end of the Initial Term or at the end of the First Renewal Period, then Owner shall be liable to Manager for:
(1) Base Fee/Project Team Reimbursements: Owner shall pay to Manager any unpaid portion of the Base Fee and/or Project Team Reimbursements and/or any other reimbursements or payments that have accrued and are due and payable in accordance with the terms of this Agreement through the date of such expiration and are otherwise not described in this Section 6.9(a) ;
(2) [Intentionally omitted];
(3) Incentive Compensation:
(A) Owner shall pay to Manager any unpaid Incentive Compensation that is due and payable in accordance with the terms hereof as of the date of such expiration based on all Available Cash as of the date of such expiration whether or not such Available Cash has been distributed; and
(B) Owner shall continue to make payments to Manager of Incentive Compensation payments in accordance with Section 4.4 of this Agreement following the date of expiration as if this agreement had not expired, but limited to seventy five percent (75%) of the payments of Incentive Compensation that would otherwise be payable pursuant to Section 4.4 (the Parties acknowledging that Manager is 100% vested pursuant to Section 4.4 ).
(b) Except as provided in Section 6.9(a) , no other payments, compensation or reimbursements shall thereafter under any circumstances be due or payable to Manager on account of the Base Fee, Project Team Reimbursements or the Incentive Compensation, hereunder or otherwise, it being agreed that other than the payments specifically described in Section 6.9(a) , Manager shall have no further rights under Sections 4.1 , 4.2 , and 4.4 .
Section 6.10 Actions Upon Termination and Expiration . Except to the extent expressly provided to the contrary in this Article VI , within thirty (30) calendar days after expiration or earlier termination of this Agreement, Manager shall promptly account for and deliver to Owner any monies due Owner under this Agreement and shall deliver to Owner or to such other Person as Owner shall designate in writing, all materials, supplies, equipment,
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keys, contracts, documents and other books and records (including bank and financial records maintained by Manager pursuant to Article V ) pertaining to this Agreement or to the development, maintenance and operation of the Property, whether in possession of Manager or a Person engaged or employed by Manager. Manager shall also furnish all such information, take all such other actions and shall fully cooperate with Owner as Owner shall reasonably require in order to effectuate an orderly and systematic termination of Managers duties and activities.
ARTICLE VII
INSURANCE, DAMAGES AND INDEMNITY
Section 7.1 Managers Insurance .
(a) During the Term, Manager (at Managers expense) shall maintain in full force and effect the following types of insurance: (i) commercial general liability; unless otherwise Approved by Owner, Manager will maintain public liability insurance in the minimum amount of One Million Dollars ($1,000,000), covering both bodily injury (including death) and property damage, and including no limitation or exclusion to the standard Insurance Services Office, Inc. (ISO) definition of insured contract; (ii) workers compensation and employers liability in an amount not less than required by applicable laws of the State of California, covering all employees of Manager engaged in any work performed in connection with this Agreement; (iii) business automobile Liability if the services to be performed in connection with this Agreement shall require use of a motor vehicle or use of a Manager owned vehicle, in the minimum amount of One Million Dollars ($1,000,000), combined single limit; (iv) non-owned automobile liability insurance in the minimum amount of $1,000,000; (v) fidelity bond crime/employee dishonesty/forgery & alteration bond, blanket employee dishonesty in the minimum amount of One Million Dollars ($1,000,000) with a deductible no greater than $25,000 per loss (which coverage shall include protection for comprehensive dishonest, disappearance and destruction from, and including coverage for, (a) employee dishonesty and depositors forgery, (b) forgery or alteration, (c) theft disappearance and destruction, (d) computer and wire fund transfer including malicious acts, (e) third party claims, and be endorsed to include all employees of Manager and Owner Employees who handle or are responsible for handling monies of Owner), (vi) excess liability coverage in an amount not less than Ten Million Dollars ($10,000,000), and (vii) errors and omissions (professional liability) insurance in the minimum amount of $10,000,000. All insurance required under this Agreement shall be provided by insurers who have and maintain a rating of (x) at least A from Standard and Poors (or the equivalent rating from Fitch or Moodys) or (y) at least A-X from A.M. Best.
(b) Manager shall provide Owner with certificates evidencing Managers compliance with the requirement of Section 7.1(a) as of the Effective Date and thereafter annually, or more frequently as may be as reasonably requested from time to time by Owner.
(c) To the extent commercially available, Owner, any Affiliates of Owner requested by Owner, and any Lenders designated by Owner shall be named as additional insureds or loss payees, as applicable. Owner, at Owners sole cost and expense, may also elect to insure Manager under policies carried by Owner, subject to the right of Manager to obtain, at its expense, such additional insurance as it determines.
(d) Without derogating from the requirements of Sections 7.1(e) , Owner shall have the right from time to time to require, at Owners sole expense, commercially reasonable increases in the amount or expansions of the scope of coverage under the policies required by Section 7.1(a) as a result of changes in market or political conditions or industry practice in risk management.
(e) To the extent there is a conflict between the insurance requirements set forth in this Section 7.1 and the insurance requirements set forth in any Loan Documents, Manager shall comply with the provisions requiring the broader insurance coverage or the higher rating, as applicable.
Section 7.2 Mutual Indemnity .
(a) Owner shall indemnify, defend and hold harmless Manager and its Affiliates, owners, members, subsidiaries, partners, officers, directors, and employees (including, for the avoidance of doubt, all of the
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members of the Corporate Team and the Project Team, including in each of their capacities, if applicable, as officers of any Contracting Subsidiary) from and against any and all damages (excluding special, indirect, consequential, remote, incidental, punitive damages and/or damages associated with any lost profits or lost opportunities), 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 any Claims, and reimburse Manager and its affiliates, partners, officers, directors, and employees for all costs and expenses incurred (including reasonable attorneys fees and disbursements and the cost of litigation) (i) resulting from a material breach of this Agreement by Owner and (ii) arising out of the performance of Managers obligations hereunder, provided that such performance was within the scope of Managers engagement and authority under this Agreement and is Consistent with the Approved Business Plan, Approved by Owner and/or otherwise expressly authorized in this Agreement, but in any event excluding any Losses to the extent arising out of the willful misconduct or gross negligence or fraud of or by Manager, Manager Partnership, the Project Team, the Corporate Team and/or the CEO.
(b) Subject to the provisions of Section 7.4 below, Manager shall indemnify, defend and hold harmless Owner and its Affiliates, owners, members, subsidiaries, partners, officers, directors, and employees from and against any and all Losses arising out of, relating to or in connection with any Claims, and reimburse Owner for all expenses incurred (including reasonable attorneys fees and disbursements and the cost of litigation and disbursements) resulting from the gross negligence, willful misconduct or fraud of or by Manager, subject to any limitations thereon in this Agreement.
Section 7.3 Notice . Owner and Manager shall promptly notify each other in writing of the existence of any matter that results or is reasonably likely to result in a Claim under Section 7.2 . If a Claim:
(a) involves or requires legal defense, the indemnifying Party shall promptly undertake such legal defense as it deems necessary and 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 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 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
(b) involves or requires remedial action, then the indemnifying Party may determine and undertake such remedial action as it deems necessary and appropriate; provided , however , that, if within thirty (30) days after receiving 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 have 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.
(c) In any event, the indemnified Party, after giving notice to the indemnifying Party, shall have the right to take all reasonably necessary actions to protect its interest during the thirty (30) day notice period referred to in Sections 7.3(a) and (b) .
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Section 7.4 Limitations on Damages which may be Collected from Manager by Owner; Exclusive Remedy .
(a) Except with respect to Claims of Owner against Manager resulting from willful misconduct or fraud (for which, in each case, specific remedies are provided hereunder), the amount of damages that Owner may collect from Manager on account of any Claims brought by Owner for breach of any provision of this Agreement by Manager shall not exceed the lesser of (i) Owners unreimbursed Losses from such Claims and (ii) the amount of insurance coverage available to pay such Claims (whether to Owner or Manager) under the policies required to be maintained by Manager pursuant to Section 7.1 (and, if Manager elects to purchase and maintain additional insurance under Section 7.1(c) that is available to pay such Claims, the amount of such insurance coverage available to pay such Claims) (the Available Insurance Proceeds Amount ); provided , however , that to the extent that Manager has failed to maintain all insurance coverage required to be maintained by Manager pursuant to Section 7.1 , Owner shall have the right to make a Claim against (and collect from) Manager for the lesser of (x) the amount by which Owners unreimbursed Losses exceed the amount of insurance actually available under the policies maintained by Manager in respect of such Claim (whether to Owner or to Manager) and, if Owner elects to insure Manager under policies carried by Owner (if any) pursuant to Section 7.1(c) , the amount of insurance proceeds available under such insurance policies maintained by Owner (the Available Insurance Proceeds ) and (y) the amount of insurance proceeds that would have been available to pay Owners Losses had Manager maintained all insurance coverage required to be maintained by Manager pursuant to Section 7.1 (the amount by which (y) exceeds (x), the Excess ).
(b) If Owner suffers or incurs any damages from a breach of this Agreement resulting from the willful misconduct or fraud of a member of the Project Team or a member of the Corporate Team who is not a Key Member (in either case which was not committed at, and in substantial conformity with, the direction, or with the active collusion, of the CEO or a Key Member of the Corporate Team) then the amount of damages that Owner may collect from Manager on account of any Claims brought by Owner in connection with such willful misconduct or fraud shall not exceed the lesser of (i) Owners unreimbursed Losses from such Claims and (ii) sum of (A) any Available Insurance Proceeds, (B) the Excess, if any, and (C) the Liability Reserve Availability. Owner agrees that Owner shall first look to the Available Insurance Proceeds to satisfy Owners Claims.
(c) If Owner suffers or incurs any damages from a breach of this Agreement resulting from the willful misconduct or fraud by the CEO or a Key Member of the Corporate Team (including, for the avoidance of doubt, willful misconduct or fraud by a member of the Project Team or a member of the Corporate Team who is not a Key Member committed at, and in substantial conformity with, the direction, or with the active collusion, of the CEO or a Key Member of the Corporate Team), then the amount of damages that Owner may collect from Manager on account of any Claims brought by Owner in connection with such willful misconduct or fraud shall not be limited in amount, nor shall Owner be limited to any particular assets of Manager out of which to satisfy such Claims, but Owner agrees that Owner shall first look to the Available Insurance Proceeds to satisfy such Claims and then, to the extent that Owners unreimbursed Losses exceed the Available Insurance Proceeds, any other assets of Manager.
(d) Nothing in this Section 7.4 or any other provision of this Agreement is intended to limit or impair (i) any private right of action that Owner may have against any person other than Manager, the CEO, Haddad and the members of the Corporate Team, whether in tort or otherwise or (ii) Owners right to seek injunctive relief for the breach or threatened breach of this Agreement. Subject to the immediately preceding sentence and the last sentence of this Section 7.4(d) , the provisions of Sections 7.2 and this 7.4 shall constitute the sole and exclusive remedies and rights of Owner for monetary damages for a breach or default by Manager under this Agreement; it being understood and agreed that the provisions of Sections 7.2 and this 7.4 are (subject to the first sentence of this Section 7.4(d)) in derogation of, and replace in all respects as the sole and exclusive remedy and right, any statutory (including federal and state securities Laws) remedy and rights, including set off, that Owner may have to seek monetary damages for a breach or default by Manager of any provision of this Agreement, and all such other rights and remedies are hereby irrevocably waived. Nothing in this Article VII is intended to limit the liability of Manager for any obligations arising under the first sentence of Section 9.3 .
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ARTICLE VIII
LAWS
Section 8.1 Construction . Owner and Manager hereby agree and acknowledge that as entities formed under the Laws of the State of Delaware, the transactions described in this Agreement bear a reasonable relation to the State of Delaware. Accordingly, Owner and Manager agree that this Agreement shall be construed and the legal relationship between the Parties shall be governed by the Laws of the State of Delaware (without regard to any such Laws that would result in the application of the Laws of any other jurisdiction).
ARTICLE IX
MISCELLANEOUS
Section 9.1 Entire Agreement . This Agreement, including all exhibits, attachments, schedules and addenda hereto and thereto, contain the entire understanding between the Parties with respect to the subject matter hereof and supersede any prior proposals, understanding and agreements between them, either oral or written, respecting such subject matter. This Agreement shall be binding upon the Parties and their respective representatives, successors and assigns. No rights, remedies or warranties under this Agreement are waived or modified unless expressly waived or modified in writing by the Party to be charged.
Section 9.2 No Partnership; Competition . Owner shall not and does not by this Agreement in any way or for any purpose become a partner of Manager or Manager Partnership in the conduct of its business, or otherwise, or a joint venturer of, or a member of a joint enterprise with, Manager. Neither Party owes any fiduciary duty to the other as a result of entering into this Agreement. Manager is and shall, for all purposes of this Agreement be deemed an independent contractor of Owner. It is expressly understood and agreed by the Parties that other than as set forth in the JV Agreement and this Agreement, either Party may engage in any other business or investment, including the ownership of or investment in real estate and the acquisition, development, financing, operation, management and/or sale of, or any other activity with respect to, real estate, and that the other Party shall have no rights in and to any such business or investment or the income or profit derived therefrom.
Section 9.3 Disputes . In the event of any disputes under this Agreement, the prevailing Party shall be entitled to recover, in addition to any other amounts, reasonable attorneys and paralegals fees and disbursements from the non-prevailing Party. In no event shall any Party be entitled to special, indirect, consequential, remote, incidental, punitive damages and/or damages associated with any lost profits or lost opportunities as a result of a breach of this Agreement. Nothing in this Agreement shall preclude Owner from seeking injunctive relief for any breach or threatened breach of this Agreement except as otherwise expressly provided hereunder.
Section 9.4 Notice . Any notice, demand, request or other communication which may or is required to be given under this Agreement shall be in writing and shall be: (a) personally delivered; (b) transmitted by United States postage prepaid mail, registered or certified mail, return receipt requested; (c) transmitted by reputable overnight courier service, such as Federal Express; or (d) transmitted by legible facsimile (with answer back confirmation, and provided a copy of such communication be delivered by another method set forth in this Section 9.4 ) to Owner or Manager as listed below. Except as otherwise specified herein, all notices and other communications shall be deemed to have been duly given on (i) the date of receipt if delivered personally, (ii) the date of receipt or rejection as evidenced by return receipt if transmitted by registered or certified mail, return receipt requested, (iii) the first (1st) Business Day after the date of deposit, if transmitted by reputable overnight courier service, or (iv) the date of transmission with confirmed answer back if transmitted by facsimile (provided that a copy of such notice, demand, request or other communication shall be delivered by another method set forth in this Section 9.4 ), whichever shall first occur. A notice or other communication not given as herein provided shall only be deemed given if and when such notice or communication and any specified copies are actually received in writing by the Party and all other persons to whom they are required or permitted to be given. Owner and Manager may change their addresses for purposes hereof by notice given to the other Parties in accordance with the provisions of this Section 9.4 , but such notice shall not be deemed to have been duly given unless and until it is actually received by the other Parties. Legal counsel for any Party may provide notice on behalf of such Party. Notices hereunder shall be directed as follows:
If to Manager:
Five Point Communities Management, Inc.
25 Enterprise, Suite 300
Aliso Viejo, California 92656
Attention: Legal Notices
Facsimile No.: (949) 349-1075
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If to Owner:
Heritage Fields El Toro, LLC
c/o Rockpoint Group, LLC
Woodlawn Hall at Old Parkland
3953 Maple Avenue, Suite 300
Dallas, Texas 75219
Attention: General Counsel
Facsimile No.: (972) 934-8836
With a copy to:
MSD Capital, L.P.
100 Wilshire Boulevard, Suite 1700
Santa Monica, California 90401
Attention: Alan Epstein
Facsimile No.: (310) 458-3619
and
LNR HF II, LLC
c/o Starwood Capital Group Global, LLC
100 Pine Street, Suite 3000
San Francisco, California 94111
Attention: Daniel Schwaegler
Facsimile No.: (415) 986-4498
If to the Owner Authorized Representative:
MSD Capital, L.P.
100 Wilshire Boulevard, Suite 1700
Santa Monica, California 90401
Attention: Alan Epstein
Facsimile No.: (310) 458-3619
Section 9.5 Assignment .
(a) Except as expressly authorized in this Agreement, neither this Agreement nor any portion hereof or any rights or obligations hereunder shall be assigned or delegated by Manager, without the Approval by Owner and any attempted assignment of this Agreement or any portion hereof, or attempted delegations of any rights or obligations hereunder, without such Approval shall be void.
(b) Except as expressly authorized in this Agreement, this Agreement shall not be assigned by Owner without the approval of Manager, and any attempted assignment without such written consent shall be void. Notwithstanding the foregoing, any collateral assignment of this Agreement by Owner shall not constitute a violation of the immediately preceding sentence.
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Section 9.6 Successors and Assigns . This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective permitted successors (including, with respect solely to Owner, any successors by merger, consolidation or other business combination or otherwise by Law) and permitted assigns. Whenever the terms Owner and Manager are used herein, they shall be deemed to mean and include Owner and Manager and their respective successors and permitted assigns in the same manner and to the same extent as if specified each time said terms appear herein.
Section 9.7 Certain Interpretation Matters .
(a) Definitions contained in this Agreement apply to 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. Words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires. The terms hereof, herein, hereby 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. The terms includes and the word including and words of similar import shall be deemed to be followed by the words without limitation. Each Recital, Article, Section and paragraph reference is to Recitals, Articles, Sections and paragraphs to this Agreement. The term dollars or $ means United States Dollars. Accounting terms used but not otherwise defined in this Agreement shall have the meaning given them by GAAP. The Article and Section captions set forth herein have been included solely for the convenience of the Parties and shall not be used or referred to in the interpretation or construction of this Agreement or any provision hereof. Days means calendar days and year means a calendar year.
(b) When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.
(c) The Exhibits to this Agreement are hereby incorporated and made a part hereof as set forth herein and are an integral part of this Agreement. Any capitalized terms used in any Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.
(d) Except to the extent expressly provided to the contrary herein, any references in this Agreement to any other agreement shall be deemed to be a reference to such other agreement as the same may be amended, supplemented, replaced, restated or otherwise modified from time to time and (to the extent required by the terms of this Agreement) made in accordance with the express terms hereof.
(e) Any reference herein to Owner being a party to a Construction Contract or a contract with an Independent Contractor shall be interpreted as a reference to either Owner and/or any Contracting Subsidiary being a party to such Construction Contract or such contract with an Independent Contractor (as the case may be). The references to Owner in any provision describing Manager Services in respect of any Loan shall be interpreted as references to Owner and any Contracting Subsidiary. All financial statements and other reporting required by Manager under this Agreement with respect to Owner shall include the Contracting Subsidiary. Without limiting the generality of the foregoing, all Manager Services provided to Owner hereunder shall include the provision of such services to Owner and, to the extent applicable, any Contracting Subsidiary.
Section 9.8 Waivers . Except as expressly set forth in this Agreement, failure by either Party to complain of any action, non-action or default of the other Party hereunder shall not constitute a waiver of the aggrieved Partys rights hereunder unless expressed in a writing executed by such aggrieved Party. Except as expressly set forth in this Agreement, waiver by either Party of any right for any default of the other Party shall not constitute a waiver of any right for either a subsequent default for the same obligation or for any other default, past, present or future.
Section 9.9 Partial Invalidity . If any term, covenant or condition of this Agreement, shall ever be held to be invalid or unenforceable, then in each event the remainder of this Agreement or the application of such term, covenant or condition to any other Person or any other circumstance (other than those as to which it shall be invalid or unenforceable) shall not be thereby affected and each term, covenant, condition and provision hereof shall
35
remain valid and enforceable to the fullest extent permitted by Laws. Any provision hereof which is held to be invalid or unenforceable only in part or degree or under specific facts, shall remain in full force and effect to the extent, and with respect to facts in connection with which, it has not been held to be invalid or unenforceable.
Section 9.10 Survival . Articles I , VI , VII , VIII and IX and all obligations of either Party to pay, reimburse and/or indemnify the other Party under this Agreement and all other provisions that expressly provide for such survival shall survive the expiration or earlier termination of this Agreement.
Section 9.11 Amendment . This Agreement may be modified, amended or restated only by a written amendment, restatement or other document signed by all of the Parties.
Section 9.12 Jurisdiction; Venue; Service of Process . Each of the Parties consents to the jurisdiction of any court in Wilmington, Delaware for any action arising out of matters related to this Agreement. Each of the Parties waives the right to commence an action in connection with this Agreement in any court outside of Wilmington, Delaware, other than to enforce a judgment of a proper court against the other Party or its Affiliates. Each of Owner and Manager represent and warrant, and covenant, that it has designated an agent for service of process in the State of Delaware and that it hereby agrees that it may be served with legal process through such agent and that it shall maintain such designation for so long as this Agreement (or any provisions hereof) remains in effect (including with respect to any provisions hereof that survive the termination or expiration of this Agreement).
Section 9.13 Jury Trial Waiver . TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS AGREEMENT; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF THE PARTIES FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, EACH OF THE PARTIES HEREBY CERTIFIES THAT NONE OF ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH OF THE PARTIES ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO THE ACCEPTANCE OF THIS AGREEMENT BY THE OTHER PARTY.
Section 9.14 Confidentiality .
(a) Owner and Manager agree that the terms of this Agreement and all business, financial or other information prepared pursuant to the terms hereof that is (i) not already publicly available or publicly disclosed or (ii) not expressly required or permitted by the terms hereof to be delivered to any Third Party, is confidential and proprietary information of Owner (collectively, the Confidential Information ), the disclosure of which would cause irreparable harm to Owner, the Joint Venture and the Members. Accordingly, Manager represents, warrants and covenants that it will not (and will direct its shareholders, partners, directors, officers, agents, lenders, accountants, attorneys, advisors and Affiliates to whom Confidential Information is disclosed not to) disclose to any Person any Confidential Information or confirm any statement made by a Third Party regarding Confidential Information; provided , however , that Manager may disclose such Confidential Information (x) if required by law (it being specifically understood and agreed that anything set forth in a registration statement or any other document filed pursuant to Law will be deemed required by Law), (y) if necessary for it to perform any of its duties or obligations hereunder, and (z) to its attorneys and advisors who agree to maintain a similar confidence.
(b) Subject to the provisions of subsection (a) , above, Manager agrees not to disclose any Confidential Information to any Person (other than a judge, magistrate or referee in any action, suit or proceeding relating to or arising out of this Agreement or otherwise), and to keep confidential all documents (including
36
responses to discovery requests) containing any Confidential Information. Manager hereby consents in advance to any motion for any protective order brought by Owner represented as being intended by Owner to implement the purposes of this Section, provided that, if Manager receives a request to disclose any Confidential Information under the terms of a valid and effective order issued by a Governmental Authority and the order was not sought by or on behalf of, consented to or Approved by Owner, then Manager may disclose the Confidential Information to the extent required if Manager uses Due Care to obtain a protective order or other reliable assurance that confidential treatment will be accorded to the portion of the disclosed Confidential Information.
(c) In the event of any breach or threatened breach of the provisions of this Section 9.14 , Owner shall have the right to bring a suit for specific performance or injunctive or other equitable relief for any breach or threatened breach of the provisions of this Section 9.14 without the need to post a bond or other security.
(d) The covenants contained in this Section 9.14 shall survive the expiration or termination of this Agreement.
Section 9.15 Counterparts . This Agreement may be executed in one or more counterparts by some or all of the Parties, and (i) each such counterpart shall be considered an original, and all of which together shall constitute a single agreement, (ii) the exchange of executed copies of this Agreement by facsimile or Portable Document Format (PDF) transmission shall constitute effective execution and delivery of this Agreement as to the Parties for all purposes, and (iii) signatures of the Parties transmitted by facsimile or Portable Document Format (PDF) shall be deemed to be their original signatures for all purposes.
[ Signature pages follow ]
37
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.
OWNER: | ||
HERITAGE FIELDS EL TORO, LLC , a Delaware limited liability company | ||
By: |
/s/ Alan Epstein |
|
Name: | Alan Epstein | |
Title: | Owner Authorized Representative | |
MANAGER: | ||
FIVE POINT COMMUNITIES MANAGEMENT, INC., a Delaware corporation | ||
By: |
/s/ Emile Haddad |
|
Name: | Emile Haddad | |
Title: | President and Chief Executive Officer |
[ Signature page continues ]
S IGNATURE P AGE TO S ECOND A MENDED AND R ESTATED D EVELOPMENT M ANAGEMENT A GREEMENT
The undersigned is executing this Agreement for the purpose of Sections 4.7 and 4.8 only.
MANAGER PARTNERSHIP | ||
FIVE POINT COMMUNITIES LP , a Delaware limited partnership | ||
By: Five Point Communities Management, Inc., its general partner | ||
By: |
/s/ Emile Haddad |
|
Name: | Emile Haddad | |
Title: | President and Chief Executive Officer |
S IGNATURE P AGE TO S ECOND A MENDED AND R ESTATED D EVELOPMENT M ANAGEMENT A GREEMENT
The undersigned is executing this Agreement for the purpose of Sections 4.7 and 4.8 only.
OPERATING COMPANY | ||
FIVE POINT OPERATING COMPANY, LLC , a Delaware limited liability company | ||
By: |
/s/ Emile Haddad |
|
Name: | Emile Haddad | |
Title: | President and Chief Executive Officer |
S IGNATURE P AGE TO S ECOND A MENDED AND R ESTATED D EVELOPMENT M ANAGEMENT A GREEMENT
EXHIBIT A
Description of Corporate Team Functions
Provide corporate oversight to the Project Team and its activities, including:
(i) overseeing the Project Teams day to day entitlements, development, financing and marketing functions;
(ii) overseeing the Project Teams planning and product development functions for residential and commercial components of the Project;
(iii) causing Managers CFO to oversee all financial, treasury and accounting affairs, including financial reporting being undertaken by the Project Team, assisting or directing, as the case may be, in the acquisition and administration of project debt approved by Owner and, as appropriate, developing and maintaining banking relationships on behalf of Owner; and
(iv) causing Managers Chief Legal Officer/General Counsel to oversee all legal affairs on behalf of Owner (provided that Manager shall not be deemed to be providing legal services to or for Owner) and maintaining the corporate books and records of Owner as the appointed corporate secretary.
Exhibit A-1
EXHIBIT B
Incentive Compensation Provisions
[attached behind]
Exhibit B-1
Incentive Compensation Terms (FP)
1. Definitions . Terms used but not otherwise defined in this Exhibit shall have the respective meanings assigned thereof in the Agreement to which this Exhibit is attached. As used in this Exhibit the following terms have the respective meanings indicated below:
(a) Affiliate means:
(i) Member, any Intermediate Entity, JV or any JV Member (any of the foregoing or Owner, a Principal );
(ii) Any Person that, directly or indirectly, owns 30% or more of the equity interests or voting securities in any Principal;
(iii) Any Person controlling, controlled by or under common control with any Principal;
(iv) Any Person 30% or more of the equity interests or voting securities in which is owned, directly or indirectly, by any Principal or by any entity described in clause (iii) .
Notwithstanding the foregoing, a Person that would otherwise be an Affiliate under the foregoing definition by reason of directly or indirectly owning equity interests in a Principal shall not be deemed to be an Affiliate if the Principal in question (A) is a publicly traded entity or (B) is a pension fund or other institutional investor, directly or indirectly, in Heritage Fields Capital Co-Investor Member LLC.
For purposes of this Exhibit, control (together with the correlative meanings of controlled by and under common control with) means possession, directly or indirectly, of the power to alone direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.
(b) Affiliated Mezzanine Lender means a lender that is not an Unaffiliated Mezzanine Lender.
(c) Affiliated Mezzanine Loan means a loan made to an Intermediate Entity by an Affiliated Mezzanine Lender.
(d) Commercial SMA shall mean that certain Commercial Sub-Management Agreement between Owner and Commercial Sub-Manager, dated as of December 29, 2010, which was terminated by Owner effective as of June 30, 2013 subject to Commercial Sub-Managers right to receive Incentive Compensation (as defined under and in accordance with the terms thereof).
(e) Commercial Sub-Manager shall mean LNR HF II, LLC, a Delaware limited liability company, in its capacity as sub-manager under the Commercial SMA.
(f) Current Partner Group means collectively, Five Point Heritage Fields, LLC, Heritage Fields Capital Co-Investor Member LLC, MSD Heritage Fields, LLC, and LNR HF II, LLC (together with their successors and assigns as members in JV, but excluding any of the foregoing from and after the date that they cease to have any direct or indirect interest in Owner).
(g) Distribution means (without double counting):
(i) any distribution of cash or other property (whether tangible or intangible), directly or indirectly through one or more intermediaries, pursuant to the Organizational Documents or otherwise, by Owner to any JV Member (or any such distribution paid to a third party at the direction or for the benefit of, and in lieu of a distribution to, one or more JV Members);
Exhibit B-2
(ii) any payment or transfer of property of any kind (other than a payment or transfer in exchange for the fair value of services actually rendered or materials actually provided), directly or indirectly through one or more intermediaries, made by Owner to any JV Member, including any payment by Owner (directly or indirectly through one or more intermediaries) of interest and/or principal on account of a loan made to Owner (directly or indirectly through one or more intermediaries) by any JV Member;
(iii) any payments made to the JV or to any Intermediate Entity or to one or more JV Members, in each case by a third party providing new capital in exchange for a direct or indirect equity interest in the JV or in any Intermediate Entity or Owner (or in exchange for the economic equivalent of such an equity interest including, without limitation, by a swap, derivative, repurchase or similar transaction which grants similar economic value to such third party capital provider) or any warrant, option or other right to subscribe for or purchase any of the foregoing, except in each such case to the extent that such capital is ultimately paid to Owner or applied or reserved to pay obligations of Owner or to make Excluded Payments;
(iv) any advance of principal made under any Unaffiliated Mezzanine Loan to any Intermediate Entity, except to the extent that such advance is ultimately paid or contributed to Owner or applied or reserved to pay obligations or liabilities of Owner or to make Excluded Payments;
(v) all payments (including payments of interest) to an Affiliated Mezzanine Lender on account of an Affiliated Mezzanine Loan, to the extent made out of funds received directly or indirectly from Owner or in any manner derived from the Property;
(vi) any payments which constitute Distributions pursuant to Section 2(c) below;
(vii) any payments or distribution of cash by Owner, JV or any Intermediate Entity to the JV Members or any other Person with respect or otherwise attributable to payments that would otherwise have been due and owing to LBHI under the LBHI Participation Agreement, but that are now owing to Owner (as the assignee/successor to LBHI under such agreement or any other Person that might succeed to the interests of the then-current owner of the right to receive payments under the LBHI Participation Agreement);
provided , however , that, notwithstanding anything to the contrary contained in the foregoing, the following payments shall in no event be considered Distributions:
(A) | any compensation of any kind, including any bonuses and incentive compensation, paid to (i) Manager under this Agreement and/or (ii) the development manager under the Commercial SMA pursuant to and in accordance with the Commercial SMA (and Manager acknowledges that LNR or its Affiliate has an ownership interest in, or is, the development manager under the Commercial SMA) and/or (iii) any future manager pursuant to any management agreement hereafter entered into by Owner; |
(B) | distributions or payments, whether made directly or indirectly through one or more intermediaries, to third parties that provide new capital or other valuable consideration for Owners benefit (or for the benefit of the JV or any Intermediate Entity) provided such distributions or payments have been negotiated in good faith on an arms length basis and all consideration provided by such third parties has been received by (or contributed to) Owner or applied or reserved to pay obligations or liabilities of Owner or to make other Excluded Payments; |
Exhibit B-3
(C) | any amounts distributed by Owner, directly or indirectly through one or more intermediaries, to any Mezzanine Borrower to the extent such amounts are used by such Mezzanine Borrower to make any payments (including, without limitation, payment of principal and/or interest) to such Mezzanine Borrowers Unaffiliated Mezzanine Lender which are payable under the applicable Unaffiliated Mezzanine Loan, including payments for any reserves required under any Unaffiliated Mezzanine Loan; and/or |
(D) | any payments to a holder of a direct or indirect interest in JV for the purchase of such interest (whether the purchaser is a JV Member or its Affiliate or any other Person, but excluding any payment from funds of the JV or from funds derived from the Property), unless the interest being sold, when combined with any other interests being sold in connection with any related transaction(s), constitutes all or substantially all of the interests of the JV Members in the JV; |
(E) | any payments made by Owner to PCCP (or its successors or assigns or any person designated by PCCP to receive any such payment) with respect to the PCCP Participation Agreement; |
(F) | the first Four Hundred Seventy-Five Million Seven Hundred and Fifty-Four Thousand and Sixty Dollars ($475,754,060) in distributions made by the JV to the JV Members after the Effective Date (Owner and Manager acknowledging and agreeing that, in lieu of Manager receiving Incentive Compensation attributable to such distributions, Manager shall be paid the amounts set forth in Section 4.4(b) of the Agreement). |
(h) Excluded Payments means all payments described in subsections (A)-(F) of the definition of Distribution.
(i) IC Vesting Percentage means 100%.
(j) including means including, without limitation.
(k) Intermediate Entity means Member or any other entity that both (i) is owned, in whole or in part, directly or indirectly, by JV and (ii) owns a direct or indirect equity ownership interest in Owner.
(l) JV means Heritage Fields LLC, a Delaware limited liability company (the sole member of Member as of the date hereof).
(m) JV Member means any Person that is a member of the Current Partner Group.
(n) Member means Heritage Fields EL Toro Sole Member LLC (the sole member of Owner as of the date hereof).
(o) Mezzanine Borrower means any Intermediate Entity in its capacity as a borrower under a Mezzanine Loan.
(p) Mezzanine Loan means an Affiliated Mezzanine Loan or an Unaffiliated Mezzanine Loan, as applicable.
Exhibit B-4
(q) Organic Transaction means any merger or consolidation of Owner (or of any direct or indirect subsidiary of Owner) with or into any other entity, and any recapitalization, redemption, reclassification of ownership interests, reorganization or other transaction resulting in a material change in the ownership structure or capital structure of Owner.
(r) Organizational Documents means the certificate of formation and operating agreement of the Owner, JV and each Intermediate Entity and any other charter documents pertaining to such entities.
(s) PCCP Participation Agreement means that certain Option for Cash Flow Participation Agreement dated as of December 29, 2010 between Owner and El Toro LLC.
(t) PCCP/LBHI Participation Agreements means, collectively, the PCCP Participation Agreement and the LBHI Participation Agreement.
(u) Person means any natural person, general partnership, limited partnership, limited liability company, limited liability partnership, corporation, professional association, joint venture, trust, business trust, cooperative, association or other entity.
(v) Unaffiliated Mezzanine Lender a lender that is not an Affiliate of Owner, any Intermediate Entity, the JV or any member of the Original Member Group.
(w) Unaffiliated Mezzanine Loan means a loan made by an Unaffiliated Mezzanine Lender to an Intermediate Entity.
2. Incentive Compensation Payments; Obligation to Recontribute .
(a) Participation Payments to Manager . From and after the Effective Date, whenever a Distribution is made, prior to or simultaneously with such Distribution, Owner shall pay to Manager an amount ( Manager Participation Payment ) equal to nine percent (9%) of such Distribution (calculated without deducting any incentive compensation specified in clause (A) of the definition of Distribution herein).
(b) Excluded Payments . As part of Owners reporting to be provided pursuant to Section 5(b) below, Owner shall notify Manager of all Excluded Payments made during the reporting period in question, setting forth: (i) the amount of each Excluded Payment, (ii) the names of the recipient(s) of each Excluded Payment, and (iii) the relevant agreement between Owner and the recipient(s) pursuant to which such Excluded Payment is being made. Upon Managers written request, Owner shall provide to Manager a copy of the relevant agreement pursuant to which any Excluded Payment has been made, along with a certification of Owner that such copy is true and correct.
(c) Affiliate Transactions . For purposes of computing amounts to be paid to Manager under Sections 2(a) above, if Owner, JV or any Intermediate Entity enters into any transaction with, or makes any payment to, any Affiliate of (i) Owner, (ii) JV, (iii) any Intermediate Entity or (iv) any JV Member, Owner shall fully disclose in writing the details of such transaction to Manager and to the extent such transaction involves the payment or giving of any consideration by Owner (whether directly or through JV or any Intermediate Entity) to such Affiliate, to the extent such payment exceeds the fair value of services or materials provided by such Affiliate to or for the benefit of Owner (whether directly or indirectly), such excess amount shall be deemed to be a Distribution for purposes of Section 2(a) above (except to the extent otherwise provided in the proviso contained in the definition of Distribution). Upon Managers written request, Owner shall provide to Manager a copy of such Affiliate agreement along with a certification of Owner that such copy is true and correct.
(d) No Change to Calculation of Managers Participation Payments; Conduct of Owners Business; Bad Faith Transactions . Notwithstanding anything to the contrary contained in this Agreement, in no event (including the fact that any JV Members may contribute more equity or less equity to Owner than is projected in Owners current business plan or any future business plan or that Owner may enter into any Organic Transaction or that any or all of the PCCP/LBHI Participation Agreements may be modified or terminated) shall there be any
Exhibit B-5
resulting modification to any percentages or dollar amounts set forth in Section 2(a) above. Manager agrees that each of Owner, JV and any Intermediate Entity shall have the complete right in its sole and absolute discretion to make such business decisions as it determines in its sole and absolute discretion, regardless of the impact on the value of Managers Incentive Compensation and that Manager shall have no right of consent, approval, review or consultation with respect to any business decision of the Owner, JV or any Intermediate Entity; provided , however , that none of Owner, JV or any Intermediate Entity shall in bad faith either (i) structure and implement an Organic Transaction or other transaction or (ii) enter into transactions with Affiliates of Owner, JV, any Intermediate Entity or any JV Member, in either case in order to evade making payments to Manager that would otherwise be due hereunder or deprive Manager of any other material benefits to which it is entitled under this Exhibit.
(e) Agreement of JV Members, JV and Member . Each of the JV Members, JV and Member agrees that if it receives any Distribution at a time that any amount is due from Owner to Manager under this Exhibit, it will hold such Distributions (up to but not exceeding the amount so due to Manager) in trust for the benefit of Manager and immediately remit such held amount to Manager. Each of the JV Members, JV and Member has executed this Exhibit solely for the purpose of agreeing to be bound by the terms of this Section 2(e) and any other provisions of this Exhibit which by their terms are applicable to the JV Members, JV and Member, respectively. JV shall cause any new Intermediate Entities (and any transferees of direct membership interests in the JV who are not then already signatories to this Exhibit) to execute and deliver to Manager an instrument agreeing to the provisions of this Exhibit which by their terms are applicable to any such new Intermediate Entities and/or transferees. If any JV Member assigns all or part of its direct interest in the JV to another Person, Owner shall cause such other Person to execute and deliver to Manager an instrument (the Assignees Agreement ) agreeing to the provisions of this Exhibit which by their terms are applicable to any such assignee and which first arise on or after the date of the Assignees Agreement, whereupon the assigning JV Member shall be automatically released from any obligations under this Exhibit first arising after the date of the Assignees Agreement (and Manager shall, upon Owners request, confirm such release in writing).
(f) Amendment of Organizational Documents; New Intermediate Entities . If after the date hereof any Organizational Documents are amended in any material respect or there are any new Intermediate Entities, Owner shall promptly notify Manager of same and deliver to Manager copies of any Organizational Documents not previously delivered to Manager (provided that Owner shall have the right to redact any provisions in other Organizational Documents that it considers confidential or proprietary with respect to Owners business provided that Owner shall not redact any provisions which Manager reasonably requires to ascertain whether any amounts are due it under this Exhibit).
(g) Possible Return of Incentive Compensation . If there are any capital contributions required of the JV Members from and after the receipt of Incentive Compensation by Manager, then Manager will be obligated to return to Owner a portion of its Incentive Compensation in an amount equal to nine percent (9.0%) of the amount of such capital contributions by the JV Members (a Clawback Payment ) up to, but not to exceed, (i) the aggregate amount of Incentive Compensation actually received by Manager on or after the Effective Date and prior to the date of such contribution, less (ii) the aggregate amount of Clawback Payments made by Manager prior to the date of such contribution. Managers obligation to make Clawback Payments shall be guaranteed under the Operating Company Guaranty.
3. AS IS . Manager acknowledges and agrees that (i) except as expressly set forth herein, neither Owner nor any principal nor agent of Owner has made any representations or warranties to Manager with respect to the Property or the future performance thereof or the value of Managers rights under this Exhibit or otherwise with respect to this Exhibit and the subject matter hereof and (ii) in entering into this Agreement Manager is not relying on any projections of cash flow, Distributions, profits or other information provided by Owner, and Manager has had the opportunity to conduct such due diligence as Manager has desired with respect to the same and has performed and is relying solely on its own analysis with respect to the same.
4. No Partnership . Neither this Exhibit nor any other provisions of this Agreement shall be deemed to create a partnership (including for tax purposes), joint venture or any other relationship between Owner and Manager or between any member of Owner and Manager other than, as between Owner and Member, on the one hand, and Manager, on the other hand, the relationship of debtor and creditor. Neither Owner, any Intermediate Entity, JV or any JV Member shall be deemed to have any fiduciary or other duty to Manager ; provided , however ,
Exhibit B-6
that the foregoing shall not in any manner limit, waive or release any obligation, right or remedy expressly provided for in this Agreement. In no event shall Manager be or become liable for any of the debts, obligations or liabilities of Owner as a result of the provisions of this Exhibit or Managers accepting any payments from Owner pursuant to this Exhibit. Nothing in this Exhibit shall be construed so as to grant to Manager any right to approve or consent to, or to participate in any deliberations regarding, any business or action of Owner except as expressly provided herein. Without limiting the foregoing, in no event shall Manager be deemed or considered to be a member of Owner, any Intermediate Entity, JV or any JV Member, and in no event shall Manager have any right to take any action in such capacity, including filing any voluntary bankruptcy proceeding for Owner, any Intermediate Entity, JV or any JV Member.
5. Reporting; Audits .
(a) The provisions of this Section 5 shall be effective only following the termination of the Agreement to which this Exhibit is attached and then only if and for so long as Manager is entitled, pursuant to the terms of Article VI of the Agreement to which this Exhibit is attached, to receive Incentive Compensation pursuant to the terms of the Agreement; provided , however , that the provisions of this Section 5 shall also be effective for the duration of any period during the term of the Agreement that Manager does not have access to all of the reports and information specified in Section 5(b) below.
(b) Owner shall deliver to Manager copies of the following at substantially the same time they are delivered to Owners mortgage lender (or any Unaffiliated Mezzanine Lender) or the JV Members: monthly and quarterly financial reports, annual audited financial statements, balance sheets and statements of operations, statements of Members capital and statement of cash flow, and business plans and budgets that have been adopted by Owner and any modifications thereto that have been adopted by Owner, which information shall be sufficient to track loan draws and payments, and dates of capital contributions and Distributions. Such reporting shall include (i) the information relating to Excluded Payments specified in Section 2(b) above; (ii) a calculation of all Distributions made during the reporting period in question; (iii) only if and to the extent any of the following is otherwise prepared and presented to the JVs Executive Committee or other governing body: traffic, sales, and closing reports by neighborhood and overall community, and builder product reports (by neighborhood), inclusive of total number of homes, floor plans, square footage, and price; and (iv) copies of any final, signed third party reports that have been commissioned by and delivered to Owner by such third parties and which have been shared with Owners mortgage lender or the JV Members. For avoidance of doubt, it is agreed that Owner shall have no obligation to deliver to Manager any drafts or alternative iterations of business plans, budgets, cash flow models and the like unless and until they have been adopted by Owner. If any Organizational Documents are amended Owner shall notify Manager as provided in Section 2(f) above. Not more than one (1) time during any calendar year, Manager shall have the right, upon fifteen (15) days prior written notice to Owner and at Managers sole cost and expense, to audit Owners books and records at the place where such books and records are kept, provided that such audit shall be limited to the information contained in the reports required to be provided by Owner to Manager pursuant to this Exhibit and such audit shall not be of Owners books and records generally. Owner shall reasonably cooperate with Manager and Managers auditor in connection with any such audit. Owner acknowledges and agrees that an action for damages is inadequate to compensate Manager for a breach of the provisions of Section 5(b) and, accordingly, Manager shall have the right, without the requirement of posting any bond, to bring an action or proceeding for specific performance of the provisions of Section 5(b) .
(c) Manager agrees and acknowledges that all business plans, budgets, cash flow models and any other projections, estimates or other forward looking information (collectively, Forward Looking Materials ) delivered to Manager shall be delivered for informational purposes only and shall not constitute any representation, warranty or covenant by Owner as to any matters contained in any Forward Looking Materials and in no event whatsoever shall Owner have any liability whatsoever to Manager or any other Person by reason of projections, estimates, data or other information contained in any Forward Looking Materials, including by reason of any deviation (whether or not material) of the actual performance of Owners business from that projected in any Forward Looking Materials, regardless of the reason for such deviations, and Manager hereby waives and releases any and all claims against Owner based thereon.
Exhibit B-7
6. Confidentiality .
(a) Manager agrees that all information and documents received by Manager pursuant to this Exhibit, including Section 5 of this Exhibit, shall be subject to the provisions of Section 9.14 of the Agreement to which this Exhibit is attached.
Exhibit B-8
EXHIBIT C
Guaranty
Reference is made to the Second Amended and Restated Development Management Agreement, dated as of April 21, 2017 (the Agreement), by and among Heritage Fields El Toro, LLC, a Delaware limited liability company (Owner), Five Point Communities Management, Inc., a Delaware corporation (Manager), for the purpose of Section 4.8 thereof only, Five Point Operating Company, LLC, a Delaware limited liability company (Guarantor), and, for the purpose of Sections 4.7 and 4.8 thereof only, Five Point Communities, LP, a Delaware limited partnership.
The Guarantor, by this Guaranty (this Guaranty), assumes and agrees to be bound by the obligation (the Obligation) of Manager to return to Owner, a portion of Managers Incentive Compensation (as defined in the Agreement) pursuant to the terms and conditions of Section 2(g) of Exhibit B (Incentive Compensation Provisions) of the Agreement, and agrees that this guaranty obligation is absolute, unconditional and irrevocable (except as otherwise expressly provided in the Agreement) and that such guaranty constitutes a guaranty of payment and not merely a guaranty of collection. Guarantor further agrees as follows:
1. | Nothing herein shall require Owner to first seek or exhaust any remedy against Manager, or to first foreclose, exhaust or otherwise proceed against any collateral, security or other guaranty, if any, which may be given at any time in connection with the Obligation. |
Guarantor agrees that its obligations under this Guaranty shall be primary, absolute, continuing and unconditional, irrespective of and unaffected by any of the following actions or circumstances: (a) the genuineness, validity, regularity and enforceability of any provision of the Agreement or any other agreement, instrument, certificate, notice or other document; (b) any extension, renewal, amendment, change, waiver or other modification of the Agreement or any other agreement, instrument, certificate, notice or other document; (c) the absence of, or delay in, any action to enforce the Agreement, this Guaranty or any other agreement, instrument, certificate, notice or other document; (d) the release of, extension of time for payment or performance by or any other indulgence granted to Manager or any other person with respect to the Obligation by operation of law, in equity or otherwise; (e) Managers Bankruptcy (as defined in the Agreement); or (f) any other action or circumstance which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, other than the Obligation having been paid or performed. Notwithstanding the foregoing, Guarantors obligations under this Guaranty shall be subject to any applicable statute of limitation and defenses available to Manager against the specific guaranteed claims made by the Owner under the Agreement, other than Bankruptcy of Manager or defenses relating to the absence or lack of power, authority or authorization, or lack of due execution and delivery of the Agreement by Manager or defenses related to non-substantive procedural matters.
This Guaranty shall continue and remain undischarged until the Obligation is indefeasibly paid and performed in full. Guarantor agrees that this Guaranty shall remain in full force and effect or be reinstated (as the case may be) if at any time payment or performance of the Obligation (or any part thereof) is rescinded, reduced or must otherwise be restored or returned by Owner, all as though such payment or performance had not been made or performed. If, by reason of any Bankruptcy or similar laws affecting the rights of creditors, Owner shall be prohibited from exercising any of its rights or remedies against Manager or any other person or against any property, then, as between Owner and Guarantor, such prohibition shall be of no force or effect, and Owner shall have the right to make demand upon, and receive payment from Guarantor of all amounts and other sums that would be due to Owner upon a breach or default with respect to the Obligation.
Notice of acceptance of this Guaranty and of any breach or default by Manager or any other person is hereby waived. Presentment, protest, demand and notice of protest, demand and dishonor of the Obligation, and the exercise of possessory, collection or other remedies for the Obligation, are hereby waived.
Guarantor hereby represents and warrants (all of which representations and warranties shall survive until the Obligation is indefeasibly satisfied in full), that:
(a) | Guarantor has full the power and authority to execute and deliver this Guaranty and to perform its obligations under this Guaranty. |
Exhibit C-1
(b) | This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable in accordance with its terms. |
(c) | No consent of any other person or entity (including, without limitation, any creditor of Guarantor) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of this Guaranty. |
By its acceptance of this Guaranty, Owner agrees that, notwithstanding anything to the contrary in this Guaranty or otherwise, no person or entity other than Guarantor has any liabilities or obligations under this Guaranty and that, notwithstanding that Guarantor may be a limited liability company or limited partnership, no person or entity shall have any remedy, recourse or right of recovery against, or contribution from, any former, current or future member, general or limited partners, stockholders, holders of any equity, partnership or limited liability company interest, officers, members, managers, directors, employees, agents, controlling persons, assignees or affiliates of Guarantor (but in each case excluding Guarantor in its capacity as such) (collectively, the Guarantor Affiliates), through Guarantor or otherwise, whether by or through attempted piercing of the corporate veil or similar action, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute, regulation or applicable law, by or through a claim by or on behalf of Guarantor against Guarantor or Guarantor Affiliate, or otherwise, except for rights against Guarantor under this Guaranty.
TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY RELATED DOCUMENTS, ANY DEALINGS BETWEEN OR AMONG GUARANTOR AND OWNER RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN OR AMONG SUCH PARTIES WITH RESPECT THERETO; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. GUARANTOR FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, GUARANTOR HEREBY CERTIFIES THAT NONE OF ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. GUARANTOR ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO THE ACCEPTANCE BY OWNER OF THIS GUARANTY.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY AND ALL SUBSEQUENT AMENDMENT(S), RENEWAL(S), SUPPLEMENT(S) AND/OR MODIFICATION(S) TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, AND ANY RELATED AGREEMENTS, INSTRUMENTS AND DOCUMENTS. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court.
THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS SET FORTH HEREIN SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO SUCH LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. Guarantor hereby irrevocably submits to the exclusive jurisdiction of the State or Federal courts of the Wilmington, Delaware (each, a Delaware Court) in any action, suit or proceeding arising out of or related to this Guaranty. All claims relating to such suits, actions or proceedings shall be brought, heard and determined in such Delaware Court. Guarantor and, by its acceptance of this Guaranty, Owner hereby (i) waives (a) any objection that it may now or hereafter have to the venue of any such suit, action or proceeding in any such Delaware Court and (b) any right to assert that such suit, action or proceeding
Exhibit C-2
was brought in an inconvenient forum and (ii) agrees not to plead or claim the same. Guarantor and, by its acceptance of this Guaranty, Owner, agrees that any final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
Any notice, demand, request or other communication which may or is required to be given to Guarantor shall be given to Guarantor at the address of Manager as set forth in, and otherwise pursuant to, the notice provisions of the Agreement.
Guarantor further agrees as follows:
(a) | To the fullest extent permitted by applicable law, Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any financial accommodations made or extended under the Agreement, or the creation or existence of any Obligation; (iii) notice of the amount of the Obligation, subject, however, to Guarantors right to make inquiry of Owner to ascertain the amount of the Obligation at any reasonable time; (iv) notice of any adverse change in the financial condition of Manager or of any other fact that might increase Guarantors risk hereunder; (v) notice of presentment for payment, demand, protest, and notice thereof as to the Agreement; (vi) notice of any unmatured breach of default under the Agreement; and (vii) all other notices (except if such notice is specifically required to be given to Guarantor under this Guaranty or any other related agreement to which Guarantor is a party) and demands to which Guarantor might otherwise be entitled. |
(b) | To the fullest extent permitted by applicable law, Guarantor waives the right by statute or otherwise to require Owner to institute suit against Manager or to exhaust any rights and remedies which Owner has or may have against Manager. In this regard, Guarantor agrees that it is bound to the payment of the Obligation, whether now existing or hereafter arising, as fully as if such Obligation were directly owing to Owner by Guarantor. |
(c) | Until such time as the Obligation has been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby waives and postpones any right of subrogation Guarantor has or may have as against Manager with respect to the Obligation; (ii) in addition, Guarantor hereby waives and postpones any right to proceed against Manager for contribution, indemnity, reimbursement, or any other suretyship rights and claims (irrespective of whether direct or indirect, liquidated or contingent), with respect to the Obligation; and (iii) in addition, Guarantor also hereby waives and postpones any right to proceed or to seek recourse against or with respect to any property or asset of Manager. |
(d) | If, notwithstanding the provisions of Section 7 of this Guaranty and the intent of the parties that Delaware law govern this Guaranty, any court shall determine that this Guaranty shall be governed by the laws of the State of California, then: WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE §§ 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848, 2849, AND 2850, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE. |
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Exhibit C-3
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: |
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Name: | ||
Its: |
Exhibit C-4
Exhibit 10.33
FIRST AMENDMENT TO DEVELOPMENT MANAGEMENT AGREEMENT
(Concord Naval Weapons Station)
THIS FIRST AMENDMENT TO DEVELOPMENT MANAGEMENT AGREEMENT (CONCORD NAVAL WEAPONS STATION) (this Amendment ), dated as of April 13, 2017, is made by and between LENNAR CONCORD, LLC, a Delaware limited liability company ( Lennar Concord ), and TSC MANAGEMENT CO., LLC, a Delaware limited liability company ( Manager ). Lennar Concord and Manager are sometimes referred to herein, individually, as a Party and, collectively, as the Parties .
RECITALS
A. Lennar Concord and Manager have entered into that certain Development Management Agreement (Concord Naval Weapons Station), dated as of July 2, 2016 (the Agreement ), in connection with Managers provision of certain management services to Lennar Concord with respect to Lennar Concords development of a mixed-use project on certain portions of the former Concord Naval Weapons Station, all as more particularly set forth in the Agreement. Any capitalized term set forth but not defined herein shall have the meaning ascribed to such term in the Agreement.
B. Manager is Controlled by Five Point Operating Company, LLC, a Delaware limited liability company ( Opco ).
C. Opco intends to lease from Concord Center Investors, LLC, a Delaware limited liability company (or its successor under the Lease (as defined below), Landlord ), 2,421 rentable square feet of space commonly known as Suite 1520 located on the fifteenth (15 th ) floor of the building located at 2300 Clayton Road, Concord, California pursuant to that certain One Concord Center Office Lease (the Lease ) for use as an office for Manager in connection with Managers performance of the Services under the Agreement. Opco (or its Affiliate assignee of the Lease or any other Person to whom it assigns the Lease with the Approval of Lennar Concord) shall be referred to herein as Tenant .
D. Lennar Concord and Manager desire to amend the Agreement on the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual undertakings and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Management Office Lease .
a. Lennar Concord shall pay to Manager (or, at the election of Manager, to Tenant) for the period that ends, unless extended on the request of Manager and Approved by Lennar Concord, on the earlier of (I) the Termination Date (as defined in the Lease); and (II) the effective date of the termination of the Lease for any reason: (i) all amounts due and payable to Landlord under the Lease at its execution (including any initial rental due thereunder) concurrent
with Tenants execution of the Lease; (ii) all monthly rental and other recurring amounts due and owing from Tenant under the Lease prior to the first day of each month; (iii) any Termination Fee (as defined in the Lease); (iv) any other cost of early termination of the Lease on or before the date due under the Lease; (v) all other payments due and owing from Tenant under the Lease that have not otherwise been paid under the foregoing on or before the date due under the Lease; provided, however, that, except as otherwise Approved by Lennar Concord, the aggregate amount paid therefor by Lennar Concord each year shall not exceed the aggregate budgeted amount therefor as a line item in the Budget Approved by Lennar Concord; and (vi) all out of pocket costs and expenses Approved by Lennar Concord from time to time that have been incurred by Manager with respect to the execution and performance of the Lease (including legal fees in connection therewith) promptly following Managers submission of reasonably detailed invoices therefor; in each case notwithstanding any termination of the Agreement for any reason, including an election of Lennar Concord not to continue to pursue the Project, and, with respect to amounts under clause (iv) , (v) or (vi) above, except to the extent any such amount is incurred by Tenant or Manager due to the breach or default under the Lease not caused by acts or omissions of Lennar Concord (e.g., a failure to pay amounts due to Manager hereunder), as to which Manager (or Tenant) shall be solely responsible. Manager shall promptly return to Lennar Concord any such payment due and owing to Landlord to the extent Manager or Tenant has not made or does not make a corresponding payment in the same amount to the Landlord. If Lennar Concord (a) assigns its rights under that certain Amended and Restated Agreement to Negotiate between Lennar Concord and the City of Concord dated as of July 12, 2016 (the ENA ) to Opco (or its Affiliate) and the City of Concord consents to such assignment (to the extent such consent is required) or (b) Opco (or its Affiliate) enters into or is assigned the DDA (as defined in the ENA) and the City of Concord consents to such assignment (to the extent such consent is required), then the obligation of Lennar Concord to pay or otherwise reimburse Manager for amounts due and owing under the Lease shall cease and terminate for the period from and after the effective date of such assignment and consent or DDA. For amounts to be reimbursed under this Section 1(a) , such reimbursement shall be made to Manager pursuant to the terms of section 5.2.3 of the Agreement. Manager acknowledges and agrees that all funds paid to Manager by Lennar Concord pursuant to this Section 1(a) to be paid directly to Landlord shall be considered trust funds and utilized solely for purposes of paying rent and other expenses under the Lease in accordance herewith (for the avoidance of doubt, reimbursements of costs previously paid by Manager or Tenant or their Affiliates shall not be considered trust funds and may be utilized by Manager (or such other Person) in its sole discretion). Manager shall (or shall cause Tenant to) terminate the Lease at any time (including pursuant to the Early Termination Right, as defined therein) upon not less than thirty (30) days advance written notice therefor from Lennar Concord; provided, however, that in the event Lennar Concord provides such notice, Manager may elect in its sole and absolute discretion not to terminate the Lease, in which case Lennar Concord shall have no responsibility for any further payments pursuant to this Section 1(a) commencing as of the expiration of such advance notice period, except for any payments due from Lennar Concord pursuant to this Section 1(a) that relate to the period prior to the expiration of such advance notice period. For the avoidance of doubt, Tenant shall be permitted to terminate the Lease as of the Termination Date in the event that Manager does not extend the term of this Section 1(a), with the Approval of Lennar Concord, as provided above.
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b. Lennar Concord shall cause Lennar concurrently herewith provide a guaranty of Lennar Concords payment obligations pursuant to Section 1(a) in the form attached hereto as Exhibit A .
c. Upon expiration or earlier termination of the Agreement, if the Lease remains in full force and effect, Manager and Lennar Concord shall each use commercially reasonable efforts to assign Tenants rights under the Lease to Lennar Concord or its designee Controlled by Lennar or otherwise provide access to the premises thereof to such Person under such arrangements therefor as shall be Approved by Manager, Lennar Concord and, to the extent required, Landlord.
2. Clarifications and Other Amendments .
a. | The phrase (provided that such Project Team member has during the immediately prior six (6) month period (or the period during which such Project Team member has worked for Manager or its Employer Affiliate if shorter than six (6) months) spent at least 75% of his or her working hours performing the Services hereunder) shall be inserted following the phrase Project Team in section 6.3.5 of the Agreement. |
b. | The phrase by Manager or Lennar in section 6.3.6 of the Agreement shall be deleted in its entirety and replaced with by Manager or Lennar Concord. |
c. | In phrase through a separate project specific policy shall be inserted following the phrase errors and omissions insurance coverage in section 9.1.4 of the Agreement. |
d. | In the second to the last line of section 12.15 of the Agreement, the word unless shall be deleted and replaced with the word if. |
3. Miscellaneous .
a. No Conflicts . Except as expressly provided herein, the Agreement shall remain in full force and effect. In the event of any conflict or inconsistency between any provision of this Amendment and any provision of the Agreement, this Amendment shall govern and control.
b. Ratification . The Agreement, as amended hereby, is and shall remain in full force and effect in accordance with its terms and is hereby ratified and confirmed in all respects. The execution and delivery of this Amendment shall not operate as a waiver of or, except as expressly set forth herein, an amendment of any right, power or remedy of either party in effect prior to the date hereof. All references in the Agreement to Agreement shall be deemed references to the Agreement as amended by this Amendment.
c. Counterparts . This Amendment 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 Amendment shall become effective when the Parties have duly executed and delivered signature pages of this Amendment
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to each other. Delivery of this 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 (including electronic signatures) delivered by electronic communication shall have the same legal effect as physically delivered original signatures.
d. Authority . Each Party represents to the other Party that the individual executing this Amendment 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 Amendment on behalf of such Party.
e. 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 Amendment.
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IN WITNESS WHEREOF , Lennar Concord and Manager have caused this Amendment to be executed as of the Effective Date.
LENNAR CONCORD : |
LENNAR CONCORD, LLC , a Delaware limited liability company |
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By: | Lennar Homes of California, Inc. | |||||
a California corporation | ||||||
its sole member | ||||||
By: |
/s/ Jonathan M. Jaffe |
|||||
Name: Jonathan M. Jaffe | ||||||
Title: Vice President |
MANAGER : |
TSC MANAGEMENT CO., LLC , a Delaware limited liability company |
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By: |
/s/ Ivy Greaner |
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Name: Ivy Greaner | ||||||
Title: Vice President |
Signature Page to First Amendment to Concord DMA
EXHIBIT A
FORM OF LENNAR GUARANTY
GUARANTY AGREEMENT
(Concord Naval Weapons Station)
This GUARANTY AGREEMENT (Concord Naval Weapons Station) (this Guaranty ), dated as of April 13, 2017 (the Effective Date ), is given by LENNAR CORPORATION, a Delaware corporation (the Guarantor ), in favor of TSC MANAGEMENT CO., LLC, a Delaware limited liability company ( Manager ). 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 (Concord Naval Weapons Station) dated as of July 2, 2016 (the Original Agreement ), as amended by that certain First Amendment Development Management Agreement (Concord Naval Weapons Station), dated as of even date herewith (the First Amendment and, together with the Original Agreement, as further amended from time to time, the Agreement ), executed by and between Manager and Lennar Concord, LLC, a Delaware limited liability company ( Lennar Concord ).
B. Pursuant to the First Amendment, Lennar Concord agreed to certain payment obligations as more particularly described in the First Amendment.
C. Guarantor is an affiliate of Lennar Concord 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 Lennar Concord of, and agrees to perform to the extent Lennar Concord does not do so, Lennar Concords payment obligations under section 1(a) of the First Amendment 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 Manager that Lennar Concord 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.
2. Manager s Remedies . If Guarantor fails to promptly perform its obligations under Section 1 above, Manager 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
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obligations under Section 1 above, and to collect compensation for all loss, cost, damage, injury and expense that may be sustained or incurred by Manager 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. Manager from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether Manager has first required performance by Lennar Concord or whether Manager has exhausted any or all security for the Obligations.
3. Rights of Manager . Guarantor authorizes Manager 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 Lennar Concord pursuant to the terms of the Agreement, Manager may alter any terms or conditions of the Agreement or any part of it;
3.2 Manager 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 Manager may release Lennar Concord from its liability under the Agreement; and
3.4 Manager 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 that 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 Manager, or its failure to proceed promptly or otherwise as against Lennar Concord, 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 Manager 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 Lennar Concord;
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4.4 Any dealings occurring at any time between Lennar Concord, on the one hand, and Manager, on the other, whether relating to the Obligations or otherwise; or
4.5 Any action of Manager 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. Guarantor s Waivers . Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by Manager, to the fullest extent permitted by law;
5.2 Any right it may have to require Manager to proceed against Lennar Concord, proceed against or exhaust any security held from Lennar Concord, or pursue any other remedy in Managers power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Lennar Concord;
5.4 Any defense based on: (a) any legal disability of Lennar Concord 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 Lennar Concord to Manager from any cause, whether consented to by Manager 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 Manager in any Insolvency Proceeding involving Lennar Concord, including any election to have Managers claim allowed as being secured, partially secured or unsecured, any extension of credit by Manager to Lennar Concord in any Insolvency Proceeding, and the taking and holding by Manager 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 Manager to Guarantor expressly provided for in Section 1 above;
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5.7 Any defense based on or arising out of any defense that Lennar Concord may have to the payment or performance of the Obligations or any part of them;
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 Lennar Concord or any principal of Lennar Concord or any defect in the formation of Lennar Concord or any principal of Lennar Concord; and
5.9 Any defense based on or arising out of any action of Manager 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 Lennar Concord under the Agreement, Manager in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) compromise or adjust the Obligations or any part of them or make any other accommodation with Lennar Concord or Guarantor; or (b) exercise any other remedy against Lennar Concord or any security. No such action by Manager 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 Lennar Concord for any sums paid or performance rendered to Manager, 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 Manager 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 Manager, Guarantor hereby waives: (a) intentionally deleted; (b) all rights to enforce any remedy that Manager may have against Lennar Concord; and (c) all rights to participate in any security now or later to be held by Manager 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 Lennar Concord or against any collateral or security, shall be junior and subordinate to any rights Manager may have against Lennar Concord, and to all right, title, and interest Manager 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 Manager and shall forthwith be paid over to Manager 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 Manager, Lennar Concord, 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 Manager is required to pay, return, or restore to Lennar Concord or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Lennar Concord, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of Manager hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Lennar Concord . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Lennar Concord and such other matters as Guarantor deemed appropriate to assure itself of the ability of Lennar Concord 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 Lennar Concord to pay and perform its Obligations. Manager has no duty to disclose to Guarantor any information which Manager may have or receive about the financial condition or business operations of Lennar Concord, the condition or uses of the Property, or any other circumstances bearing on the ability of Lennar Concord to perform.
9. Intentionally Omitted .
10. Guarantor s Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of Manager, 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 Manager 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);
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10.2 All financial statements relating to Guarantor furnished or to be furnished to Manager 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 Manager 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 Manager;
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 Lennar Concord.
11. Events of Default . Manager 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 as and when required;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason other than the full performance of the Obligations or the termination hereof;
11.3 Any representation or warranty made or given by Guarantor to Manager was false or misleading in any material respect when made, or, once made, becomes false or misleading in any material respect due to later occurring circumstances and Guarantor fails to give prompt notice thereof to Manager;
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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 Manager, or (b) has been dismissed within one hundred eighty (180) 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 Manager. Guarantors obligations under this Guaranty are independent of those of Lennar Concord with respect to the Obligations. Manager may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Lennar Concord, any other Person or any security that Manager may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by Manager shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from Managers delay in exercising or failure to exercise any right or remedy against Lennar Concord, Guarantor or any security. Consent by Manager to any act or omission by Lennar Concord 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 Managers consent to be obtained in any future or other instance. All remedies of Manager against Lennar Concord and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by Manager under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of Manager and Guarantor, including any assignee of Managers interest in the Agreement; 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 Manager 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 Manager: |
TSC Management Co., LLC |
|
One Sansome Street, Suite 3200 |
||
San Francisco, California 94104 |
||
Attention: Kofi Bonner |
||
Facsimile: 415.995.1778 |
||
with a copy to: | ||
TSC Management Co., LLC |
||
25 Enterprise, Suite 300 |
||
Aliso Viejo, California 92656 |
||
Attention: Legal Notices |
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and a copy to : |
Paul Hastings LLP |
|
101 California Street, 48th Floor |
||
San Francisco, California 94111 |
||
Attention: David A. Hamsher |
||
Facsimile: 415.856.7123 |
||
If to Guarantor: |
Lennar Corporation |
|
25 Enterprise Drive, Suite 400 |
||
Aliso Viejo, California 92656 |
||
Attention: Jon Jaffe |
||
Joan Mayer |
||
with copies to: | ||
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 |
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 words Lennar Concord includes both Lennar Concord and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Lennar Concord 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 involving Guarantor or Lennar Concord as the debtor, Guarantor agrees to pay all of Managers costs and expenses, including attorneys fees (including allocated costs for services of Managers in-house counsel), 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 Manager, 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 Managers performance of its obligations under the Agreement because of its relationship to Lennar Concord, 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 Managers consideration for entering into the Agreement, Manager 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 Manager 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 Manager, and that Manager 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 Manager 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 Manager. This Guaranty may not be modified except in a writing signed by both Manager 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 : |
LENNAR CORPORATION, a Delaware corporation |
By: | /s/ Jonathan M. Jaffe | |
Name: | Jonathan M. Jaffe | |
Title: | Vice President |
Agreed and Accepted:
TSC MANAGEMENT CO., LLC ,
a Delaware limited liability company
By: | /s/ Ivy Greaner | |
Name: Ivy Greaner | ||
Title: Vice President |
Exhibit 10.34
GUARANTY AGREEMENT
(Concord Naval Weapons Station)
This GUARANTY AGREEMENT (Concord Naval Weapons Station) (this Guaranty ), dated as of April 13, 2017 (the Effective Date ), is given by LENNAR CORPORATION, a Delaware corporation (the Guarantor ), in favor of TSC MANAGEMENT CO., LLC, a Delaware limited liability company ( Manager ). 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
1. Reference is made to that certain Development Management Agreement (Concord Naval Weapons Station) dated as of July 2, 2016 (the Original Agreement ), as amended by that certain First Amendment Development Management Agreement (Concord Naval Weapons Station), dated as of even date herewith (the First Amendment and, together with the Original Agreement, as further amended from time to time, the Agreement ), executed by and between Manager and Lennar Concord, LLC, a Delaware limited liability company ( Lennar Concord ).
2. Pursuant to the First Amendment, Lennar Concord agreed to certain payment obligations as more particularly described in the First Amendment.
3. Guarantor is an affiliate of Lennar Concord 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 Lennar Concord of, and agrees to perform to the extent Lennar Concord does not do so, Lennar Concords payment obligations under section 1(a) of the First Amendment 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 Manager that Lennar Concord 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.
2. Manager s Remedies . If Guarantor fails to promptly perform its obligations under Section 1 above, Manager 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 that may be sustained or incurred by Manager 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. Manager from time to time may bring such an action or commence such a reference or arbitration proceeding, regardless of whether Manager has first required performance by Lennar Concord or whether Manager has exhausted any or all security for the Obligations.
3. Rights of Manager . Guarantor authorizes Manager 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 Lennar Concord pursuant to the terms of the Agreement, Manager may alter any terms or conditions of the Agreement or any part of it;
3.2 Manager 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 Manager may release Lennar Concord from its liability under the Agreement; and
3.4 Manager 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 that 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 Manager, or its failure to proceed promptly or otherwise as against Lennar Concord, 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 Manager 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 Lennar Concord;
4.4 Any dealings occurring at any time between Lennar Concord, on the one hand, and Manager, on the other, whether relating to the Obligations or otherwise; or
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4.5 Any action of Manager 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. Guarantor s Waivers . Guarantor waives:
5.1 All statutes of limitations as a defense to any action or proceeding brought against Guarantor by Manager, to the fullest extent permitted by law;
5.2 Any right it may have to require Manager to proceed against Lennar Concord, proceed against or exhaust any security held from Lennar Concord, or pursue any other remedy in Managers power to pursue;
5.3 Any defense based on any claim that Guarantors obligations exceed or are more burdensome than those of Lennar Concord;
5.4 Any defense based on: (a) any legal disability of Lennar Concord 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 Lennar Concord to Manager from any cause, whether consented to by Manager 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 Manager in any Insolvency Proceeding involving Lennar Concord, including any election to have Managers claim allowed as being secured, partially secured or unsecured, any extension of credit by Manager to Lennar Concord in any Insolvency Proceeding, and the taking and holding by Manager 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 Manager to Guarantor expressly provided for in Section 1 above;
5.7 Any defense based on or arising out of any defense that Lennar Concord 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 Lennar Concord or any principal of Lennar Concord or any defect in the formation of Lennar Concord or any principal of Lennar Concord; and
5.9 Any defense based on or arising out of any action of Manager 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 Lennar Concord under the Agreement, Manager in its sole and absolute discretion, without prior notice to or consent of Guarantor, may elect to: (a) compromise or adjust the Obligations or any part of them or make any other accommodation with Lennar Concord or Guarantor; or (b) exercise any other remedy against Lennar Concord or any security. No such action by Manager 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 Lennar Concord for any sums paid or performance rendered to Manager, 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 Manager 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 Manager, Guarantor hereby waives: (a) intentionally deleted; (b) all rights to enforce any remedy that Manager may have against Lennar Concord; and (c) all rights to participate in any security now or later to be held by Manager 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 Lennar Concord or against any collateral or security, shall be junior and subordinate to any rights Manager may have against Lennar Concord, and to all right, title, and interest Manager 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 Manager and shall forthwith be paid over to Manager 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 Manager, Lennar Concord, 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.
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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 Manager is required to pay, return, or restore to Lennar Concord or any other Person any amounts previously paid on the Obligations because of any Insolvency Proceeding of Lennar Concord, any stop notice, or any other reason, the obligations of Guarantor hereunder shall be reinstated and revived and the rights of Manager hereunder shall continue with regard to such amounts, all as though they had never been paid.
8. Information Regarding Lennar Concord . Before signing this Guaranty, Guarantor investigated the financial condition and business operations of Lennar Concord and such other matters as Guarantor deemed appropriate to assure itself of the ability of Lennar Concord 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 Lennar Concord to pay and perform its Obligations. Manager has no duty to disclose to Guarantor any information which Manager may have or receive about the financial condition or business operations of Lennar Concord, the condition or uses of the Property, or any other circumstances bearing on the ability of Lennar Concord to perform.
9. Intentionally Omitted .
10. Guarantor s Representations and Warranties . Guarantor makes the following representations and warranties for the benefit of Manager, 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 Manager 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 Manager 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 Manager 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 Manager;
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 Lennar Concord.
11. Events of Default . Manager 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 as and when required;
11.2 Guarantor purports to revoke this Guaranty or this Guaranty becomes ineffective for any reason other than the full performance of the Obligations or the termination hereof;
11.3 Any representation or warranty made or given by Guarantor to Manager was false or misleading in any material respect when made, or, once made, becomes false or misleading in any material respect due to later occurring circumstances and Guarantor fails to give prompt notice thereof to Manager;
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 Manager, or (b) has been dismissed within one hundred eighty (180) days of the filing thereof; or
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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 Manager. Guarantors obligations under this Guaranty are independent of those of Lennar Concord with respect to the Obligations. Manager may bring a separate action, or commence a separate reference or arbitration proceeding against Guarantor without first proceeding against Lennar Concord, any other Person or any security that Manager may hold, and without pursuing any other remedy.
13. No Waiver; Consents; Cumulative Remedies . Each waiver by Manager shall be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from Managers delay in exercising or failure to exercise any right or remedy against Lennar Concord, Guarantor or any security. Consent by Manager to any act or omission by Lennar Concord 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 Managers consent to be obtained in any future or other instance. All remedies of Manager against Lennar Concord and Guarantor are cumulative.
14. Survival . This Guaranty shall remain in full force and effect and shall survive the exercise of any remedy by Manager under the Agreement.
15. Successors and Assigns . The terms of this Guaranty shall bind and benefit the successors and assigns of Manager and Guarantor, including any assignee of Managers interest in the Agreement; 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 Manager 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 Manager: |
TSC Management Co., LLC |
|
One Sansome Street, Suite 3200 |
||
San Francisco, California 94104 |
||
Attention: Kofi Bonner |
||
Facsimile: 415.995.1778 |
||
with a copy to: |
||
TSC Management Co., LLC |
||
25 Enterprise, Suite 300 |
||
Aliso Viejo, California 92656 |
||
Attention: Legal Notices |
||
and a copy to: |
Paul Hastings LLP |
|
101 California Street, 48th Floor |
||
San Francisco, California 94111 |
||
Attention: David A. Hamsher | ||
Facsimile: 415.856.7123 |
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If to Guarantor: | Lennar Corporation | |
25 Enterprise Drive, Suite 400 | ||
Aliso Viejo, California 92656 | ||
Attention: Jon Jaffe | ||
Joan Mayer | ||
with copies to: | ||
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 |
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 words Lennar Concord includes both Lennar Concord and any other Person who at any time assumes or otherwise becomes primarily liable for all or any part of the Obligations of Lennar Concord 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 involving Guarantor or Lennar Concord as the debtor, Guarantor agrees to pay all of Managers costs and expenses, including attorneys fees (including allocated costs for services of Managers in-house counsel), 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 Manager, 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 Managers performance of its obligations under the Agreement because of its relationship to Lennar Concord, 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 Managers consideration for entering into the Agreement, Manager 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 Manager 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 Manager, and that Manager 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 Manager 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 Manager. This Guaranty may not be modified except in a writing signed by both Manager 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 : |
LENNAR CORPORATION, a Delaware corporation |
By: | /s/ Jonathan M. Jaffe | |
Name: | Jonathan M. Jaffe | |
Title: | Vice President |
Agreed and Accepted:
TSC MANAGEMENT CO., LLC ,
a Delaware limited liability company
By: | /s/ Ivy Greaner | |
Name: | Ivy Greaner | |
Title: | Vice President |
Concord DMA Guaranty
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 1 to Registration Statement No. 333-217213 of Five Point Holdings, LLC on Form S-11 of our report dated April 7, 2017 relating to the consolidated financial statements and financial statement schedule of Five Point Holdings, LLC and subsidiaries, appearing in the prospectus, which is part of such Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 24, 2017
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 1 to Registration Statement No. 333-217213 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 such Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
San Francisco, California
April 24, 2017
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 1 to Registration Statement No. 333-217213 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 such Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 24, 2017
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 1 to Registration Statement No. 333-217213 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 such Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 24, 2017