EXHIBIT 10.26
OPERATING AGREEMENT OF
MEADOWBROOK RESIDENCES, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
In accordance with the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited Liability Company
Act and subject to the Articles of Organization, which were filed on
August 6,2002 with the Secretary of State of California, the members of
MEADOWBROOK RESIDENCES, LLC listed on the signature page,
make the following agreement on August 6,2002 regarding the conduct
of the business and affairs of MEADOWBROOK RESIDENCES, LLC,
a California limited liability company ("Company"):
ARTICLE 1. DEFINITION OF TERMS
1.01 When used in this agreement, the following terms have the
meanings set forth here:
(a) "Act" means California's ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited Liability
Company Act as set forth in Corporations Code Title 2.5.
(b) "Agreement" means this operating agreement, as originally
executed and as amended from time to time.
(c) "Approved Costs" means all costs, including Financing and
the Management Fee, incurred in carrying out the Project. Approved Costs
include, but are not limited to: hard and soft costs, developments costs,
design and engineering costs, marketing costs, labor costs, supplier costs,
legal, administrative and accounting costs attributable to the Project,
salaries of the project ▇▇▇▇▇▇▇, permit costs, site trailer costs, materials
costs, and insurance costs.
(d) "Articles" means the Articles of Organization for the
Company as originally filed with the Secretary of State and as amended
from time to time.
(e) "Available Cash" of the Company means all cash funds
of the Company on hand from time to time (other than cash funds obtained
as contributions to the capital of the Company by the members and cash
funds obtained from loans to the Company), after (1) payment of all
operating expenses of the Company as of such time, (2) provision for
payment of all outstanding and unpaid current obligations of the Company
as of such time, and (3) provision for a working capital reserve,
as defined below.
(m) "Entity" means any association, corporation, general
partnership, limited partnership, limited liability company, joint stock
association, joint venture, firm, trust, business trust, cooperative, and
foreign association of like structure.
(n) "Financing" means all loans, if any, procured by the
Company for the purpose of completing the Project, including any
construction loan.
(o) "Interest" in the Company means the entire ownership
interest of a Member in the Company at any particular time,
including the right of the Member to any and all benefits to which a
Member maybe entitled as provided in this Agreement and under the
Act, together with the obligations of the Member to comply with all
of the terms and provisions of this Agreement.
(p) "Management Fee" means the fee paid to Member
JB Valley Development Corporation equal to one and one half
percent (1.5%) of the selling price as to each of the homes sold in
the Project for its performance of services in connection with the
management of the Company. The Management Fee does not cover
any contractor fees in connection with the construction of the Project.
(q) "Manager" means an individual or entity appointed by
consent of all Members and having the authority as set forth in this
Agreement.
(r) "Member" means each person or entity who is an
original signatory to the Agreement and has been admitted to the
Company as a Member, or who is an assignee that has been admitted
to the Company as a Member that has not resigned, withdrawn,
or been dissolved, or who is subsequently admitted to the Company
as a Member.
(s) "Member Nonrecourse Debt" shall have the meaning
ascribed to the term "Partner Nonrecourse Debt" in Regulations
Section 1.704-2(b)(4).
(t) "Member Nonrecourse Deductions" shall mean items
of Company loss, deduction, or Code Section 705(a)(2)(B)
expenditures which are attributable to Member Nonrecourse Debt.
(u) "Membership Interest" means a Member's Interest in the
Company.
(v) "Percentage Interest" of a Member means the percentage
of the Member set forth opposite the name of the Member in Exhibit "A"
attached to this Agreement, as the percentage may be adjusted from time
to time pursuant to the terms of this Agreement.
(w) "Principal office" means the office of the agent of this
Company as shown in its Articles.
(x) "Project" means the construction of dwellings on lots
acquired from time to time by the Company in the Glenbriar Estates
subdivision situated in the City of ▇▇▇▇▇, County of San ▇▇▇▇▇▇▇,
California, as shown in Exhibit "B" attached hereto, and the
subsequent sale of the lots and dwellings situated thereon.
(y) "Pro Rata Part" means the proportion that a percentage
interest of a Member bears to the aggregate interest in the Company
of all Members.
(z) "Regulations" means, unless the context clearly indicates
otherwise, the regulations in force as final or temporary that have been
issued by the U.S. Department of Treasury pursuant to its authority
under the Code, and any successor regulations.
(aa) "Share" refers to an interest in the Company representing
a contribution to capital. Whenever reference is made to "percentage
interest," a share maybe converted into the same by dividing a Member's
number of shares by the total of all shares outstanding.
(bb) "Substitute Member" means any individual or entity that
is admitted into membership on the written consent of all Members in
accordance with Paragraph 3.11.
(cc) "Tax Matters Member" means the Member chosen
pursuant to Internal Revenue Code Section 623 1 (a)(7) to deal with
the Internal Revenue Service on tax matters.
ARTICLE 2. ORGANIZATION OF COMPANY
2.01 Formation of Company. The Members have formed a
limited liability company under the Act by properly executing and filing
the Articles and executing this Agreement. The rights, duties, and
liabilities of the Members and the Manager are determined pursuant to
the Act, the Articles, and this Agreement.
2.02 Company Name. The name of the Company is
MEADOWBROOK RESIDENCES, LLC. The Company will transact
business under that name. However, the Manager may conduct business
under another name if the Manager thinks it advisable, provided that
the Manager complies with the Act and any other applicable laws,
file fictitious name certificates and the like, and file any necessary
amendments.
2.03 Company Purpose. The purpose of the Company is to
engage in any business activity permitted by the Act. The Company
will own, hold sell, assign, transfer, operate, lease and otherwise deal
with real and personal property and improvements thereon.
2.04 Duration of Company and Agreement. The Company
existence commenced on the Effective Date and shall continue until
dissolved and liquidated pursuant to the provisions of Article 21 below.
ARTICLE 3. MEMBERS AND MEMBERSHIP
INTERESTS
3.01 Names, Addresses, and Initial Capital Contributions of
Members. Members, their respective addresses, their initial capital
contributions to the Company, and their respective percentage interests
in the Company are set forth on Exhibit "A", attached to this Agreement
and made a part of it. Each Member agrees to make the initial
contribution set out in Exhibit A within thirty (3 0) days of the
execution of this Agreement. If a Member fails to make a required
Capital Contribution within thirty (30) days after the effective
date of this Agreement, that Member's entire Membership Interest
shall terminate and that Member shall indemnify and hold the
Company and the other Member's harmless from any loss, cost,
or expense, including reasonable attorney fees, caused by the
failure to make such Capital Contribution.
3.02 Future Contributions. Members maybe required to
make additional capital contributions to the Company other than the
capital contribution required to be made under Paragraph 3.01 with
out any Member's prior written consent when directed by the Manager
based on his, her or its determination. Subsequent contributions must
be in amounts and may be in any type of property as is determined
by the Manager. If subsequent contributions are required, Members
may make additional Capital Contributions on a pro rata basis in
accordance with the Member's Capital Account and in proportion
to the Member's Percentage Interest. Upon such determination,
the Manager shall give written notice to each Member. Each
Member shall have fourteen (14) days from the date such notice
is given to contribute his, her or its share of the additional
capital to the Company. Each Member shall receive a credit to
its Capital Account in the amount of any additional capital
which he, she or it contributes to the Company.
3.03 Failure to Make Contributions. If a Member
does not timely contribute capital when required, that Member
shall be in default under this Agreement. hi such event, the
Manager shall send the defaulting Member written notice of
such default, giving the Member fourteen (14) days from the
date such notice is given to contribute the entire amount of his,
her or its required capital contribution (if the defaulting
Member did not make a required contribution of property or
services, the Company may instead require the defaulting
Member to contribute cash equal to that portion of the fair
market value of the contribution that has not been made).
If the defaulting Member does not contribute its required
capital to the Company within said fourteen (14)-day period,
the Manager or the non-defaulting Member may elect any or
all of the following remedies:
(a) The non-defaulting Members may advance
funds to the Company to cover those amounts which the
defaulting Member fails to contribute. Amounts which a non-
defaulting Member so advances on behalf of the defaulting
Member shall become a loan due and owing from the defaulting
Member to the non-defaulting Member and bear interest at the rate
of ten percent (10%) per annum, payable monthly. All cash distributions
otherwise distributable to the defaulting Member under this Agreement
shall instead be paid to the non-defaulting Members making such
advances until such advances and interest thereon are paid in full.
In any event, such advances shall be evidenced by a promissory note
and be due and payable by the defaulting Member one (1) year from
the date that such advance was made. Any amounts repaid shall first be
applied to interest and thereafter to principal. Effective upon a Member
becoming a defaulting Member, each Member grants to the non-
defaulting Members who advance funds a security interest in his,
her or its Economic Interest to secure his, her or its obligation to
repay such advances and agrees to execute and deliver a promissory
note as described herein together with a security agreement and such
UCC- 1 financing statements and assignments of certificates
of membership (or other documents of transfer) as such non-
defaulting Members may reasonably request.
(b) The defaulting Members shall have no right to receive
any distributions from the Company until the non-defaulting
Members have first received distributions in an amount equal to the
additional capital contributed by each non-defaulting Member to the
Company plus a cumulative, non-compounded return thereon at the
rate of ten percent (10%) per annum.
Each Member acknowledges and agrees that (i) a default
by any Member in making a required capital contribution will result
in the Company and the non-defaulting Members incurring certain
costs and other damages in an amount that would be extremely difficult
or impractical to ascertain and (ii) the remedies described in Paragraph
3.03 bear a reasonable relationship to the damages which the Members
estimate maybe suffered by the Company and the non-defaulting
Members by reason of the failure of the defaulting Member to make
any required Capital Contribution and the election of any or all of
the above described remedies is not unreasonable under the
circumstances existing as of the date hereof.
3.04 Member Loans or Services. Loans or services by any
Member to the Company may not be considered to be contribution to
the capital of the Company.
3.05 Capital and Capital Accounts.
(a) The initial Capital Contribution of each Member is as
set forth in Exhibit "A". Interest may be paid on any other Capital
Contribution.
(b) The Company will establish and maintain individual
Capital Accounts on behalf of each Member, including any
additional or Substituted Member who shall subsequently receive
any interest in the Company. The capital account of each Member
consists of (l) the amount of cash the Member has contributed to the
Company, less any liabilities assumed by the Company or to which
the property is subject, plus (3) the amount of profits or income
(including tax-exempt income) allocated to the Member, less (4)
the amount of losses and deductions allocated to the Member,
less (5) the amount of all cash distributed to the Member,
less (6) the fair market value of any property distributed to the
Member, net of any liability assumed by the Member or to which
the property is subject, less (7) the Member's share of any
other expenditures that are not deductible by the Company for
federal income tax purposes or that are not allowable as additions
to the basis of Company property, and (8) subject to any other
adjustments that may be required under the Code. The Capital
Account of a Member is not affected by any adjustments to basis
made pursuant to Section 743 of the Internal Revenue Code,
but must be adjusted with respect to adjustments to basis made
pursuant to Section 734 of the Internal Revenue Code.
(c) No Member has the right to withdraw his, her or its
capital contribution or to demand and receive property of the
Company or any distribution in return for his, her or its Capital
Contribution, except as may be specifically provided in this
Agreement or required by law. No Member may receive out of
Company property any part of his, her, or its capital contribution
until (1) all liabilities of the Company, except liabilities to the
Members on account of their loans, have been paid or
sufficient Company property remains to pay them, and
(2) all Members consent.
(d) Subject to the provisions of subparagraph (c) of
this paragraph, a Member may rightfully demand the return of his,
her or its Capital Contribution (1) on the dissolution of the
Company, or (2) with the consent of all the members. A Member
may demand and receive only cash in return for the Member's
Capital Contribution. The Members' initial Capital
Contributions are as set forth in Exhibit '"A" attached herewith.
3.06 Admission of Additional Capital. Additional capital
may be contributed to the Company, as provided in Article 3 and
upon the written consent by all of the Members.
3.07 Admission of Additional Members. The Members
may admit to the Company additional members to participate in
the profits, losses, available cash flow, and ownership of the assets
of the Company on such terms as are determined by all of the
Members. Admission of any additional Member requires the
written consent of all of the Members then having any interest
in the Company. Any additional Members are allocated gain,
loss, income, or expense by the method provided in this
Agreement.
3.08 Limitation on Liability. No Member is liable under
a judgment, decree, or order of the court, or in any other manner,
for a debt, obligation, or liability of the Company, except as
provided by law. No Member is required to loan any funds to the
Company.
3.09 No Individual Authority Unless expressly
provided in this Agreement, no Member, acting alone, has any
authority to act for, or to undertake or assume, any obligation,
debt, or responsibility on behalf of, any other Member of the
Company.
3.10 No Member Responsible for Other Member's
Commitment. In the event that a Member (or a Member's
shareholders, partners, members, owners, or affiliates) has
incurred any indebtedness or obligation before the date of this
Agreement that relates to or otherwise affects the Company,
neither the Company nor any other Member has any liability
or responsibility with respect to the indebtedness or obligation
unless the indebtedness or obligation is assumed by the
Company pursuant to a written instrument signed by all
Members. Furthermore, neither the Company nor any Member
is responsible or liable for any indebtedness or obligation that
is subsequently incurred by any other Member (or a Member's
shareholder, partners, members, owners, or affiliates). In the
event that a Member (or a Member's shareholders, partners,
members, owners, or affiliates; collectively called the
"liable Member"), whether before or after the date of this
Agreement, incurs (or has incurred) any debt or obligation
that neither the Company nor any of the other Members is to
have any responsibility or liability for, the liable Member
must indemnify and hold harmless the Company and the
other Members from any liability or obligation they
may incur in respect of the debt or obligation.
3.11 Transfer and Assignment of Membership
Interests.
(a) No Member may assign, convey, sell, encumber,
or in anyway alienate all or any part of his, her or its Interest in
the Company as a Member without prior written consent of all
of the Members, which consent may be given or withheld,
conditioned or delayed (as allowed by this Agreement or the Act),
as the remaining Members may determine in their sole
discretion. Transfers in violation of this section are effective only
to the extent set forth in Paragraph 3.14(b), below.
(b) Any Member may transfer, assign or convey all or
any part of his, her or its Interest in the Company for estate
planning purposes to the Member's family limited partnership,
trust or other entity without prior written consent of all the
Members upon ten (10) days prior written notice to all the
Members pursuant to the requirements of Paragraph 23.09
herein.
3.12 Further Restrictions on Membership Transfers.
No Member may assign, convey, sell, encumber, or in anyway
alienate all or any part of his, her or its interest in the Company
(1) without registration under applicable federal and state securities
laws, or unless he, she or it delivers an opinion of counsel satisfactory
to the Company that registration under those laws is not required;
or (2) if the interest to be sold or exchanged, when added to the
total of all other sold or exchanged in the preceding twelve (12)
consecutive months prior to that time, would result in the tax
termination of the Company under Section 708 of the Internal
Revenue Code.
3.13 Substitute Members. A transferee may become a
Substitute Member if (1) the requirements of Paragraphs 3.07 and
3.11, above, are met; (2) the person or entity executes an instrument
satisfactory to the remaining Members accepting and adopting the
terms and provisions of this Agreement; and (3) the person or entity
pays all reasonable expenses in connection with his or her
admission as a remaining Member.
3.14 Effect of Transfer.
(a) Any permitted transfer of all or any portion of a
Member's interest in the Company takes effect on the first day of
the month following receipt by the Members of written notice of
transfer. Any transferee of an interest in the Company takes subject
to the restrictions on transfer imposed by this Agreement.
(b) On a transfer of a Member's interest in the Company
in violation of this Agreement, the transferee has no right to
participate in the management of the business and affairs of the
Company or to become a Member, but the transferee is entitled
only to receive the share of profits or other compensation byway
of income and the return of contributions to which the transferor
of the interest in the Company would otherwise be entitled.
3.15 Right of First Negotiation. If any Member desires to
transfer all or any part of his, her or its Membership Interest, such
Member shall notify the Company and the other Members in writing
of such desire and, for a period of thirty (3 0) days thereafter, the
Members and the Company shall negotiate with respect to the
purchase of such Member's Membership Interest. During such
period, the Member desiring to transfer such Membership Interest
may not solicit a transferee for such Membership Interest.
3.16 Right of First Refusal. If the period described in
Paragraph 3.15 expires without an agreement being reached as to
the purchase of the Membership interest referred to therein, the
Member desiring to transfer his, her or its Membership Interest
may solicit transferees. In such event, each time a Member
proposed to transfer all or any part of his, her or its Membership
interest such Member shall first offer such Membership Interest
to the Company and the non-transferring Members in accordance
with the following provisions:
(a) Such Member shall deliver a written notice
("Option Notice') to the Company and the other Members
stating (i) such Member's bona fide intention to transfer such
Membership Interest, (ii) the Membership Interest to be transferred,
(iii) the purchase price and terms of payment for which the
Member proposes to transfer such Membership Interest and
(iv) the name and address of the proposed transferee.
(b) Within thirty (30) days after receipt of the Option
Notice, the Company shall have the right, but not the obligation,
to elect to purchase all or any part of the Membership Interest
upon the price and terms of payment designated in the Option
Notice. If the Option Notice provides for the payment of non-
cash consideration, the Company may elect to pay the
consideration in cash equal to the good faith estimate of the
present fair market value of the non-cash consideration offered
as determined by the Manager. If the Company exercises such
right within such thirty (30) day period, the Manager shall give
written notice of that fact to the transferring and non-transferring
Members.
(c) If the Company fails to elect to purchase the entire
Membership Interest proposed to be transferred within the thirty
(30) day period described in Paragraph 3.16(b), the non-
transferring Members shall have the right, but not the obligation,
to elect to purchase any remaining share of such Membership
Interest upon the price and terms of payment designated in the
Option Notice. If the Option Notice provides for the payment of
non-cash consideration, such purchasing Members each may
elect to pay the consideration in cash equal to the good faith
estimate of the present fair market value of the noncash
consideration offered as determined by the Manager. Within
sixty (60 days after receipt of the Option Notice, each non-
transferring Member shall notify the Manager in writing of his
or her desire to purchase a portion of the Membership Interest
proposed to be so transferred. The failure of any Member to
submit a notice within the applicable period shall constitute an
election on the part of that Member not to purchase any of the
Membership Interest which maybe so transferred. Each Member
so electing to purchase shall be entitled to purchase a portion of
such Membership Interest in the same proportion that the
Percentage Interest of such Member bears to the aggregate of the
Percentage Interests of all of the Members electing to so purchase
the Membership Interest being transferred. In the event any
Member elects to purchase none or less than all of his, her or its
pro rata share of such Membership Interest, then the other
Members can elect to purchase more than their pro rata share.
(d) If the Company and the other Members elect to
purchase or obtain any or all of the Membership Interest designated
in the Option Notice, then the closing of such purchase shall occur
within the ninety (90) days after receipt of such notice and the
transferring Member, the Company and/or the other Members
shall execute such documents and instruments and make such
deliveries as may be reasonably required to consummate such
purchase.
(e) If the Company and the other Members elect not
to purchase or obtain, or default in their obligation to purchase or
obtain, all of the Membership Interest designated in the Option
Notice, then the transferring Member may transfer the portion of
the Membership Interest described in the Option Notice not so
purchased, to the proposed, transferee, providing such transfer
(i) is completed within thirty (30) days after the expiration of the
Company's and the other Members' right to purchase such
Membership Interest, (ii) complies with Paragraphs 3.07,3.
11,3.12 and 3.13 relating to unanimous consent of Members,
securities and tax requirements.
ARTICLE 4. POWER TO AMEND AGREEMENT
4.01 The Power to adopt, alter, amend, or repeal this
Agreement is vested entirely in the Members of the Company.
ARTICLE 5. MANAGEMENT RIGHTS IN MANAGER
5.01 The right to exercise the powers of the Company and
to manage the business and affairs of the Company is vested entirely
in the Manager, subject to review by the Members.
5.02 The Manager shall establish budgets as maybe required
by the Members. The Manager shall, either personally or by delegation,
approve all ' costs and disbursements necessary to operate the Company's
business, subject to review by the Members.
ARTICLE 6. ELECTION OF MANAGER
6.01 (a) The initial Manager specified in Exhibit "A" hereto
will serve as the Company's Manager until resignation or removal.
(b) The Manager may be elected at a special meeting
called for the purpose of electing Manager. Manager may also be
designated by the unanimous written consent of the Members.
(c) The term of service for the Manager is perpetual
unless removed by the affirmative vote of all of the Members.
ARTICLE 7. REMOVAL OF MANAGER
7.01 (a) The Members may remove a Manager before the
expiration of the Manager's term specified in this Agreement by
the affirmative vote of all of the Members.
(b) At any meeting of Members called expressly for the
purpose, a Manager maybe removed for any reason, with or without
cause, on a resolution unanimously adopted by the Members.
ARTICLE 8. ACTION BY MANAGER
8.01 The Manager has fall authority to act on behalf of the
Company and its Members in its best interest.
ARTICLE 9. COMPENSATION OF MANAGER
9.01 It is acknowledged that the Manager has other business
interests to which the Manager devotes part of the Manager's time.
The Manager shall devote such time to the conduct of the business
of the Company as the Manager, in the Manager's own good faith
and discretion which he or she believes necessary for the successful
operation of the business.
9.02 The Manager shall be entitled to compensation for the
Manager's services as determined by the Members, and to
reimbursement for all expenses reasonably incurred by the Manager
in the performance of the Manager's duties.
ARTICLE 10. EXECUTION OF DOCUMENTS
10.01 The Manager has the authority to execute documents and
instruments for the acquisition, mortgage, or disposal of property on
behalf of the Company, to enter into and bind the Company to
contractual relations and receive and disburse funds on behalf of the
Company.
ARTICLE 11. MEETINGS OF MEMBERS
11.01 (a) No meetings of Members are required. However,
to the extent meetings are held, all meetings of Members will take
place at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇.
(b) Any Member may call a special meeting by giving
at least ten (10) days' written notice to all other Members. The notice
must specify the date, time, and place of the special meeting and the
purpose for calling the meeting. Notice of the meeting must be
delivered personally to the Members or sent to each Member by
United States mail or facsimile machine at the Member's address
as shown on the records of the Company. For mailed notice, the
notice must be deposited in the United States mail at least twelve
(12) days before the time the meeting is held.
(c) The transactions of the Members at any meeting,
however called or noticed, or wherever held, shall be as valid as
though transacted at a meeting duly held after call and notice if a
quorum is present and if, either before or after the meeting, each
Member not present signs a written waiver of Notice, a consent to
the holding of the meeting, or an approval of the minutes of the
meeting.
(d) Members may participate in the meeting through
the use of a conference telephone or similar communications
equipment provided that all Members participating in the meeting
can hear one another.
(e) The Members shall keep or cause to be kept with
the books and records of the Company full and accurate minutes
of all meetings, notices and waivers of notices of meetings, and all
written consents in lieu of meetings.
ARTICLE 12. QUORUM
12.01 At all meetings of the Members, a majority of
Members must be present to constitute a quorum for transaction of
business.
ARTICLE 13. ACTIONS BY MEMBERS AND
VOTING RIGHTS
13.01 Votes Required to Act. Except for those acts requiring
unanimous consent, an act of the Members of record is effective if the
majority of Members' votes adopt the act at a meeting at which a quorum
of Members is present. The voting rights of the Members are to be
distributed equally, one vote per Member, to each Member of the
Company.
13.02 Actions of Tax Matters Member. The Tax Matters
Member of the Company, chosen pursuant to Internal Revenue
Code Section 6231(a)(7), is JB VALLEY DEVELOPMENT
CORPORATION, a California corporation, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, who has the same authority as granted
by the Internal Revenue Code to a tax matters partner.
ARTICLE 14. ACTION BY CONSENT
WITHOUT MEETING.
14.01 Any action permitted to betaken by the Members
maybe taken without a meeting if all of the Members individually
or collectively consent by signing a written approval of the action.
Any action by written consent shall have the same force and effect
as a unanimous vote of the Members.
ARTICLE 15. RECORD DATE
15.01. Only persons whose names are listed as members in
the official records of the Company fifteen (15) days before any
meeting of the Members are entitled to notice of or to vote at
that meeting.
ARTICLE 16. VOTE BY PROXY
16.01 Members may vote either in person or by proxy.
Proxies must be executed in writing by the Members. A telegram,
cablegram, or similar transmission by the Member or a photographic,
photostatic, facsimile, or similar reproduction of a writing executed
by a Member is deemed an execution in writing for purposes of this
Agreement.
ARTICLE 17. ALLOCATIONS OF NET PROFITS AND
NET LOSSES AND DISTRIBUTIONS
17.01 Allocations of Net Profit and Net Loss.
(a) Net Loss. Net Loss shall be allocated to the
Members in proportion to their Percentage Interests.
Notwithstanding the previous sentence, loss allocations to
a Member shall be made only to the extent that such loss allocations
will not create a deficit Capital Account balance for that Member in
excess of an amount, if any, equal to such Member's share of
Company Minimum Gain. Any loss not allocated to a Member
because of the foregoing provision shall be allocated to the other
Members to the extent the other Members are not limited in respect
of the allocation of losses under this Paragraph 17.01 (a).
Any loss reallocated under this Paragraph 17.01 (a) shall be taken
into account in computing subsequent allocations of income and
losses pursuant to this Article 17, so that the net amount of any
item so allocated and the income and losses allocated to
each Member pursuant to this Article 17, to the extent possible,
shall be equal to the net amount that would have been allocated
to each such Member pursuant to this Article 17 if no reallocation
of losses had occurred under this Paragraph 17.01 (a).
(b) Net Profit. Net Profit shall be allocated to the
Members in proportion to their Percentage Interests.
17.02 Special Allocations. Notwithstanding
Paragraph 17.01:
(a) Minimum Gain Chargeback. If there is a net
decrease in Company Minimum Gain during any Fiscal Year,
each Member shall be specially allocated items of Company
income and gain for such Fiscal Year and, if necessary, in
subsequent Fiscal Years, in an amount equal to the portion of
such Member's share of the net decrease in Company
Minimum Gain that is allocable to the disposition of Company
property subject to a Nonrecourse Liability, which share of
such net decrease shall be determined in accordance with
Regulations Section 1.704-2(g)(2). Allocations pursuant to
this Paragraph 17.02 (a) shall be made in proportion to the
amounts required to be allocated to each Member under this
Paragraph 17.02(a). The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(f).
This Paragraph 17.02(a) is intended to comply with the
minimum gain chargeback requirement contained in
Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(b) Chargeback of Minimum Gain Attributable
to Member Nonrecourse Debt. If there is a net decrease in
Company Minimum Gain attributable to a Member Nonrecourse
Debt, during any Fiscal Year, each Member who has a share of
the Company Minimum Gain attributable to such Member
Nonrecourse Debt, which share shall be determined in
accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Company income and gain for
such Fiscal Year, and, if necessary, in subsequent Fiscal Years,
in an amount equal to that portion of such Member's share of
the net decrease in Company Minimum Gain attributable to
such Member Nonrecourse Debt that is allocable to the disposition
of Company property subject to such Member Nonrecourse
Debt, which share of such net decrease shall be determined in
accordance with Regulations Section 1.704-2(i)(5). Allocations
pursuant to this Paragraph 17.02(b) shall be made in proportion
to the amounts required to be allocated to each Member under
this Paragraph 17.02(b). The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i)(4).
This Paragraph 17.02(b) is intended to comply with the minimum
gain chargeback requirement contained in Regulation Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Nonrecourse Deductions. Any nonrecourse
deductions, as defined in Regulations Section 1.704-2(b)(1),
for any Fiscal Year or other period shall be specially allocated to
the Members in proportion to their Percentage Interests.
(d) Member Nonrecourse Deductions. Those items
of Company loss, deduction, or Code Section 705(a)(2)(B)
expenditures which are attributable to Member Nonrecourse Debt
for any Fiscal Year or other period shall be specially allocated
to the Member who bear the economic risk of loss with respect
to the Member Nonrecourse Debt to which such items are
attributable in accordance with Regulations Section 1.704-2(i).
(e) Qualified Income Offset. If a Member
unexpectedly receives any adjustments, allocations, or
distributions described in Regulations Section
1.704-1 (b)(2)(ii)(d)(4),(5) or (6), or any other event creates a
deficit balance in such Member's Capital Account in excess
of such Member's share of Company Minimum Gain, items of
Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate
such excess deficit balance as quickly as possible. Any special
allocations of items of income and gain pursuant tot this Paragraph
17.02 (e) shall be taken into account in computing subsequent
allocations of income and gain pursuant to this Article 17 so
that the net amount of any item so allocated and the income, gain,
and losses allocated to each Member pursuant to this Article 17
to the extent possible, shall be equal to the net amount that would
have been allocated to each such Member pursuant to the provisions
of this Paragraph 17.02(e) if such unexpected adjustments,
allocations, or distributions had not occurred.
17.03 Section 704(c) Allocations. Notwithstanding any
other provision in this Article 17, in accordance with Code Section
704(c) and the Regulations promulgated thereunder, income, gain,
loss, and deduction with respect to any property contributed to the
capital of the Company shall, solely for tax purposes, be allocated
among the Members so as to take account of any variation between
the adjusted basis of such property to the Company for federal
income tax purposes and its fair market value on the date of
contribution. Allocations pursuant to this Paragraph 17.03 are
solely for purposes of federal, state and local taxes. As such, they
shall not affect or in any way be taken into account in computing
a Member's Capital Account or share of profits, losses, or other
items of distributions pursuant to my provisions of this Agreement.
17.04 Allocations of Net Profits and Losses and Distributions
in Respect of a Transferred Interest. If any Economic Interest is
transferred, or is increased or decreased by reason of the admission
of a new Member or otherwise, during any Fiscal Year of the
Company, Net Profit or Net Loss for such Fiscal Year shall be
assigned pro rata to each day in the particular period of such
Fiscal Year to which such item is attributable (i.e., the day on
or during which it is accrued or otherwise incurred), and the
amount of each such item so assigned to any such day shall be
allocated to the Member or Assignee based upon his or her
respective Economic Interest at the close of such day.
However, for the purpose of accounting convenience and
simplicity, the Company shall treat a transfer of, or an
increase or decrease in, an Economic Interest which occurs
at any time during a semimonthly period (commencing
with the semi-monthly period including the date
hereof) as having been consummated on the last day of
such semi-monthly period, regardless of when during
such semi-monthly period such transfer, increase, or
decrease actually occurs (i.e., sales and dispositions made
during the first fifteen (15) days of any month will be deemed
to have been made on the fifteenth (1 5th) day of the month).
Notwithstanding any provision above to the contrary,
gain or loss of the Company realized in connection with a sale
or other disposition of any of the assets of the Company shall
be allocated solely to the parties owning Economic Interests
as of the date such sale or other disposition occurs.
17.05 Distributions of Distributable Cash by the
Company. Subject to applicable law and any limitations
contained elsewhere in this Agreement, the Manager may
elect from time to time to distribute Distributable Cash to
the Members periodically, but not less frequently than at
the end of each calendar quarter, and after the payment from
gross income of all Approved Costs, which distributions shall
be in the following order of priority:
(a) First, to the Members in proportion to their
unreturned Capital Contributions allocated to the homes sold
or financed;
(b) Second, the payment of the Management Fee
to Member JB Valley Development Corporation equal to one and
one half percent (1.5%) of the selling price of the home sold;
(c) Third, as each home in the Project is sold,
payment of a preferred return equal to seven percent (7%) per
annum on the Capital Contribution allocated to the home sold
from the date the capital was contributed to the date of repayment;
(d) Fourth, to the Members in proportion to their
Percentage Interests as set forth opposite the name of the Member
in Exhibit "A".
All such distributions shall be made only to the Persons
who, according to the books and records of the Company, are the
holders of record of the Economic Interests in respect of which
such distributions are made on the actual date of distribution.
Subject to Paragraph 17.07, neither the Company nor any Manager
shall incur any liability for making distributions in accordance with
this Paragraph 17.05.
17.06 Form of Distribution. A Member, regardless of the
nature of the Member's Capital Contribution, has no right to
demand and receive any distribution from the Company in any
form other than money. Except as provided in the Act, no Member
may be compelled to accept from the Company a distribution of
any asset in kind in lieu of a proportionate distribution of money
being made to other Members and no Member may be compelled
to accept a distribution of any asset in kind.
17.07 Restriction on Distributions
(a) No distribution shall be made if, after giving
effect to the distribution:
(i) The Company would not be able to pay
its debts as they become due in the usual course of business; or
(ii) The Company's total assets would be less
than the ▇▇▇ of its total liabilities plus, unless this Agreement
provides otherwise, the amount that would be needed, if the
Company were to be dissolved at the time of the distribution,
to satisfy the preferential rights of other Members, if any, upon
dissolution that are superior to the rights of the Member
receiving the distribution.
(b) The Manager may base a determination that a
distribution is not prohibited on any of the following:
(i) Financial statements prepared on the
basis of accounting practices and principles that are reasonable in
the circumstances;
(ii) A fair valuation; or
(iii) Any other method that is reasonable in
the circumstances.
Except as provided in Corporations Code Section 17254(e),
the effect of a distribution is measured as of the date the distribution
is authorized if the payment occurs within one hundred twenty (120)
days after the date of authorization, or the date payment is made if it
occurs more than one hundred twenty (120) days of the date of
authorization.
(c) A Member or Manager who votes for a distribution
in violation of this Agreement or the Act is personally liable to the
Company for the amount of the distribution that exceeds what could
have been distributed without violating this Agreement or the Act if
it is established that the Member or Manager did not act in compliance
with this Paragraph 17.07 or the Act. Any Member or Manager
who is so liable shall be entitled to compel contribution from
(i) each other Member or Manager who also is so liable and
(ii) each Member for the amount the Member received with
knowledge of facts indicating that the distribution was made in
violation of this Agreement or the Act.
17.08 Return of Distributions. Members and Assignees who
receive distributions made in violation of the Actor this Agreement
shall return such distributions to the Company. Except for those
distributions made in violation of the Act or this Agreement, no
Member or Assignee shall be obligated to return any distribution
to the Company or pay the amount of any distribution for the account
of the Company or to any creditor of the Company. The amount of
any distribution returned to the Company by a Member or Assignee
or paid by a Member or Assignee for the account of the Company
or to a creditor of the Company shall be added to the account or
accounts from which it was subtracted when it was distributed to
the Member or Assignee.
17.09 Obligations of Members to Report Allocations.
The Members are aware of the income tax consequences of the
allocations made by this Article 17 and hereby agree to be bound
by the provisions of this Article 17 in reporting their shares of
Company income and loss for income tax purposes.
17.10 Compliance. . The provisions of this Agreement are
intended to comply with and in some cases are required by Sections
704(b) and 704(c) of the code and Regulations thereunder. Some
of the language in this Agreement is taken directly from such
Regulations. This Agreement is intended to be interpreted in such
manner as to comply with the Regulations. The Manager may make
modifications deemed appropriate to comply with such Regulations
if events otherwise cause this Agreement not to comply.
ARTICLE 18. INDEMNIFICATION OF MEMBERS
AND MEMBERS' FIDUCIARY DUTIES
18.01 The Company will indemnify Members for any act
taken in the capacity of a Member, other than acts that involve a
breach of fiduciary duty. The standard of the fiduciary duty a
Member owes to the Company and to its members are those of a
partner to a partnership and to the partners of the partnership.
A Member's standard of conduct owed to the Company and
other Members is to act in the highest good faith to the Members,
and a Member may not seek to obtain an advantage in the
Company affairs by the slightest misconduct, misrepresentation,
concealment, threat, or adverse pressure of any kind.
ARTICLE 19. INDEMNIFICATION OF MANAGER AND
MANAGER'S FIDUCIARY DUTIES
19.01. The Company shall indemnify Manager for any act
taken in the capacity of a Manager, other than acts that involve a
breach of fiduciary duty. The standard of the fiduciary duties a
Manager owes to the Company and to its Members are those of
a partner to a partnership and to the partners of the partnership.
A Manager's standard of conduct owed to the Company and
other Members is to act in the highest good faith to the Members,
and a Manager may not seek to obtain an advantage in the
Company affairs by the slightest misconduct,
misrepresentation, concealment, threat, or adverse pressure
of any kind.
ARTICLE 20. COMPANY RECORDS AND
REPORTS
20.01. Records and Accounting, Fiscal Year. The books
and records of the Company must be kept, and the financial
position and the results of its operations recorded, in accordance
with the accounting methods elected to be followed by the
Company for federal and state income tax purposes. The books
and records of the Company must reflect all Company transactions
and must be appropriate and adequate for the Company's business.
The fiscal year of the Company for financial reporting and for
federal income tax purposes is the calendar year.
20.02. Access to Accounting Records. All books and
records of the Company must be maintained at any office of the
Company or at the Company's principal place of business, and
each Member, and his or her duly authorized representative,
must have access to them at the office of the Company and the
right to inspect and copy them at reasonable times.
20.03. Annual and Tax Information. The Manager must
use its best efforts to cause the Company to deliver to each
Member, within forty-five (45) days after the end of each fiscal
year, all information necessary for the preparation of each
Member's federal income tax return. The manager must also use
his or her best efforts to cause the Company to prepare, within
forty-five (45) days after the end of each fiscal year, a financial
report of the Company for the fiscal year, which must contain a
balance sheet as of the last day of the year then ended, an income
statement for the year then ended, a statement of sources and
application of funds, and a statement of sources and
applications of funds, and a statement of reconciliation of the
capital accounts of the Members.
ARTICLE 21. DISSOLUTION OF COMPANY
21.01. The Company shall be dissolved, its assets shall be
disposed of, and its affairs shall be wound up on the first to occur
of the following events:
(a) Unanimous determination by all of the Members
that the Company should be dissolved.
(b) The expiration of the Company term as stated in
the Articles, if any.
(c) On the dissolution, bankruptcy, resignation, or
expulsion of any Member unless at least fifty percent (50%) of the
remaining Members consent to continue the Company within ninety
(90) days of the dissolution event.
(d) At any earlier time as may be provided by
applicable law.
ARTICLE 22. REPRESENTATIONS
Each Member hereby represents and warrants to, and
agrees with, the Members and Company as follows:
22.01. He, she or it has a preexisting personal or business
relationship with the Company or one or more of its officers or
controlling persons, or by reason of his, her or its business or
financial experience, or by reason of the business or financial
experience of his, her or its financial advisor who is unaffiliated
with and who is not compensated, directly or indirectly, by
the Company or any affiliate or selling agent of the Company; he,
she or it is capable of evaluating the risks and merits of an
investment in the Company and of protecting his, her or its own
interests in connection with this investment.
22.02. He, she or it has not seen, received, been presented
with, or been solicited by any leaflet, public promotional meeting,
article or any other form of advertising or general solicitation with
respect to the sale of the Interest in the Company.
22.03. He, she or it is acquiring the Membership Interest
for investment purposes for his, her or its own account and not
with a view to or for sale in connection with any distribution of
all or any part of the Membership Interest. No other person will
have any director indirect beneficial interest in or right to the
Membership Interest.
22.04. He, she or it is financially able to bear the economic
risk of an investment in the Company, including the total loss
thereof.
22.05. He, she or it acknowledges that the Membership
Interest has not been registered under the Securities Act of 1933,
as amended (the "Securities Act' ),or qualified under any blue
sky laws in reliance, in part, on his, her or its representations,
warranties and agreements herein.
22.06. He, she or it represents, warrants and agrees that
the Company is under no obligations to register or qualify the
Membership Interest under the Securities Act or under any state
securities law, or to assist him, her or it in complying with any
exemption from registration and qualification.
22.07. Without limiting the representations set forth
above, he, she or it will not make any disposition of all or any
part of the Membership Interest which will result in the violation
by him, her or it or by the Company of the Securities Act or any
other applicable securities laws.
22.08. He, she or it understands that the certificates
(if any) evidencing the Membership Interest may bear any
legend required by applicable securities laws.
22.09. He, she or it acknowledges that the Membership
Interest is a speculative investment Which involves a substantial
degree of risk of loss by him, her or it of his, her or its entire
investment in the Company, that he, she or it understands and
takes full cognizance of the risk factors related to the purchase
of the Membership Interest, and that the Company is newly
organized and has no financial or operating history.
22.10. He, she or it acknowledges that there are substantial
restrictions on the transferability of the Membership Interest
pursuant to this Agreement, that there is no public market for the
Membership Interest and none is expected to develop, and that,
accordingly, it may not be possible for him, her or it to liquidate
his, her or its investment in the Company.
22.11. Neither the Members, any agent or employee
of the Company or of the Members, nor any other person has at
any time guaranteed or warranted to him or her that he, she or it
may freely transfer the Membership Interest, that a percentage
of profit and/or amount or type of consideration will be realized
as a result of an investment in the Membership Interest, that
past performance or experience on the part of any Member or any
other person in any way indicates the predictable results of the
ownership of the Membership Interest or of the overall Company
business, that any cash distributions from Company operations or
otherwise will be made to the Members by any specific date or
will be made at all or that any specific tax benefits will accrue
as a result of an investment in the Company.
22.12. He, she or it acknowledges that the tax
consequences to him, her or it of investing in the Company will
depend on his, her or its particular circumstances, and neither
the Company, the Members, nor any other person will be
responsible or liable for the tax consequences to him., her or it
of an investment in the Company. He, she or it will look solely to,
and rely upon, his, her or its own advisers with respect to the
tax consequences of this investment.
ARTICLE 23. MISCELLANEOUS PROVISIONS
23.01. Complete Agreement. This Agreement and the
Articles of this Company constitute the complete and exclusive
statement of agreement among the Members with respect to the
subject matter described. This Agreement and the Articles replace
and supersede all prior agreements by and among any of the
Members. This Agreement and the Articles supersede all prior
written and oral statements; no representation, statement, or
condition or warranty not contained in this Agreement or the
Articles is binding on the Members or has any force or effect.
23.02. Governing Law. This Agreement and the rights
of the parties under this Agreement will be governed by,
interpreted, and enforced in accordance with the laws of the
State of California.
23.03. Binding Effect. Subject to the provisions of
this Agreement relating to transferability, this Agreement is
binding on and inures to the benefit of the Members, and their
respective distributees, successors, and assigns.
23.04. Severability. If any provision of this Agreement
is held to be illegal, invalid, or unenforceable under the present
or future laws effective during the term of this Agreement,
the provision is fully severable; this Agreement is construed and
enforced as if the illegal, invalid, or unenforceable provision had
never comprised a part of this Agreement; and the remaining
provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or
unenforceable provision; and there will be added automatically
as a part of this Agreement a provision as similar in terms to the
illegal, invalid, or unenforceable provision as, may be possible
and be legal, valid, and enforceable.
23.05. Multiple Counterparts. This Agreement maybe
executed in several counterparts, each of which is deemed an
original but all of which constitute one and the same instrument.
However, in making proof only one copy signed by the party to
be charged is required.
23.06. Additional Documents and Acts. Each Member
agrees to execute and deliver additional documents and instruments
and to perform all additional acts necessary or appropriate to
effectuate, carry out, and perform all of the terms, provisions, and
conditions of this Agreement and the transactions contemplated by it.
23.07. No Third Party Beneficiary . This Agreement is made
solely and specifically among and for the benefit of the parties to it,
and their respective successors and assigns, subject to the express
provisions of the Agreement relating to successors and assigns,
and no other person has or will have any rights, interest, or claims
under this Agreement as a third-party beneficiary or otherwise.
23.08. Tax Consequences. Members acknowledge that the
tax consequence of each Member's investment in the Company is
dependent on each Member's particular financial circumstances.
Each Member will rely solely on the Member's financial advisors
and not the Company. The Company makes no warranties as to
the tax benefits that the Members receive or will receive as a
result of the Member's investment in the Company.
23.09. Notices. Any notice to be given or to be served
on the Company or any party to this Agreement in connection
with this Agreement must be in writing and is deemed to have
been given and received when delivered to the address specified
by the party to receive the notice. Notices must be given to each
Member at the address specified in Exhibit 'A'. Any Member or
the Company may, at anytime, designate any other address in
substitution of the foregoing address to which notice will be
given by giving written notice to the other Members and the
Company thirty (3 0) days before the date of delivery of the
notice.
23.10. Amendments. All Amendments to this Agreement
must be in writing and signed by all of the Members.
23.11. Title to Company Property. Legal title to all property
of the Company must be held and conveyed in the name of the
Company.
23.12. Reliance on Authority of Person Signing Agreement.
In the event that a Member is not a natural person, neither the
Company nor any Member will (1) be required to determine the
authority of the individual signing this Agreement to make any
commitment or undertaking on behalf of the entity or to determine
any fact or circumstance bearing on the existence of the authority
of the individual, or (2) be required to see to the application or
distribution of proceeds paid or credited to individuals signing
this Agreement on behalf of the entity.
IN WITNESS THEREOF, the undersigned have executed
this Agreement, to be effective as of the date that the Articles of
Organization of the Company are accepted for filing by the
Secretary of State.
MEMBER:
JB Valley Development Corporation,
a California corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
Its: Chief Executive Officer
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: President
MEMBER:
Dover Investments Corporation,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Its: CEO
EXHIBIT A
CAPITAL CONTRIBUTION OF MEMBERS AND ADDRESSES
OF MEMBERS AND MANAGER OF
GLENBROOK HOMES, LLC
Members Members
Members Members Capital Percentage
Name Address Contribution Interest
JB Valley 2406 Merced $ 0 50%
Development Street
Corporation, a ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
corporation
Dover 100 Spear $2,000,00 50%
Investments Street, #520
Corporation, a ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇
corporation
TOTAL $2,000,000 100%
Manager's Name
JB Valley Development Corporation,
a California corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Manager's Address
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
EXHIBIT B
LEGAL DESCRIPTION OF THE PROJECT