HomeMy WebLinkAboutGPA 05-06; AURA CIRCLE; General Plan Amendment (GPA)f-, 'I ,//vi
I-. l"" f1 N r ·' Title Com a11 ~~ 1
. I
EW CENTURY TITLE COMPANY
August 27, 2004
J.A. Gallagher
1542 Oak Avenue
Carlsbad, CA 92008
Re: Your No.
Our No.:
3131 Camino de/ Rio North, Suite 1250
San D,ego CA 92108
Phone: (619) 308-1700 • Fax (619) 308-1725
1041071-LO
Enclosed is the requested title insurance policy in duplicate on the above referenced transaction.
We appreciate the opportunity to have been of service.
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CL TA STANDARD POLICY
EXCLUSIONS fROM COVERAGE
-l from the coveroge of this policy and the Company 1ot poy loss or damage, costs, attorneys' fees or ... The following matters ore expressly exch
expenses which arise by reason of:
L (a) Any low, ordinance or governmemal regulation (including but not limited to building or zoning lows, ordinances, or regulotiom) restricting, regulot·
ing, prohibiting or relating to (i) the occupancy, u1e, or enioyrr,ent of the lond; (ii) the choroder, dimensions or location of ony improvement now or hereafter
erecte,d on the land; (iii) o separation in ownership or o change in the dimension; or oreo of the land or any parcel of which the land is or was a par1; or (iv)
environmenlol protection, or the effect of any violation of these lows, ordinances or governmentol regulations, except to the extent that a notice of the
enforcement thereof or a notice of a de!ect, lien or encumbrance resulting from a violation or alleged violation affecting lhe land has been recorded in the public records at Dote of Policy.
, (b) Any governmental police power not excluded by (a) obove, except to the extent that a notice of the exercise thereof or o notice of a defect, lien or
encumbrance resulting from a violation or alleged violation oflecting the land has been recorded in the public records al Dote of Policy.
2, Right; of eminent domoin unle1s notice of the exercise thereof hos been recorded jn the public records at Dote of Policy, but not excluding from coverage
a1y toking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge.
3. Defects, liens, encumbrances, adverse claims or other molters:
(o) whether or not recorded in the public records at Dote of Policy, but created, suffered, assumed or ogreed to by the insured claimant;
(b) not known to the Company, not recorded in the public records ot Date of Policy, but known to the insured cloimont and not disclosed in writing to
the Company by the insured claimant prior to the dote the insured claimant become on in1ured under this policy;
(c) resulting in no loss or domage to the insured doimont;
(d) attoching or created subsequent to Dote of Policy; or
(e) resulting in loss or damage which would not have been sustained if the insured claimant hod value paid for the insured mortgage or for the e1tote or interest insured by this policy.
4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or foilure of any
sub1equenl owner of the indebtedness, to comply with the applicable doing bo·slness lows of the state in which the lond is situated.
5, Invalidity or unenforceobility of the lien of the insured mortgage, or doim thereof, which arises out of the transaction evidenced by the insured
mortgage and is based upon usury or any consumer credit protection or truth in lending low.
6 Any doim, which arises out of the tronsoction vesting in the insured the eslole or interest insured by this policy or the 'ronsoction c:eating the interest
of the insured ler.der, by reason of the operation of '.ederoi bankruptcy, state insolvency or similar creditors' right; laws.
CONDITIONS AND STIPULATIONS
1. DEFINITION OF TERMS.
The following term; when used in this policy meon:
(a) "iniured": the insured na,ned in Schedule A, ond, subject to ony rights
or defens~s the Company would hove had against the named insured, those
who su"ee:i' to t!ie interest of the named insured by operofon of law a; distin-
guished from purchase including, but not limited to, he<rs, distributees, devisees,
suiv,vors, personal representatives, next of kin, or corporate or fiduciary succes-
sors. The term "inwred" also includes
(i) the owner of the indebiedne1s secured by the insured mortgage
ond eoct, successor in ownersrip of the indebtedness except a successor who rs
on obliger under the provisions of Section 12(c) of these c~nditions and Stipula-
tions (reserv,ng, however, all rights and defenses as to ony successor that the
Componv would hove hod against any predece1sor insur"ed, unless the successor
acquired the indebtedness as a purchaser for value w;!hovt knowledge of tiie
osserted defect, lien, encumbrance, adverse cloiri, or other matter insured
against b_r this policy os offecting title to the estate or interest in the land);
, (11) ony governmental agency or governmentol instrumentality which i1
on insurer or guarantor under an insurance contract or guaranty insuring or
guaranteeing the indebtedness secured by the insured mortgoge, or ony port
thereof, whether named os on insured herein or not;
(iii) the parties designated in Section 2(a) of the1e Condition. and Stipulations.
(b) "insured claimant": on insured claiming loss or damage.
(c) "insured lender": !he owner of on insured mortgoge.
(d) "insured mortgage": a mortgage shown in Schedule B, the owner of
which is named as on insured in Schedule A.
(e) "knowledge" or "known": actual knowledge, not constructive knowl-
edge or notice which may be imputed to an insured by reason of the public
records 0.1 defined in this policy or ony other records which import constructive notice of matters oHecting the land.
(f) "lend": the land described or referred to in Schedule A, and tmwove-
ments offi~ed thereto which by law constitute real property. The term 'land"
does not include ony property beyond the lines of the area described or
referred to in Schedule A, nor any right, title, interest, estate or easement in
obutting 1treet;, roods, avenues, alleyi, lanes, ways or waterways, but nothing
herein shall modify ar limit the extent lo which a right of access to end from the
land is insured by this policy.
. (g) "mortgage": mortgage, deed of trust, trust deed, or other security
instrument.
(h) "public records": records established under state statutes ot Dote of
Policy for the purpose of imparting constructive notice of matters relating to real
property to purchasers for valve and without knowledge.
(i) "unmorketability of the title": an alleged or apporent matter affecting
the_ title to the land, not e~duded or excepted from coverage, which would
enlitle o purchaser of the estate or interest described in Schedule A or the
insured ~ortgogtto be re:l:ased from.the □~ligation t~ pur_chase by virtue of a
contractual c□n'l:!1t1on requmng the delivery of morketoole litle.
2. CONTINUATION OF INSURANCE.
(□) After Acquisition of Title by Insured Lender. ff this policy insures the
owner of the indebtednes.1 secured b/ the insured mortgage, the coverage of
this policy shall continue in force as o Date of Policy in favor of (i) such insured
\ender who acquires oll or any part of the estate or interest in the land by
1oreclosure, trustee's sale, conveyance in lieu of foreclosure, or other legal
monner which dischorge1 t~e lien of the insured mortgage; (ij) a transferee of
t~e estate or intere1t 10 acquired from on imured corporation, provided the
transferee is the parent or wholly,owned subsidiary of the imured corporation.
and their corporote successors by operolion of low ond not by purchase, subject
to any rig~t1 or defenses the Company ri,oy hove ogoin;t any predecessor
insu,ed1; ~nd (iiil ony governmental agency or governmental ir.s:rvmentolity
which acquires al or any port of the estate or interest pursuont too contract of
insurance or guaranty insuring o• guaranteeing the hdebtednesi secured by the
insured mortgage.
(b) After Conveyance of Title by on Insured. The coveroge of this policy
shell continue in force a, of Dote of Policy in favor of on insured only so long os
the in.ured retains on estate or interest in the land, or holds on indebtedness
secured by a purcnose money mortgoge g;YM by a purchaser from the insured,
or only so long as the insured shall have liability by reoson of covenonh of
warranty mode by the insured in any tronsfer or conveyonce of the estate or
interest. This policy sholl not continue in force in favor of ony purchaser from on
in1ured of either (i) on estate or interest in the land, or (ii) on indebtedness
secured by a purchase money mortgage given to on insured.
(c) Amount of lnsvn::ince. The omount of insurance ofter the ocqvi;ition or
alter the conveyance by on insured lender shall in neither event exceed the
least of:
(i) The amount of insurance ;toted in Schedule A;
(ii) The amount of the principal of the indebtedness secured by the
insured mortgage as of Dote of Policy, interest thereon, expenses of foreclosure,
amounts odvonced pursuant to the insured mortgage to assure compliance with
lows or to protect the lien of the insured mortgage prior to the time of ac9uisi-
lion of the estate or interest in the land and secured thereby ond reasonable
amounts expended to prevent deteriori;,tion of improvement1, but reduced by
the amount of all payments made; or
(iii) The amount paid by ony governmental agency or governmental
instrumentality, ii the agency or the instrumentality is the insured doiman!, in
!he oc9uisilion al the estote or interest in sotisfoction of ill insuronce contract or
guaranty.
3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT.
An insured shell notify the Company promptly in writing (i) in case of any
litigation as set forth in 4(□) below, (ii) in case knowledge shell come to on
insured hereunder of any claim of title or inierest which is adverse to the title to
the estate or interest or the lien of the insured mortgage, as insured, and which
might ccuse loss or damage for which the Company may be liable by virtue of
this policy, or (iii) if title to the estate or interest or the lien of the insured
mortgage, os insured, is reiected as unmark.etoble. H prompt notice shall not be
given to the Company, then as to that insured all liability of the Company shall
terminote with regard to the matter or matters for which prompt notice is
re9uired; provided, however, that failure to notify the Company shall in no case
prejudice the rights of any insured under this policy unless the Company shall be
prejudiced by_ the failure and then only to the extent of the preiudice.
4. DEFENSE AND PROSECUTION OF ACTIONS; OUTY OF INSURED CIAIMANT TO COOPERATE.
(a) Upon written re9vest by on insured and subiect to the options
contained in Section 6 of these Conditions and Stipulotion1, the Company, ct its
own cost and without unreasonable delay, shall provide for the defense of such
insured in litigation in which ony third porty orn-rts o doim adverse to the title
or interest as insured, but onlv as to those stoled causes of action olleoino n
CONDITIONS ANO' STIPU1A TIONS Continued
(continued from reverse side of Policy Face)
defect, lien or encumbrance or other matter insured against by this policy. The
Company sholl _hove the right to select counsel of its choice (subject to the right
of such insured""to object for reasonable couse) to represent the insured as to
those stoted causes of action end shell not be lioble for end will not pay the
fees of any other counsel. The company will not pay any fees, costs or expenses
incurred by on insured in the defense of those cause; of action which allege
motter1 nOt ir.iured against by this policy.
{b) The Company shall hove the right, at its own cost, to institute end
prosecute any action or proceeding or to do any other act which in its opinion
moy be necessary or desirable to establish the title to the estate or interest or
Irle lien of t~e insured mortgage, os insured, or to prevent or reduce loss or
damage to on insured. The Company may toke any appropriate action under
the terms of this policy, whether or not it shall be liable hereunder, ond shall not
thereby concede liability or wo:ve any prov;sion of this policy. If the Company
shell exercise its rights vnder thi; porogroph, it shell do so diligently.
(c) Whenever the Company shall hove brought on action or interposed o
defense as required or permitted by the provisions of this policy, the Company
may pursue ony litigation to final determination by a court of competent juris•
diction and expressly reserves the right, in its sole discretion, to appeal from any
adverse iudgment or order. .
(d) In ol: coses where this policy permits or requires the Company to prose·
cute or provide for the defense of any action or proceeding, on ir.sured sholl
sec:;re !o the Cor:ipony the right to so prosecute or provicie defense in the action
or proceeding, and all oppeob therein, and permit the Corr.pony to use, at its
option, the name of such insured for this purpose. Whenever requested by the
Company, c::n insured, at the Company's expense, shell give the Company all
reasonable aid (i) in any action or proceeding, securing evidence, obtaining
witnesm, prosecvting or defending the oction or proceeding, or e/feding se!·
tlement,-ond Ci) in ony other lawful act which in the opinion of the Company
moy be neceisory or desirable to establish the title to the estate or interest or
the lien of the insured mortgage, cs insured. If the Company ii preiudieed by
the. loil_ure Of on insured to furnish the required cooperation, trle Company's
obhgotrons to such insured under the policy shall terminate, including any liobil•
iry or obligotion to defend, prosecute, or continue any litigation, with regard to
the matter or matters requiring such cooperation. •
5. PROOF OF LOSS OR DAMAGE.
In addition to end ofter the noticei required under Sec1ion 3 cl these Con·
ditions on~ Stipulations hove been provided the Company, a proof of loss or
damage signed end sworn to by each insured claimant shell be furnished to the
Compony within 90 days ofter the inivred doimont shell ascertain the fact;
giving rise to the loss or domage. The proof of loss or domoge ;hall describe the
defect in, or lien or encumbrance on the title, or other matter insured against by
thi1 policy which constitutes the basis of loss or damage and iholl stole, lo the
extent possible, the bosi; of colculating the amount of the loss or damage. If the
Company is prejudiced by the failure of on insured doimont to provide the
required proof of loss or damage, the Company'; obligations to such in;ured
under the policy sholi terminate, including any liobility or obligation to defend,
prosecute, 01 continue any litigation, with regard to the molter or molters
requiring such proof of loss or damage.
I~ o~dition, on insured claimant may reasonably be reouired to svbmit on
exommot1on under oath by any authorized representative of the Company end
shall produce for exomination, inspection and copying, at such reasonable times
ond places as may be designated by any authorized representative of the
Company, ell _records, books, ledgers, checks, correspondence and memoranda,
w~ether beonng a dote before or ofter Dote of Policy, which reasonably per•
t?,n to the loss or damage. further, if requested by any authorized represent□·
t1ve of the Co1;1pony, the insured claimant shall grant its permission, in writing,
for any oi.rthonzed representative of the Company to examine, inspect and copy
all records, booKs, ledgers, checks, correspondence and memoranda in the cus·
todr or cont~ol of a thirrl party, which reasonably pertain to the loss or damage.
All 1nformat1on designated as confidential by on ins-ured claimant provided to
the Company pursuant to this Section shall not be disclosed to others unless, in
the reosc~oble judgment of the Company, it is necessary in the odministrotion
of the claim. Failure of on insured doimont to submit for examination under
oath, produce other reasonably reqvested information or grant permission to
secure reasonably necessary information from third parties as required in this
parogrop~, u_n_less rrohibited by law or go~em~entol regulation, shell termi·
no(e any l1obd1ty o the Company under this policy cs to that inMed for that
clo1m.
6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF llABILITY.
. In case o~ o claim under this policy, the Company shall hove the following
oddrilonol opt10(\,l~ •
(□) To Pay Or Tender Payment of the Amount af Insurance or to Pur-
chase the Indebtedness,
(i) to pay or tender payment of the amount of insurance under this
policy together with any c05ts, attorneys' fees and expenses incurred by the
insured doimont, which were authorized by the Company, up to the time o!
payment or tender of payment ond which the Company i1 obiigoted to poy; or
(ii) in case loss or damage is claimed under this policy by the owner of
the indebtedness sec~red by the insured mortgage, to pu;chose lhe indebted·
ness secured by the 1risured mortgage for the omovnt owing thereon toge!her
with ony ccsts, attorneys' fee; end expenses incurred by the insi.;red claimant
which were authorized by the Company up to the time of purchase and which
the Company is obligated to pay.
If the Company offers to purchase the indebtedness os herein provided,
the owner of the indebtedness sholl tronsler, assign, end convey the indebted·
nes; and the insvred mortgage, together with ony colloterol security, to the
Company upon payment therefor.
Upon the exercise by the Company of the option provided for in para•
graph o(i), all liability end obligations to the insured under this policy, other
then to make the payment required in thot porogroph, shell terminate, indud·
ing any liability or obligation to defend, prosetute, or continue any litigotion,
and the policy shall be 1urrendered to the Company for cancellation.
Upon the exerci1e by the Company of the option provided for ;n peirogroph
□(ii} the Company'; obligation to on insured lender under this policy for the
claimed loss or damage, other then the payment required to be mode, ;hall
terminate, including any liability or obligation to defend, prosecute or continue
any litigation.
(b) To Pay or Otherwise Settle With Parties Other than the Insured or
With the Insured Cloimonl.
(i) to pay or otherwise settle wit~ other parties for or in the name of
on insured doiman! any claim insvred against under this pclicy, together with
any ,cits, ottomeys' fees ond expen.es incurred by the insured claimant which
were authorized by the Company up to the time of poyme:it and which the
Compor.y is obligo'.ed to pay; or
(ii) to pay or otherwiie iett!e wi:h the insured do;mont the loss or
domoge pro,ided for vnder thi1 polid, together with ony costi, attorney;' lees
and e~penie; incurred by the iMure cloimont which were authorized by the
Company up !o the time of payment end which the Compo~y ii obligated lo
pay.
Upon the exercl;e by the Company of either oi tile opticns provided lor in
porogrophs b(i) or b(ii), the Compony'i obligation; to the in1ured under thii
policy for the claimed loss or damage, other than the payments requ;red to be
mode, ;hall terminate, including ony liability or obligotior. to defend, prosecute
or continue any litigation.
7. DETERMINATION ANO EXTENT OF UABILITY.
This policy is a contract of indemnity against □dual monetary loss or dam-
age suitoined or incurred by the insured claimant who ho, suffered loss or
damage by reason of molters insured against by this policy end only to the
extent herein described.
(o) The liability of the Company under this policy to on insured lender shall
not exceed the least of:
(i) the Amount of Insurance stated in Schedvle A, or, if opplicoble,
the omount of insurance cs defined in Section 2 (c) of these Conditions end
Stipulations;
(ii) the amount of the unpaid principal indebtedness secured by the
insured mortgoge os limited or provided under Section 8 of these Conditions
and Stipuloticns or as reduced under Sedion 9 of these Conditions end Stipula-
tion;, at the time the los, or damage insured ogoinsl by thii policy occurs,
together with interest thereon; or
(iii) the difference between the valve of the insured estate or interest
os insured and the value of the insured estate or interest subiect· to the defect,
lien or encumbrance insured against by this policy.
(b) In the event the insured lender ho1 acquired the estate or interest in the
manner described ir. Section 2(o) of these Conditions and Stipulations or hos
conveyed the title, then the liability of the Company sho/1 continue a; 1et fortfi in
Section 7(a) of these Conditions and Stipulations.
(c) The liability of the Company vnder this policy lo on insured owner of
lhe estate or interest in the land described in Schedule A shall not exceed the
least of:
(i) the Amount of Insurance stated in Schedule A; or,
(ii) the difference between the value of the insured estate or interest
cs insured and the value of the in1ured estate or interest subied to the defect,
lien or encumbrance insured against by this policy. ,
(d) The Company will pay only those cost;, attorneys' fees and expenses"
incurred in occordonce with Section 4 of these Conditions end Stipulations.
8. LIMITATION OF LIABILITY.
(o) If the Company establishes the title, or removes the alleged defed, lien
or encumbrance, or cures the lack of o right of access to or from the lend, or
cures the claim of unmorketability of title, or otherwise establishes the lien of the
insured mortgage, oil 01 insured, i~ o reasonably diligent manner by any
method, including litigation end the completicn of on! appeals therefrom, it
shall hove fully performed its obligaticns with respect to I at matter end shell not
be liable for any 1011 or domoge caused thereby.
• conditions and stipulations continued and condudec'
(b) In the event of any litigotion, including litigation by the Compcmy or
with the Compony's consent, the Company ,hall hove no liability for l1m or
donioge until there has been a final determination by a court of competent
juris'diction, and di.1pasitioo of all appeals therefrom, adverse to the title, or, if
applicable, to the lien of the insured mortgage, os i11.1ured.
(c) The Company shall no1 be liable for loss or domoge to any insured for
liability v0lun!arily assumed by th!) insured in settling any claim or wit without
the prior written consent of the Company.
(d) The Company shall no! be liable to on insured lender for: (i) any
indebtedness created 1ubsequent to Dote of Policy except for advances mode lo
protect the lien of the insured mortgoge and secured thereby end reosonoble
amounts expended to prevent deterioration of improvemenh; or (ii) construction
locrn advances mode subsequenl to Date of Policy, except construction loon
odvonces mode subsequent to Dote of Policy for the purpose of financing in
whole or in port the construction of on improvement to the lond which at Dote of
Policy were secured by the in1ured mortgage and which the insured was end
continued to be obligated to advance ot and ofter Dote of Policy.
9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION Of
L1A.B11ITY.
(o) All payments under this policy, except payments mode for costs, otter•
neys' lees and expenses, shall reduce '.he amount of insuror.ce pro tonic. How·
ever, os to on insured lender, any payments mode prior to the ocquiii1ion of
title to the eitole or interest 01 provided in Section 2( □) of these Conditions ond
Stipu:otiom sholl not reduce pro !onto the amount of insurance afforded under
this poiicy 01 to any such insured, except to the extent that the payments reduce
the amount al the indebtedness secured by the insured mortgage.
(b) Poyr:ie~t in port by any person of the principol of the indebtedness, ar
ony other obligation secured by the in;ured mortgoge, or any voluntary partial
sati1foction or release of the insured mortgage, to the extent of the payment,
sol:lfoction or release, shell reduce the amount of insurance pro !onto. The
amount of, insurance may the reciter be increased by accruing interest and
advances mode to protect the lien of the insured mortgage end secured there-
by, with interest thereon, provided in no event shell the amount of insurance
be greater than the Amount of ln;uronce slated in Schedule A.
(,) Payment in full by any person or the voluntary satisfaction or release of
the insured mortgoge shall terminate oll liobility of the Company to on insured
lender except as provided in Section 2(0) of these Conditions end Stipulations.
10. LIA.BlLITY NONCUMULATIVE.
It is expressly understood that the amount of insurance under this policy
shall be reduced by any amount the Company may poy under ony pc,licy insur·
ing o ~ortgage to which exception is token in Schedule B or to which the insured
hos agreed, assumed, or token subject, or which is hereafter executed by on
insured and which is a charge or lien on the estate or intere.11 described or
referred to in Schedule A, and the amount so paid shall be deemed a payment
under this policy to the insured owner.
The provisions of this Section shall not apply to on insured lender, 1;nless
such insured acquires title to said estate or interest in sotisfoction of the
indebtednes; secured by on insured mortgage.
11. PAYMENT OF LOSS.
(ol No payment shall be mode without producing this policy for endorse-
ment o the payment unless the policy hos been lost or destroyed, in which case
proof of loss or destruction shall be furnished lo the satisfaction of the
Company.
(b) When liability ond the extent of loss or damage hos been definitely
fixed in accordance with lhese Conditions and Stipulations, the loss or damage
sholl be poyoble within 30 days thereafter.
12. SUBROGATION UPON PAYMENT OR SETTLEMENT.
{a) The Com!)Ony's Right of Subrogation /
Wnenever the Company shall hove settled end paid o doim under this
policy, all right of subrogation shell vest in the Company unaffected by any act
of the insured claimant.
Hie Company shall be subrogoted to and be entitled to all rights and
remedies which the insured daimont would hove hod against any person or
property in respect to the claim hod this policy not been iuued. II requested by
the Campany, the insured claimant sholl transfer to the Company oil right.; ond
remedies against ony person or property necessary in order to perfect this right
of subrogation. The insured cloimonl shall permit the Company to sue, com-
promise or settle in the nome of the insured claimant ond to u,e the name of the
insured doimonl in ony transaction or litigation inYolving these rights or
remedies.
If o payment on occounl of a claim does not fully cover the loss of the
insured cloimonl, the Company shall be subrogoted (i) as ta on insured owner,
to oll rigbts ond,r,emedies in the proporlion wh.ich the Company's payment beers
lo the whole amount of the loss; and (ii) cs ta on insured lender, ta o!I righh
end rem1idies of the in.1ured claimant after th! insured doimont ;hall hove re-
covered its principal, interest, ond costs of collection.
lf loss should resuh from any act of the insured claimant, os stated above,
that oct shall not void this policy, but the Company, in that event, shall be
required lo poy only that port of any losses insured against by !his policy which
sholl exceed the amount, ii any, lost lo the Company by reason of the impair-
ment by the insured doimonl of the Company's right of 1ubrogotion.
(b) The Insured\ Rights and limitations.
Notwithstanding the foregoing, the owner of the indebtedness secured by
on insured mortgage, provided the priority of the lien of the insured mortgage
or its enforceability is not affected, may release or substitute the personal lia-
bility of any debtor or guarantor, or extend or otherwise modify the terms of
payment, or release a portion of the estale or interest from the lien of the
insured mortgage, or release ony colloterol security for the indebtedness.
When the permitted eels of the insured claimant occur end the insured has
knowledge of any claim of title or interest adverse to the litle to the estate or
in1erest or the priority or enforceobility of the lien of on insured mortgage, as
insured, the Company ,hall be required lo pay only that porl of ony losses
inwred against by this policy which shell exceed the amount, ii ony, lost to the
Company by reason of the impairment by the insured claimant of the Company's
right of subrogation.
(c) The Company's Rights Against Non-insured Obligors.
The Company's right of subrogation ogoinst non-insured obligors shoH e,ist
o~d shall include, without limitation, the rights of the insured to indemnities,
guaranties, other policies of in1;ironce or bond;, notwithstanding any terms ~r
conditions contained ;n those instruments which provide for subrogation rights by
reason of this poli9'·
The Company 1 right of 1ubrogotion shell no! be ovoided by acquisition of
on insured mortgage by on obliger (except on obligor described in Section
1 {o)(ii) of these Conditiom end Stipulations) who acquires the insured mortgage
os o result of on indemnity, guoronlee, other policy of insuronce, or bond end
the obliger will not be on insured under thii policy, notwithstanding Section
1 jo)(i) of these Conditions and Stipulations.
13. A.RBITRA.TION.
Unles; prohibited by applicable low, either the Company or the ir..ured
moy demand arbitration purwont to the Title lnsuronce Arbitrotion Rules of the
American Arbitration Association. Arbitroble matters moy include, but ore not
limited lo, o~y contrcversy or cloim between the Company end the insured aris-
ing ou\ of or relot:ng to this policy, any 1ervice of the Company in connection
with its isiuonce or the breech of o policy provision or other obligotion. AH
orbitroble molters when the Amount of Insurance is $1,000,000 or le;s shell be
or0itroted ol the option of either the Company or the insured. All orbitroble
molters when the Amount of Insurance is in excess of $1,000,000 shall be arbi-
trated only when agreed to by both the Company ond the insured. Arbitration
pursuant to this policy and under the Rules in effect on the dole the demand for
arbitration is mode or, ct the option of the insured, the Rules in effect ot Dote of
Policy shall be binding upon the parties. The award may include attorneys' fees
only if the lows of the stole in which the land is located permit o court to □word
attorneys' lee> to o prevoiling party. Judgment upon the award rendered by
the Arbitralor{s) may be entered in any courl having jurisdiction thereof.
The low of the ;itus of the land shall opply lo on arbitration under the Title
Insurance Arbitration Rules.
A copy of the Rules mo\ be obtained from the Company upon reque5t.
14. UA.BILITY UMITED TO HIS POLICY; POLICY ENTIRE CONTRA.CT. ,
(o} This policy together with oll endorsements, if any, attached hereto by
the Company is the entire policy and contract between the insvred ond the
Company. In interpreting any provision of this policy, this policy shell be
construed 0; a whole.
(b} Any claim of loss or damage, whether or not based on negligence, end
which crises out of the status of the lien of the insured mortgage or of the title
lo the estate or interest covered hereby or by any action asserting such claim,
sholl be restricted to this policy.
(c} No amendment of or endorsement to this policy con be mode except by
o writing &ndorsed hereon or attached hereto signed by either the President, o
Vice Presidenl, the Secretory, on As;istant Secretory, or validating officer or
authorized signatory of the Company.
15. SEVERABILITY.
In the event any provision of the policy is held invalid or unenfcrceoble
under applicable low, the policy shall be deemed not to include that provision
and oil other provisions shall remain in full force and effect.
16. NOTICES, WHERE SENT.
All notices required to be given the Company end any statement in writing
required to be furnished the Company sholl include the number of this policy
end shall be addressed to the Company ct P.O. Bax 2029, Houston, Texcs
n252-2029, end identify this policy by its printed policy serial number which
appears on the bottom of the front of the first page of this policy.
Office file number:
File# 1041071-LO
Amount of insurance
$1,100,000.00
1. Name of insured:
Carlsbad Greens, LLC
SCHEDULE A
Premium
$1,458.00
Policy number:
1597757210
Date of Policy
May 26, 2004 a1 04:45 P.M.
2. The estate or interest in the land which is covered by this policy is:
fee
3. Title to the estate or interest in the land is vested in·
Carlsbad Greens, LLC
4. The land referred to in this policy is situated in the State of California, County of San Diego, and
is described as follows:
See Attached Exhibit "A"
This Policy Valid Only If Schedule B Is Attached.
CL TA STANDARD POLICY
Polley No: 1597757210
File No.: 1041071
Schedule B
Cl TA Standard Coverage
SCHEDULE B
Exceptions From Coverage
This policy does not insure against loss or damage (and the company will not pay costs,
attorneys' fees or expenses) which arise by reason of:
Part I
1. Taxes or assessments which are not shown as existing liens by the records of any taxing
authority that levies taxes or assessments on real property or by the public records. Proceedings
by a public agency which may result in taxes or assessments, or notices of such proceedings,
whether or not shown by the records of such agency or by the public records.
2 Any facts, rights, interests or claims which are not shown by the public records but which could
be ascertained by an inspection of the land or which may be asserted by persons in possession
thereof.
3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records.
4. Discrepancies, conflicts in boundary lines, shortages in area, encroachments, or any other facts
which a correct survey would disclose, and which are not shown by the public records.
5. (a) unpatented mining claims; (b) reservations or exceptions in patents or in acts authorizing the
issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted
under (a), (b), or (c) are shown by the public records.
Policy No: 1597757210
File No.: 1041071
Schedule B
CLTA
SCHEDULE B
Part II
1. Property taxes, including any assessments collected with taxes, to be levied for the fiscal
year 2004-2005 that are a lien but not yet payable.
2. The lien of supplemental or escaped assessments of property taxes, if any, made
pursuant to the provisions of Part 0.5, Chapter 3.5 or Part 2, Chapter 3, Articles 3 and 4
respectively (commencing with Section 75) of the Revenue and Taxation Code of the
State of California as a result of the transfer of title to the vestee named in schedule A; or
as a result of changes in ownership or new construction occurring prior to date of policy.
3. An easement for the purpose shown below and rights incidental thereto as set forth in a
document. (no representation is made to the present ownership of said easement):
Granted To: City of Carlsbad
Purpose: Erecting, constructing, reconstructing, replacing, repairing,
maintaining, and operating water system, sewerage,
drainage, power line, excavation, and/or embankment
facilities and appurtenances thereto, together with the right
to ingress and egress to and from said right of way by
practical route or routes
Recorded: October 5, 1971 as File No. 228810 of Official Records
Affects: The route thereof affects a portion of said land and is more fully described
in said document.
4. An easement for the purpose shown below and rights incidental thereto as set forth in a
document. (no representation is made to the present ownership of said easement):
Granted To:
Purpose:
Recorded:
Affects:
City of Carlsbad
Right of way
October 12, 1984 as File No. 84-387679 of Official Records
The route thereof affects a portion of said land and is more
fully described in said document.
5. Any rights of parties in possession of said land, based on any unrecorded lease, or
leases.
This company will require that a full copy of any unrecorded lease be submitted to us,
together with all supplements, assignments and amendments, before issuing any policy
of title insurance.
6, Any rights, interests or claims which may exist or arise by reason of any easement or
lesser right, affecting the portion of said land, and for the purpose herein stated,
including incidental purposes, disclosed by a survey or inspection of said land.
Policy No: 1597757210
File No.: 1041071
7. A deed of trust to secure an indebtedness in the original amount shown below.
Amount:
Dated:
Trustor:
Trustee:
Beneficiary:
Recorded:
$1,654,300.00
May 20, 2004
Carlsbad Greens, LLC
Temecula Valley Bank, N.A.
Temecula Valley Bank, N.A.
May 26, 2004 as File no. 2004-0487664 of Official Records.
Policy No:
File No.:
1597757210
1041071
EXHIBIT "A"
':'hat portion of Lot "I" of Rancho Agua f.edionda, i:1. the City of Carlsbad,
County of San Diego, State of Califo=nia according to Map thereof No. 823,
'.:iled in the Office of '.:he Coc:.nty Recorder of San Diego County, Noverrber 16,
1896, described as fo:.lows:
Begin:1ing at the Northwest co=ner of Lot 17, of Laguna Riviera Unit No. 1, in
the City of Car:.sbad, County of San Diego, State of California, according to
>!ap t!:e=eof No. 5871, f.::_led .:.:1. the Office of the County Recorder o:: San Diego
CouY1ty, Ap=il 21, 1967; tf'.er.ce along '.::f'.e Westerly bou:1dary of said Map No.
5871 to the Northeast cor:-,e.::: of Lot 37 of Lagu~a Riviera Unit No. 2, .:'..n the
c.:.ty of Car:.sbad, Cou:1ty cf San Diego, State of California, acco.:::dir.g '.::o Map
:::Cereo:: No. El65, filed in the Office of the County Recorder of San Diego
County, August 8, 1968; the:1.ce a2.::ir.g the No.::::herly boundary of said Map No.
6:.65, to t!"l.e Southeast cor:1e:r of Lot 298 of :.,aguna t\_i_viera L·nit No. 9, in the
City of Carlsbad, County of San Diego, State of California, according to Map
:hereof Ko. 7516, filed i~ the Office of the County Recorder of San Diego
County, Decenber 29, 1972; the:-,ce a:.or.g t:1e Sasterly bo·.1.nda=y of said Map No.
7516 to the most Northerly cor:1er o= ~ot 286 o:: sa~d Map 7516, be~ng on :he
Southerly L:..ne of Lot 13l o:!: Carlsbad Tract Ko. 76-15, Unit 3 (Pa::.isades
?oint), in the C~ty o= Carlsbad, Coun:y of San Diego, State of California,
according to Map thereof No. 10579, filed in the o=fice of the County Reco=der
of San ::)iego Cou:ity, Jar.uary 31, 1983; thence Sasterly along the Southerly and
Southeasterly lines of Lots 131 and 130 of said Map No. 10579 to the most
Southerly corner of Carlsbad Tract No. 73-8, (Carlsbad ?alisades) Unit No. 1,
in :he City of Carlsbad, County of Sa:1 Diego, State of California, according
to Map thereof No. 8039, filed in the Cffice of the C::iunty Recorder of San
::)iego County, Novenber 6, 1974; thence Northeasterly along said So~theasterly
line of said Y.ap No. 8039 to the point of beginning.
PROJECT DESCRIPTION/EXPLANATION
PROJECT NAME: Aura Circle
APPLICANT NAME: Carlsbad Greens LLC
Please describe fully the proposed project. Include any details necessary to adequately
explain the scope and/or operation of the proposed project. You may also include any
background information and supporting statements regarding the reasons for, or
appropriateness of, the application. Use an addendum sheet if necessary.
Description/Explanation:
Aura Circle consists of a 12 lot residential tentative map. Eleven (11) residential lots are
clustered on 3.22 acres of a 15.0-acre lot, APN 207-100-48. The residential lots are proposed
to range in size from approximately 8,000 sf to over 15,000 sf. Open space lot 12 comprises
11.8 acres or 78.5% of site. The development envelope was designed in coordination with the
California Coastal Commission and the City of Carlsbad relative to the hardline standards of the
City's HMP. This proposed development plan concentrates development in the southern portion
of the existing lot, preserving 0.88-acres of grassland and 10.6-acres of CSS. CSS taken in the
course of site development will be mitigated on-site in the disturbed areas and on the proposed
manufactured slope areas. The topography of the site varies between 38 and 239 feet above
mean sea level.
Rev. 4/91 PTOjDesc.frm
We have included 5 sets each of the tentative map and landscape plans for your review
along with all applicable studies, fees and applications identified in the City's Application
Requirements Checklist. If you have any questions or need any additional information, please feel
free to call me at (760) 438-4090 extension 106.
Sincerely,
Ste~?Js-
Assistant Planner
encl.
cc: Joe Gallagher, MSK Development
Gary Green
file JHA/SJP/AURA CIRCLE
-2-
ARTICLE 1
DEFINITIONS
1.1 "Adjusted Capital Contribution" means, as of any day, a Member's Capital
Contributions adjusted as follows:
(a) Increased by the amount of any Company liabilities which, in connection
with distributions pursuant to Sections 3.5 and 8.2 hereof, are assumed by such
Member or are secured by any Company property distributed to such Member; and
(b) Reduced by (i) the amount of cash and the fair market value of any
Company property distributed to such Member pursuant to Sections 3.5 and 8.2 hereof,
and (ii) the amount of any liabilities of such Member assumed by the Company or which
are secured by any property contributed by such Member to the Company.
1.2 "Agreement" shall mean this Operating Agreement as originally executed
and as amended from time to time.
1.3 "Affiliate" of a Member or Manager shall mean any Person, directly or
indirectly, through one or more intermediaries, controlling, controlled by, or under
common control. The term "control" as used in the immediately preceding sentence
shall mean with respect to a corporation or a limited liability company, the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting rights and,
with respect to any other Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the controlled Person.
1.4 "Approval of the Members" shall mean the affirmative vote of Members
holding 60% of the Membership Interests in the Company.
1.5 "Assignee" shall mean a person who has acquired a Member's Economic
Interest in the Company, by way of a Transfer in accordance with the terms of this
Agreement, but who has not become a Member.
1.6 "California Act" shall mean the Beverly-Killea Limited Liability Company
Act at California Corporations Code Section 17000, et seq., as amended.
1.7 "Capital Contribution" shall mean any contribution to the capital of the
Company in cash or property by a Member whenever made. "Initial Capital
Contribution" shall mean the initial contribution to the Capital of the Company, as
provided in Section 3 2 of this Agreement.
-2-1125.2000:1518:1474364
1.8 "Code" shall mean the Internal Revenue Code of 1986 or corresponding
provisions of subsequent superseding federal revenue laws.
1.9 "Dissolution Event" shall mean the death, withdrawal, resignation,
expulsion, bankruptcy or dissolution of a Member or occurrence of any other event that
terminates the continued membership of a Member in the Company.
1.10 "Economic Interest" shall mean a Person's right to share in the income,
gains, losses, deductions, credits, or similar items of, and to share in the distributions
from, the Company, but does not include the other rights of a Membership Interest.
1.11 "Entity" shall mean any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust, cooperative or
association.
1.12 "Encumbrance" shall mean, with respect to any Membership Interest, or
any element thereof, a mortgage, pledge, security interest, lien, proxy coupled with an
interest (other than as contemplated in this Agreement), option, or preferential right to
purchase.
1.13 "Fiscal Year" shall mean the calendar year.
1.14 "Interest" shall mean the proportion that a Member's ownership in the
capital and income of the Company bears to the aggregate ownership of all Members.
1.15 "Involuntary Transfer" shall mean, with respect to any Membership
Interest, or any element thereof, any Transfer or Encumbrance, whether by operation of
law, pursuant to court order, foreclosure of a security interest, execution of a judgment
or other legal process, or otherwise, including a purported transfer to or from a trustee
in bankruptcy, receiver, or assignee for the benefit of creditors.
1.16 "Manager" shall mean MSK or, in the event MSK ceases to act as
Manager for any reason, such one or more managers elected by the Members
pursuant to the California Act.
1.17 "Member" shall mean each of the Initial Members, additional Members
and substituted Members who are, as of a given time, a member of the Company.
1.18 "Membership Interest" shall mean a Member's rights in the Company,
collectively, including the Member's Economic Interest, any right to vote or participate in
management, and any right to information concerning the business and affairs of the
Company.
1.19 "Net Profits" shall mean, for each Fiscal Year, the income and gains of the
Company determined in accordance with accounting principles consistently applied
-3-11.25 2000:1518:147436 4
from year to year employed under the accrual method of accounting and as reported,
separately or in the aggregate, as appropriate, on the Company's information tax return
filed for federal income tax purposes, plus any income exempt from federal income tax
under the Code.
1.20 "Net Losses" shall mean, for each Fiscal Year, the losses and deductions
of the Company determined in accordance with accounting principles consistently
applied from year to year employed under the accrual method of accounting and as
reported, separately or in the aggregate, as appropriate, on the Company's information
tax return filed for federal income tax purposes, plus any expenditures not deductible in
computing its taxable income and not properly chargeable to capital account under the
Code.
1.21 "Notice" shall mean a written notice required or permitted under this
Agreement, delivered in accordance with Section 10.2.
1.22 "Person" shall mean any individual or Entity, and the heirs, executors,
administrators legal representatives, successors, and assigns of such "Person" where
the context so admits.
1.23 "Priority Return" or "9.5% Priority Return" shall mean a sum equivalent to
nine and one-half percent (9.5%) per annum, of the Adjusted Capital Contributions of
Green or MSK, respectively, outstanding from time to time during the period from the
date of contribution to the date of payment, or on the unpaid portion of the Deferred
Development Fee of MSK, accruing as provided in Section 4.13(b). The Priority Return
shall be prorated for any partial year, shall be cumulative and, to the extent not paid
during each year, shall be compounded annually at 9.5% per annum.
1.24 "Reserves" shall mean, with respect to any fiscal period, funds set aside
or amounts allocated during such period to reserves which shall be maintained in
amounts deemed sufficient by the Manager for working capital and expansion of the
business of the Company and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's business.
1.25 "Transfer" shall mean, with respect to a Membership Interest, or any
element of a Membership Interest, any sale, assignment, gift, Involuntary Transfer, or
other disposition of a Membership Interest or any element of such a Membership
Interest, directly or indirectly, other than an Encumbrance that is expressly permitted
under this Agreement.
1.26 'Voting Interest" shall mean, with respect to a Member, the right to Vote
or participate in management and any right to information concerning the business and
affairs of the Company provided under the Act, except as limited by the provisions of
this Agreement. A Member's Voting Interest shall be directly proportional to that
Member's Membership Interest.
-4-11.25.2000:1518:147436.4
ARTICLE 2
FORMATION AND TERM
2.1 Formation. The Parties have formed a limited liability company pursuant
to the California Act pursuant by the filing of Articles of Organization with the California
Secretary of State on November 22, 2000, and entering into this Agreement, which
shall be deemed effective as of the date the Articles were so filed. The rights and
liabilities of the Members shall be determined pursuant to the California Act and this
Agreement. This Agreement shall, to the extent permitted by the California Act, control
in the event of any inconsistency.
2.2 Term. The Company shall continue until December 31, 2008, unless
sooner terminated in accordance with this Agreement.
2.3 Name. The name of the Company is CARLSBAD GREENS, LLC. The
business of the Company may be conducted under such trade or fictitious names as
the Manager may from time to time determine.
2.4 Office of the Company. The principal place of business and business
office of the Company shall be 5142 Avenida Encinas, Carlsbad, California 92008 or
such location or locations as the Manager may from time to time determine. The
records required to be maintained by the Company under the California Act shall be
kept at the principal business office of the Company, or such other place or places as
the Manager shall deem advisable.
2.5 Registered Agent. Company's agent for service of process shall be as
stated in the Articles of Organization, or such other person as the Manager may
designate.
2.6 Business of the Company. The business of the Company shall be the
development of the Property with the Improvements, and the sale of the finished homes
to the public and to engage only in all lawful business activities related or incidental
thereto.
-5-11.25.2000:1518:147436.4
ARTICLE 3
INTERESTS, DISTRIBUTIONS AND CAPITAL
3.1 Members and Interests. The names and Interests of the Initial Members
are as follows:
Name Membership Interest
Green 50%
MSK 50%
3.2 Initial Capital Contribution. Upon execution of this Agreement, the Initial
Members shall contribute to the Company the cash or property set forth opposite the
name of each:
Name
Green (the Property, at agreed value)
(cash)
MSK (cash)
3.3 Additional Capital Contributions.
Amounts
$1,100,000.00
5,000.00
5 000.00
1,110,000.00
(a) No Member may voluntarily make any additional Capital
Contribution. Whenever it is reasonably determined by the Manager that, consistent
with the Business Plan (as defined in Section 4.11 ), the Company requires funding for
the payment of expenses that cannot be satisfied by borrowings under Section 3.3[c),
Manager may, by written notice to all Members, call for reasonable additional
contributions to capital. Those contributions shall be payable within twenty (20) days
after the notice is given. Each Member shall be liable to the Company for one-half of
the aggregate contributions duly called for under this Section, provided however, that it
is understood and agreed that MSK shall be solely responsible for contributions
necessary to pay for architectural services.
(b) If either Member fails to pay any contribution to the Company's
capital at the time and in the form and amount required by this Agreement, the other
Member may make the required contribution on behalf of the defaulting Member, which
advance shall be treated as a loan to the defaulting Member which shall bear interest at
the maximum rate allowed by law and shall be payable on demand. In the event the
other Member does not advance the needed funds on behalf of the defaulting Member,
-6-11.25.2000: 1518:147436 4
the Company shall dissolve and terminate, and the assets distributed as provided in
Section 8.2.
(c) During the entire term of the Company, MSK shall be responsible
for procuring appropriate financing for the development of the Property as
contemplated in this Agreement. Any such financing shall be from third party
commercial lenders on terms and conditions not less favorable than those available to
commercial borrowers generally, and such terms and conditions shall be subject to
Green's reasonable approval. MSK shall be the sole guarantor of any third party
financing. In the event financing from third party lenders is not available, MSK may
lend to the Company such funds as may be necessary for the continuing development,
which loan shall bear interest at the rate of Bank of America prime rate plus 1 % on the
date such funds are advanced, such loan to be repaid prior to any other distributions to
Members hereunder.
3.4 Allocation of Net Profits and Net Losses.
(a) Each fiscal year, Net Profits shall be allocated as follows:
(i) First, among the Members until the cumulative Net Profits
allocated to each Member for such fiscal year and all previous years pursuant to this
Section is equal to the cumulative Net Losses allocated to each Member pursuant to
Section 3.4(b) for all previous fiscal years. Such Net Profit allocations shall be to the
extent and in the same ratio as the most recently allocated Net Losses which have not
been offset by prior Net Profit allocations pursuant to this Section 3,4(a)(i);
(ii) Second, to each Member, on a pro rata basis, an amount
equal to his cumulative 9.5% Priority Return actually paid to such Member during such
fiscal year;
(iii) Third, to Green in the amount, if any, required under Section
3.9; and
(iv) The balance, if any, to the Members in accordance with their
Membership Interests.
(b) Each fiscal year, Net Losses shall be allocated as follows:
(i) First, to the Members in proportion to their adjusted Capital
Account balances, until the adjusted Capital Account balances of all Members are
reduced to zero; and
( ii)
Membership Interests.
Thereafter, to the Members in accordance with their
-7-11.25.2000:1518:147436 4
3.5 Application and Distribution of Distributable Cash. Distributable Cash
shall be applied or distributed, as the case may be, in the following order of priority:
(a) To pay any outstanding debts and obligations of the Company that
are currently due, or that are then being refinanced, except debts owed to any Member
or Affiliate thereof;
(b) To establish or add to any Reserves;
(c) To pay any debts and obligations owed to any Partner or Affiliate
thereof, including any loans made pursuant to Section 3.3(b) or 3.3(c); and
(d) To distribute any Distributable Cash not disbursed or reserved in
accordance with the foregoing provisions, after the allocation of Profit or Loss as
provided in Section 3.3, if any, as follows:
(i) First, prorata, to Green in an amount equal to the unpaid
portion of a 9.5% Priority Return on his Adjusted Capital Contributions, to MSK in an
amount equal to the unpaid portion of a 9.5% Priority Return on its Adjusted Capital
Contributions, and to MSK in an amount equal to the unpaid portion of a 9.5% Priority
Return on the Deferred Development Fee, calculated as provided in Section 4.13(b);
(ii) Second, prorata, to Green in an amount equal to the unpaid
portion of Green's Adjusted Capital Contributions, to MSK in an amount equal to the
unpaid portion of MS K's Adjusted Capital Contributions, and to MSK in an amount
equal to the unpaid portion of the Deferred Development Fee, as described in Section
4 13(bl:
(iii) Thereafter, the balance, if any, in accordance with the
Member's Membership Interests.
Any Distributable Cash available for distribution to the Members shall be
distributed at such intervals as the Manager may deem advisable, but not less
frequently than quarterly.
3.6 Capital Accounts. A separate capital account ("Capital Account") will be
maintained for each Member Each Member's Capital Account will be increased by (1)
the amount of money contributed by such Member to the Company; (2) the fair market
value of property contributed by such Member to the Company (net of liabilities secured
by such contributed property that the Company is considered to assume or take subject
to under Section 752 of the Code); and (3) the amount of Net Profits allocated to such
Member (except as provided in Section 3.9). Each Member's Capital Account will be
decreased by (1) the amount of money distributed to such Member by the Company;
(2) the fair market value of property distributed to such Member by the Company (net of
liabilities secured by such distributed property that such Member is considered to
-8-11.25 2000:1518:147436 4
assume or take subject to under Section 752 of the Code); and (3) the amount of Net
Losses allocated to such Member.
(a) A Member shall have a single Capital Account, regardless of class
and regardless of the time or manner in which any portion of the Member's Interest was
acquired. In the event of a permitted sale or exchange of an Interest in the Company,
the Capital Account of the transferor shall become the Capital Account of the transferee
to the extent it relates to the transferred Interest.
(b) The manner in which Capital Accounts are to be maintained
pursuant to this Section 3.6 is intended, and shall be construed so far as practicable, to
comply with the requirements of Code Section 704(b) and the regulations promulgated
thereunder.
(c) Except as specifically provided in this Agreement, upon liquidation
of the Company (or any Member's interest), liquidating distributions will be made in
accordance with the positive Capital Account balances of the Members, as determined
after taking into account all Capital Account adjustments for the Company's taxable
year during which the liquidation occurs. Liquidation proceeds will be paid within sixty
days of the end of the taxable year (or, if later, within 90 days after the date of the
liquidation).
(d) In addition, the Company shall maintain a separate tax capital
account for purposes of tracking differences between book and tax matters, including
any gain allocations required under Section 3.8.
3.7 Definitions. When used in this Article, the following terms shall have the
meanings set forth below:
(a) "Company Minimum Gain" shall have the meaning ascribed to the
term "Partnership Minimum Gain" in the Treasury Regulations Section 1.704-2(d).
(b) "Member Nonrecourse Debt" shall have the meaning ascribed to
the term "Partner Nonrecourse Debt" in Treasury Regulations Section 1.704-2(b)(4).
(c) "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.
(d) "Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulations Section 1.752-1 (a)(2).
(e) "Treasury Regulations" shall mean the final or temporary
regulations that have been issued by the U.S. Department of Treasury pursuant to its
authority under the Code, and any successor regulations.
-9-11.25.2000:1518:147436 4
3.8 Special Allocations. Notwithstanding Section 3,6, the following principles
shall apply in those circumstances required by the Code:
(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 Treasury Regulations Section 1.704-2(g)(2). Allocations
pursuant to this Section 3.B(a} shall be made in proportion to the amounts required to
be allocated to each member under this Section. The items to be so allocated shall be
determined in accordance with Treasury Regulations Section 1.704-2(1). This Section
is intended to comply with the minimum gain chargeback requirement contained in
Treasury 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 Treasury 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 Treasury Regulations Section 1.704(i)(5)).
Allocations pursuant to this section shall be made in proportion to the amounts required
to be allocated to each Member under this section. The items to be so allocated shall
be determined in accordance with Treasury Regulations Section 1.704-2(i)(4). This
Section is intended to comply with the minimum gain chargeback requirement
contained in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(c) Nonrecourse Deductions. Any Nonrecourse Deductions (as
defined in Treasury 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 Membership
Interests.
(d) Member Nonrecourse Deductions. Those items of Company Joss,
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 bears the economic risk of loss with respect to the Member Nonrecourse
Debt to which such items are attributable in accordance with Treasury Regulations
Section 1.704-2(i).
-10-11.25.2000:1518:147436 4
(e) Qualified Income Offset. If a Member unexpectedly receives any
adjustments, allocations, or distributions described in Treasury Regulations Section
1.7041(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 to this
section shall be taken into account in computing subsequent allocations of income and
gain pursuant to this Article 3 so that the net amount of any item so allocated and the
income, gain, and losses allocated to each Member pursuant to this section 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 Article 3 if such unexpected
adjustments, allocations, or distributions had not occurred.
3.9 Code Section 704/c) Allocations. Notwithstanding any other provision in
this Article 3, in accordance with Code Section 704(c) and the Treasury 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
for such property the Company for federal income lax purposes and its fair market
value on the date of contribution. Allocations pursuant to this Section are solely for the
purposes of federal, state and local taxes. As such, they shall not affect or in any way
be taken in account in computing a Member's Capita! Account or share of profits,
losses, or other items of distributions pursuant to any provision of this Agreement.
3.10 Withdrawal of Capital. A Member shall not receive out of the Company's
property any part of his contributions to capital until all liabilities of the Company, except
liabilities to Members on account of their contributions to capital, have been paid or
there remains property of the Company sufficient to pay them. A Member shall not be
entitled to demand or receive from the Company the liquidation of his interest in the
Company until the Company is dissolved in accordance with the provisions hereof or
other applicable provisions of the California Act.
3.11 Distributable Cash. For purposes of this Agreement, "Distributable Cash"
shall mean all cash, receipts and funds received by the Company from Company
operations, including loan proceeds and the proceeds from the sale of the Project, less
the sum of the following to the extent paid or set aside by the Company: (i) all principal
and interest payments on indebtedness of the Company and all other sums paid to
lenders; (ii) all cash expenditures incurred incident to the normal operation of the
Company's business; (iii) such cash Reserves as the Manager deems reasonably
necessary.
3.12 Liquidating Distributions. Notwithstanding any other provisions of this
Agreement to the contrary, when there is a distribution in liquidation of the Company, or
when any Member's interest is liquidated, all items of income and loss first shall be
-11-1 \ .25.2000:1518:147436 4
allocated to the Members' Capital Accounts under this Article, and other credits and
deductions to the Members' Capital Accounts shall be made before the final distribution
is made. The final distribution to the Members shall be made to the Members to the
extent of and in proportion to their positive Capital Account balances.
3.13 No Third Party Beneficiaries. The foregoing provisions of this Article are
not intended to be for the benefit of any creditor or other person to whom any debts,
liabilities or obligations are owed by (or who otherwise has any claim against) the
Company or any of the Members; and no creditor or other person shall obtain any right
under any of the foregoing provisions or shall by reason of any of the foregoing
provisions make any claim in respect of any debt, liability or obligation (or otherwise)
against the Company or any of the Members.
3.14 Admission of Additional Members. Additional Members may be admitted
only with the approval of all Members. Additional Members will participate in the "Net
Profits," "Net Losses" (as such terms are defined in Article I), and distributions of the
Company on such terms as are determined by the Members.
ARTICLE 4
MANAGEMENT
4.1 Management. The business and affairs of the Company shall be
managed by its designated Manager. Each Member who is not a manager shall be
entitled to reasonable information regarding the operation and progress of the
development of the Property, as provided in this Agreement. If at any time there is
more than one Manager, each Manager shall participate in the direction, management
and control of the business of the Company to the best of his ability, and the Managers
shall act as a group, with a majority vote or consent of the Managers required to take
action. The Managers may adopt such rules and regulations for the conduct of
meetings and the management of the Company not inconsistent with this Operating
Agreement and the California Act.
4.2 Number, Tenure and Qualifications. The number of Managers of the
Company shall be fixed from time to time by the unanimous vote of the Members, but in
no instance shall there be less than one Manager. Each Manager shall hold office until
his successor shall have been elected and qualified. Managers shall be elected by the
unanimous vote of the Members.
4.3 Certain Powers of Manager. Without limiting the generality of Section 4.1.
but subject to Section 4.1, the Manager shall have power and authority on behalf of the
Company:
-12-11.25.2000:1518: 147436 4
(a) To acquire property from any Person or Entity as the Manager may
determine. The fact that a Member is directly or indirectly affiliated-or connected with
any such Person or Entity shall not prohibit the Manager from dealing with that Person
or Entity;
(b) To borrow money for the Company from banks, other lending
institutions, the Members, or affiliates of the Members on such terms as they deem
appropriate, and in connection therewith, to hypothecate, encumber and grant security
interests in the assets of the Company to secure repayment of the borrowed sums.
Except as otherwise provided in the California Act, no debt shall be contracted or
liability incurred by or on behalf of the Company, except by the Company's Manager;
(c) To purchase liability and other insurance to protect the Company's
property and-business;
(d) To hold and own any Company real and/or personal properties in
the name of the Company;
(e) To invest any Company funds temporarily (by way of example but
not limitation) in time deposits, short-term governmental obligations, commercial paper
or other investments;
(f) Upon the affirmative vote of the Members holding at least
two-thirds of all Interests in the Company's capital, to sell or otherwise dispose of all or
substantially all of the assets of the Company as part of a single transaction or plan so
long as such disposition is not in violation of or a cause of a default under any other
agreement to which the Company may be bound;
(g) To execute on behalf of the Company all instruments and
documents, including, without limitation, checks, drafts, notes and other negotiable
instruments, mortgages or deeds of trust, security agreements, financing statements,
documents providing for the acquisition, mortgage or disposition of the Company's
property, assignments, bills of sale, leases, partnership agreements, and any other
instruments or documents necessary, in the opinion of the Manager, to the business of
the Company;
(h) To employ accountants, legal counsel, consultants or other experts
to perform services for the Company and to compensate them from Company funds;
(i) To enter into any and all other agreements on behalf of the
Company, with any other Person or Entity for any purpose, in such forms as the
Managers may approve; and
U) To do and perform all other acts as may be necessary or
appropriate to the conduct of the Company's business.
-13-11.25.2000:1518:147436.4
Unless authorized to do so by this Operating Agreement or by the Manager or
Managers of the Company, no Member, agent, or employee of the Company shall have
any power or authority to bind the Company in any way, to pledge its credit or to render
it liable pecuniarily for any purpose.
4.4 Responsibility of Manager.• It is understood and agreed by the Parties
that it is the express responsibility of MSK to perform the day-to-day functions of the
Company and ensure the fulfillment of the objectives of the Company. The MSK shall
devote such time to the performance of its duties as is necessary to carry out and
accomplish the Company's purpose. Green shall have the right to participate in any
and all decisions affecting the Company or the Property, and to approve such matters
as may be provided herein. The right of Green to participate in decisions shall not
affect the duty of the MSK to ensure fulfillment of the objectives of the Company.
4.5 Removal of Manager. The Manager may be removed for cause, upon
written notice from Green. For purposes of this Section, cause shall be defined to
mean:
(a) Persistent failure or refusal to perform any of the duties hereunder.
(b) Use or appropriation of any funds or properties of the Company in
a manner not authorized by this Agreement or by the Managers.
(c) Conviction of Gallagher, individually or in the capacity of an officer
of any Entity, of a felony or crime involving moral turpitude or admission or conviction of
acts of fraud related to or occurring during the course of services similar to those to be
rendered by MSK hereunder.
Upon removal, at Green's option, MSK shall become a member in the Company and
Green shall appoint a successor Manager or the Company shall dissolve, as provided
in Section 8.2(c).
4.6 Duties of MSK.
(a) Preparation of Property. MSK shall be responsible for the conduct
of all activities necessary to prepare the Property for development, including the
obtaining of all additional governmental permits, consents and approvals of any
Governmental Authorities necessary for such development. MSK recognizes the
relationship of trust and confidence established by this Agreement, and MSK covenants
with the Company to furnish its best skill and judgment in forwarding the interests of the
Company herein.
(b) Design Phase. During the design phase of the Project, MSK shall
meet with Green upon request and shall obtain Green's approval on the development
of plans, specifications, estimates, schedules, site use and improvement, selection of
-14-11.25.2000.1518:147436 4
materials and equipment, and shall provide recommendations on constructior::1
feasibility, availability of materials and labor, time requirements for installation and
construction, and information related to costs, including cost of alternative designs or
materials, preliminary budgets and possible economies and such other information
which may be of value to the Company. Green's approval shall not be unreasonably
withheld and shall exercised in a manner consistent with the Business Plan (as defined
in Section 4.11) and industry standards for like property. In no circumstance shall MSK
be required to design or construct Improvements which do not comply in all material
respects with applicable building codes and other pertinent regulations.
(c) Construction Phase. During the construction phase of the Project,
MSK shall do all things necessary to construct the Improvements in accordance with
the drawings and specifications in the most expeditious and economical manner
consistent with good workmanship, sound business practice and the best interest of the
Company.
(d) Supervision and Liens. The construction shall be undertaken in a
good, workmanlike and substantial manner in accordance with the plans and
specifications prepared by the architects and engineers, and approved by Green. MSK
shall supervise a sufficient and competent field organization as the Project requires.
MSK shall supervise the Project, including subcontracted work, and shall prepare
budgets, schedules and reports. MSK shall not knowingly permit or suffer any
mechanics' liens filed by any subcontractor, laborer or material vendor to remain upon
the Property.
(e) On-Site and Off-Site Work. The work to be undertaken by MSK
includes such "on-site" work and "off-site" work as may be necessary to complete the
Project substantially in accordance with the Tentative Map.
(f) Commencement. MSK shall complete processing of the Tentative
Map as soon as possible following execution of this Agreement and shall begin grading
and construction work as soon as reasonably possible following recordation of the Final
Subdivision Map and shall thereafter diligently pursue construction of the Project to
completion, in such phases as MSK shall reasonably determine, subject only to
reasonable delays occasioned by inclement weather, acts of God and third parties
which MSK could not have reasonably foreseen and provided against, any materials
shortages, strikes or labor difficulties which are beyond MS K's control and which it
cannot reasonably overcome.
(g) Employment and Material Records. MSK shall keep accurate
records of all persons employed, materials bought and work subcontracted to other
parties, and shall make such records available to Green upon request. MSK shall have
full control of labor employed on or about the Project, with the right to employ or
discharge or modify rates of compensation, and shall remove anyone who, in the
opinion of MSK or Green, is unfit or guilty of improper conduct.
-15-11.25.2000:1518:147435.4
(h) Competitive Bidding. Where practicable, MSK shall secure at
least three (3) competitive bids from subcontractors and materialmen for all
subcontracts, purchase agreements and all other agreements entered into in
connection with the Project or any part hereof. MSK shall supervise the furnishing of all
labor and materials required by such agreements. MSK shall receive all bills, receipts
and vouchers, from the subcontractors and others for work to be performed and
materials to be furnished, review and approve them for payment. Upon reasonable
request, MSK shall make some or all approved bills, receipts and invoices available to
Green for review.
(i) Drawings and Specifications. The drawings and specifications
prepared for the Project shall be the property of the Company, unless otherwise
required by the architect or civil engineer pursuant to his executed contract with the
Company.
U) Insurance and Bonds. MSK, on behalf of the Company, shall keep
and maintain in full force policies of insurance of the types, amounts and with insurance
carriers or sureties deemed adequate in Green's and MSK's discretion and customary
for similar circumstances to cover risks of the business of the Company, naming the
Company as insured or obligees, or as additional insureds or obligees, as their
interests may appear, and providing for ten (10) days written notice to each of the
Parties prior to the termination, cancellation or modification of such bonds or insurance
policies.
(i) Workers' Compensation Insurance for all of MS K's and the
Company's employees who engage in work under the activities intended by this
Agreement, whether such activities all conducted by MSK itself or by any subcontractor
or by anyone for whose acts any of them may be liable. To such extent as employees
of said subcontractors own Workers' Compensation Insurance, the duty of MSK to
furnish such insurance is discharged.
(ii) General Public Liability Insurance in an amount not less than
$1,000,000 for injuries, including accidental death to any person and subject to the
same limit for each person, in an amount of not less than $2,000,000 on account of one
accident; and Property Damage Insurance of not less than $2,000,000 and shall name
the Company as an additional insured and deliver evidence of such insurance to
Green. Said insurance shall include coverage for comprehensive, premises operations,
explosion and collapse hazard, underground hazard, products/completed operations
hazard, contractual insurance, broad form property damage, independent contractors
and personal injury.
(iii) A project-specific, single premium policy of construction
defect liability insurance, covering the Company, MSK and Green for damages resulting
from construction and soils defects.
-16-11.25.2000:1518:147436.4
(iv) All subcontractors who engage in work under activities
intended by the Agreement shall be required by MSK to procure and maintain Public
Liability and Property Damage Insurance.
(v) Unless otherwise provided, MSK shall purchase and
maintain improved property insurance upon the entire Project which is the subject of
this Agreement to the full insurable value thereof. This insurance shall include the
interests of all members of the Company, any contractors, subcontractors and
sub-subcontractors and shall insure against the perils of fire, extended coverage,
vandalism and malicious mischief.
4.7 Limitation of MS K's Powers. In no instance shall MSK take any of the
following actions without the prior approval and consent of Green:
(a) Encumbrances. Assign as security, pledge, hypothecate or
mortgage any assets belonging to the Company for any purpose other than the
development of the Property and the construction of the Improvements.
(b) Loans. Cause the Company to borrow money or lend money on
property.
(c) Settlements. Release, assign or transfer a Company claim or
security or any other asset-belonging to the Company.
(d) Proceedings. Confess a judgment against the Company.
(e) Acquisitions. Cause the Company to purchase, lease or otherwise
acquire any asset unless the acquisition is allowed in the Project budget or in the plans
of operation as approved.
(f) Dispositions. Cause the Company to sell, lease or otherwise
dispose of any tangible or intangible assets, or otherwise dispose of any real property
or any interest therein, except in the ordinary course of the business of the Company,
(g) Policy. Deviate in any material aspect from the overall plan of
operations or any other policies or regulations established herein by the Members.
(h) Extraordinary Contracts. Cause the Company to enter into any
contract or incur any obligation not in the course of business necessary to effect the
limited purpose of the Company_
(i) Extended Contracts. Cause the Company to enter into any
contract for a term of more than six (6) months, or any employment agreement not
terminable by the Company upon thirty (30) days notice or less.
-17-11.25.2000:1518:147435 4
4.8 Manager to Have No Exclusive Duty to Company. The Manager shall not
be required to manage the Company as its sole and exclusive function and the
Manager (or any Member) may have other business interests and may engage in other
activities in addition to those relating to the Company. Neither the Company nor any
Member shall have any right, by virtue of this Agreement, to share or participate in such
other investments or activities of the Member or to the income or proceeds derived
therefrom.
4.9 Tax Matters Member. MSK is hereby designated the Tax Matters
Member of Company for purposes of Chapter 63 of the Code and the regulations
thereunder. The Tax Matters Member may be changed by the Members. All elections
permitted to be made by the Company under federal or state laws shall be made by
MSK, upon the approval of the Managers.
4.10 Indemnification: Fiduciary Duties. The Members and Managers, acting in
their respective capacities as such, shall be indemnified by the Company to the fullest
extent provided in the California Act, other than for acts that involve a breath of
fiduciary duty. The standard of fiduciary duty a Member or a Manager owes to the
Company and its members is that of a partner to a partnership.
4.11 Adoption of Budget and Projections. MSK shall prepare a budget, a cash
flow projection and an overall plan of operation (the "Business Plan") to be approved by
Green within a reasonable period of time after execution of this Agreement, not to
exceed forty-five (45) days. Following such approval, these budgets, cash flow
projections and plans of operation can be modified from time to time, with the written
approval of Green, to reflect changing conditions that affect the Project. MSK shall
neither incur any liability or cost nor enter into any agreement or commitment on behalf
of the Company unless the same are consistent with the budget as approved above.
4.12 Progress Reporting. MSK shall prepare or cause to be prepared within
five (5) days after the end of each calendar month during the term hereof a status
report on the project, containing sufficiently detailed information regarding the status of
processing or construction and sales, as the case may be, to keep Green fully
informed In addition, MSK shall prepare or cause to be prepared within fifteen (15)
days after the end of each calendar quarter during the term hereof, statements showing
in detail actual revenues and costs against revenues and costs budgeted in the
approved budgets and cash flow projections with explanations of the reason for all
deviations, and such other information as Green may reasonably require. Each such
quarterly report shall also contain a balance sheet and profit and loss statement for the
Company and a status report summarizing the costs of the Project to date and an
estimate of the costs to complete (together with a time chart of sales and closings)
covering the current phases then under construction or being offered for sale.
4.13 MSK Compensation. For performing the services described herein, MSK
shall be entitled to the following compensation:
-18-1\.25.2000:1518:147436.4
(a) A management fee ("Management Fee") equal to Five Percent
(5%) of the total Project Cost (as provided in Section 4.15), excluding the value of the
Property and any Management Fee or other sums paid directly or indirectly to MSK or
any Affiliate of MSK. To the extent permissible under construction financing, the
Management Fee shall be payable in equal monthly payments in arrears during the
construction period, until terminated as provided in Section 4.14, below. In the event
the Management Fee paid monthly is less than the total Management Fee due under
this Section, the unpaid balance shall be all due and payable upon the closing of the
sale of the last unit of the Improvements.
(b) A development fee ("Deferred Development Fee") for MSK's
services for the period from the effective date of this Operating Agreement to Tentative
Map Approval ("Planning Period") and for the period from Tentative Map Approval until
recordation of the Final Subdivision Map ("Development Period"). The portion of the
Deferred Development Fee for the Planning Period shall be calculated as the charges
made for time spent by MS K's personnel on Company business during the Planning
Period, and the portion of the Deferred Development Fee for the Development Period
shall be calculated as the charges made for time spent by MS K's personnel on
Company business during the Development Period, in each case calculated as the
charges made for time spent by MS K's personnel on Company business during the
Development Period, to be computed and billed on a monthly basis throughout the
period, with detailed itemization of the time spent and the work accomplished. Such
billings shall be at the hourly rates specified in Exhibit "B". The total Deferred
Development Fee for both periods shall not exceed Seventy Two Thousand Dollars
($72,000.00). The amount so billed during the Planning Period shall be accrued and
shall be entitled to bear a 9.5% Priority Return from and after the date of Tentative Map
Approval. The amount so billed during the Development Period shall be accrued and
shall be entitled to bear a 9.5% Priority Return from and after the date of recordation of
the Final Subdivision Map. The Deferred Development Fee and the 9.5% Priority
Return shall be payable only from Distributable Cash, as provided in Section 3,S(d)(i\
and 3.S(d\(ii\. respectively.
4.14 Termination of MSK. In the event the duties of MSK as the Manager
terminate prior to the completion of the development and disposition of the Property as
contemplated by this Agreement, the sole entitlement of MSK to Management Fees
shall be to the payments made prior to such termination. In any event, the payments
for Management Fees hereunder shall terminate upon the earlier of (i) thirty (30) days
after notice of completion is recorded with respect to the last unit in the Project; (ii)
upon the sale of the entire Project in bulk; or (iii) the payment of a sum reasonably
anticipated to constitute the entire sum due to MSK under Section 4.13(a).
4.15 Project Costs. Project Costs (which shall be borne by the Company)
shall consist of all costs of the Project, including, but not limited to, the following:
-19-11 .25.2000:1518:147436 4
(a) The cost of all permits, fees and licenses required by local
governmental agencies in order to undertake and complete the development.
(b) The cost of payroll contributions, bonuses, taxes and fringe
benefits normally paid on behalf of construction labor, construction supervision
(including on-site construction superintendent) and clerical help to the extent
reasonably allocable to the Project, plus all required contributions to pension or other
related retirement plans.
(c) The premium for any completion and/or labor and material bonds
required by any local governmental agencies and/or construction lender, including the
Company, and all insurance premiums.
(d) All costs incurred in installing extra or optional items on the units
(subject to the Company's prior approval of installation).
(e) The direct cost of any and all labor, materials, tools and equipment
actually furnished in direct connection with the construction of the Improvements;
provided, however, there shall be no rental charges for tools and equipment belonging
to MSK.
(f) All costs for advertising and promotional expenses.
(g) All costs for sales and other marketing expenses, including sales
commissions.
(h) All sales office expenses, including supplies, telephone, telegraphic
and communication expenses.
(i) All sales processing, title insurance and escrow costs.
U) The direct cost of any and all public liability, workman's
compensation and other insurance required to be provided under Section 4.6(j).
actually furnished in connection with the construction and ownership of the
Improvements.
(k) All costs of mortgage financing.
(I) All legal and accounting fees, bookkeeping costs, audit fees and
tax return preparation fees.
(m) All out-of-pocket costs incurred by MSK but only to the extent
directly associated with the Project, including rent and all other costs of offices and
other facilities located on the Property or used primarily for the accomplishment of the
business of the Company, utilities, telephone and telegraph charges, insurance, travel
-20-11.25.2000:1518:147436 t
and entertainment charges, office supplies and expenses, postage and other
miscellaneous expenses. All other internal operating expenses of MSK shall be the
sole responsibility of MSK and shall not be charged to the Company.
ARTICLE 5
BUSINESS AND FINANCIAL RECORDS
5.1 Books and Records. The books and records of the Company shall be
kept in accordance with the accounting methods followed for federal income tax
purposes. The Company shall maintain at its principal business office all of the
following:
(a) A current list of the full name and last known business or residence
address of each Member set forth in alphabetical order, together with the Capilal
Contributions, Capital Account and Membership Interest of each Member;
(b) A copy of the Articles and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which the Articles
or any amendments thereto have been executed;
(c) Copies of the Company's federal, state, and local income tax or
information returns and reports, if any, for the six (6) most recent taxable years;
(d) A copy of this Agreement and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed;
(e) Copies of the financial statements of the Company, if any, for the
six (6) most recent fiscal years; and
(f) The Company's books and records as they relate to the internal
affairs of the Company for at least the current and past four (4) fiscal years.
5.2 Reports The Company shall cause to be filed, in accordance with the
Act, all reports and documents to be filed with any governmental agency. The
Company shall cause to be prepared at least annually information concerning the
Company's operations necessary for the completion of the Member's federal and state
income tax returns. The Company shall send or cause to be sent to each Member
within ninety (90) days after the end of each taxable year (1) such information as is
necessary to complete the Member's federal and state income tax or information
returns and (2) a copy of the Company's federal, state, and local income tax or
information returns for the year.
-21-11.25.2000:1518: l 4743~ 4
5.3 Bank Accounts. All funds of the Company shall be deposited in one or
more accounts with one or more recognized financial institutions in the name of the
Company, at such locations as shall be determined by the Manager. Withdrawal from
such accounts shall require only the signature of the Manager or such other person or
persons as the Manager may designate.
ARTICLE 6
MEMBERSHIP
6.1 Meetings. The Members may meet upon notice given in accordance with
this Section, but are not required to have meetings under this Agreement. Meetings of
the Members, for any purpose or purposes, shall be noticed, called, and conducted as
prescribed by the relevant provisions of the California Act. In any instance in which the
approval of the Members is required under this Agreement, such approval may be
obtained in any manner permitted by the California Act. Unless otherwise provided in
this Agreement, approval of the Members shall mean the approval of Members who
hold a majority of the Membership Interests.
6.2 Membership Certificates. The Company may, but shall not be required to,
issue certificates evidencing Membership Interests ("Membership Interest Certificates")
to Members of the Company. Once Membership Interest Certificates have been
issued, they shall continue to be issued as necessary to reflect current Membership
Interests held by Members. Membership Interest Certificates shall be in such form as
may be approved by the Manager, shall be manu_ally signed by the Manager, and shall
bear conspicuous legends evidencing any restrictions on transfer or any purchase
rights of the Company and/or the Members set forth in this Agreement. All issuances,
reissuances, exchanges, and other transactions in Membership Interests involving
Members shall be recorded in a permanent ledger as part of the books and records of
the Company.
6.3 Competing Activities. The Members and their Affiliates may engage or
invest in any activity whatsoever, including activities that are in direct or indirect
competition with the Company. No Member shall be obligated to present any
investment opportunity to the Company, even if the opportunity is of the character that,
if presented to the Company, could be taken by the Company. Each Member shall
have the right to hold any investment opportunity for his or her own account or to
recommend such opportunity to persons other than the Company.
6.4 Transactions between the Company and the Members. Notwithstanding
that it may constitute a conflict of interest, the Members and their Affiliates may engage
in any transaction with the Company so long as such transaction is fully disclosed to the
other Members, is not expressly prohibited by this Agreement and the terms and
-22-11.25.2000:15\8 147436 4
conditions of such transaction, on an overall basis, are fair and reasonable to the
Company.
6.5 Limitations on Authority; Liability. No Member shall be liable under a
judgement, decree, or order of any court or other·tribunal, or in any other manner, for
any debt, obligation or liability of the Company, except as may be provided by law. No
Member acting solely in the capacity of a Member is an agent of the Company, nor can
any Member acting solely in the capacity of a Member bind the Company or execute
any instrument on behalf of the Company. Accordingly, each Member shall indemnify,
defend, and save harmless each other Member and the Company from and against any
and all loss, cost, expense, liability or damage arising from or out of any claim based
upon any action by such Member in contravention of the first sentence of this Section.
ARTICLE 7
TRANSFER AND ASSIGNMENT OF INTERESTS
7.1 Transfer and Assignment of Interests. Except as expressly provided in
this Agreement, a Member shall not Transfer any part of the Member's Membership
Interest in the Company, whether now owned or hereafter acquired, unless (1) the
other Members unanimously approve the transferee's admission to the Company as a
Member upon such Transfer and (2) the Membership Interest to be transferred, when
added to the total of all other Membership Interests transferred in the preceding 12
months, will not cause the termination of the Company under the Code. No Member
may Encumber or permit or suffer any Encumbrance of all or any part of the Member's
Membership Interest in the Company unless such Encumbrance has been approved in
writing by all the other Members. Any Transfer or Encumbrance of a Membership
Interest without such approval shall be void. Notwithstanding any other provision of this
Agreement to the contrary, a Member who is a natural person may transfer all or any
portion of his or her Membership Interest to any revocable trust created for the benefit
of the Member, or any combination between or among the Member, the Member's
spouse, and the Member's issue; provided that the Member retains a beneficial interest
in the trust and all of the Voting Interest included in such Membership Interest. A
transfer of a Member's entire Beneficial interest in such trust or failure to retain such
Voting Interest shall be deemed a Transfer of a Membership Interest.
7.2 Transfer in Violation of this Agreement and Transfers of Partial
Membership Interests. Upon a transfer in violation of this Article 7, the transferee shall
have no right to vote or participate in the management of the Company or to exercise
any rights of a Member. Such transferee shall only be entitled to receive the share of
the Company's Net Profits, Net Losses and distributions of the Company's assets to
which the transferor would otherwise be entitled. Notwithstanding the immediately
preceding sentences, if, in the determination of the Manager, a transfer in violation of
-23-11.25.2000:1518:14743€.4
this Article 7 would cause the termination of the Company under the Code, in the sole
discretion of the Manager, the transfer shall be null and void.
7.3 Triggering Events. On the happening of any of the following events
("Triggering Events") with respect to a Member, the Company and the other Members
shall have the option to purchase all or any portion of the Membership Interest in the
Company of such Member ("Selling Member") at the price and on the terms provided in
Section 7.6 of this Agreement:
(a) the death or incapacity of a Member;
(b) the bankruptcy of a Member;
(c) the dissolution and winding up of a Member that is an Entity, or
merger or other reorganization of such a Member as a result of which the Member does
not survive as an entity;
(d) the withdrawal of a Member; or
(e) except for the events stated in Section 7.4, the occurrence of any
other event that is, or that would cause, a Transfer in contravention of this Agreement.
Each Member agrees to promptly give Notice of a Triggering Event to all other
Members.
7.4 Marital Dissolution or Death of a Spouse. Notwithstanding any other
provisions of this Agreement:
(a) If, in connection with the divorce or dissolution of the marriage of a
Member, or of any partner, shareholder, member or principal of a Member, any court
issues a decree or order that transfers, confirms, or awards a Membership Interest, or
any portion thereof, to that individual's spouse (an "Award"), then, notwithstanding that
such transfer would constitute an unpermitted Transfer under this Agreement, that
individual shall have the right to purchase from his or her former spouse the
Membership Interest, or portion thereof, that was so transferred, and such former
spouse shall sell the Membership Interest or portion thereof to that individual at the
price set forth in Section 7.6 of this Agreement. If the individual has failed to
consummate the purchase within one hundred eighty (180) days after the Award
("Expiration Date"), the Company and the other Members shall have the option to
purchase from the former spouse the Membership Interest or portion thereof pursuant
to Section 7.5 of this Agreement; provided that the option period shall commence on
the later of (1) the day following the Expiration Date, or (2) the date of actual notice of
the Award.
-24-1 \ .25.2000:1518:147436 4
(b) If, by reason of the death of a spouse of a Member, any portion of
a Membership Interest is transferred to a Transferee other than (1) that Member or (2)
a trust created for the Benefit of that Member (or for the Benefit of that Member and
any combination between or among the Member.and the Member's issue) in which the
Member is the sole Trustee and the Member, as Trustee or individually, possesses all
of the Voting Interest included in that Membership Interest, then the Member shall have
the right to purchase the Membership Interest or portion thereof from the estate or
other successor of his or her deceased spouse or Transferee of such deceased
spouse, and the estate, successor, or Transferee shall sell the Membership Interest or
portion thereof at the price set forth in Section 7.6 of this Agreement. If the Member
has failed to consummate the purchase within 180 days after the date of death (the
Expiration Date), the Company and the other Members shall have the option to
purchase from the estate or other successor of the deceased spouse the Membership
Interest or portion thereof pursuant to Section 7.5 of this Agreement; provided that the
option period shall commence on the later of (1) the day following the Expiration Date,
or (2) the date of actual notice of he death.
7.5 Option Periods. On the receipt by the other Members of Notice as
contemplated by Section 7.1, and on receipt of actual notice of any Triggering Event
(the date of such receipt is hereinafter referred to as the "Option Date"), the Manager(s)
shall promptly give notice of the occurrence of such a Triggering Event to each
Member, and the Company shall have the option, for a period ending thirty (30) days
following the determination of the purchase price as provided in Section 7.6, to
purchase the Membership Interest in the Company to which the option relates, at the
price and on the terms provided in Section 7.6, and the other Members, pro rata in
accordance with their prior Membership Interests in the Company, shall then have the
option, for a period of thirty (30) days thereafter, to purchase the Membership Interest
in the Company not purchased by the Company, on the same terms and conditions as
apply to the Company. If all other Members do not elect to purchase the entire
remaining Membership Interest in the Company, then the Members electing to
purchase shall have the right, pro rata in accordance with their prior Membership
Interest in the Company, to purchase the additional Membership Interest in the
Company available for purchase. The transferee of the Membership Interest in the
Company that is not purchased shall hold such Membership Interest in the Company
subject to all of the provisions of this Agreement. No Member shall participate in any
vote or decision in any matter pertaining to the disposition of that Member's
Membership Interest in the Company under this Agreement.
7.6 Option Purchase Price. The purchase price of the Membership Interest
that is the subject of an option under this Agreement shall be the Fair Market Value of
such Membership Interest as determined under this Section 7.6. Each of the selling
and purchasing parties shall use his, her, or its best efforts to mutually agree on the
Fair Market Value. If the parties are unable to so agree within thirty (30) days of the
date on which the option is first exercisable (the "Option Date"), the selling party shall
appoint, within forty (40) days of the Option Date, one appraiser, and the purchasing
-25-11 .25.2000.1516:147436 4
party shall appoint within iorty (40) days of the Option Date, one appraiser. The two
appraisers shall within a period of five additional days, agree on and appoint an
additional appraiser. The three appraisers shall, within sixty (60) days after the
appointment of the third appraiser, determine the Fair Market Value of the Membership
Interest in writing and submit their report to all the Parties. The Fair Market Value shall
be determined by disregarding the appraiser's valuation that diverges the greatest from
each of the other two appraisers' valuations, and the arithmetic mean of the remaining
two appraisers' valuations shall be the Fair Market Value. Each purchasing party shall
pay for the services of the appraiser selected by it, plus one-half of the fee charged by
the third appraiser. The option purchase price as so determined shall be payable in
cash.
7.7 Substituted Member. Except as expressly permitted under Section 7.1, a
prospective transferee (other than an existing Member) of a Membership Interest may
be admitted as a Member with respect to such Membership Interest ("Substituted
Member") only (1) on the unanimous vote of the other Members in favor of the
prospective transferee's admission as a Member, and (2) on such prospective
transferee's executing a counterpart of this Agreement as a Party hereto. Any
prospective transferee of a Membership Interest shall be deemed an Assignee, and,
therefore, the owner of only an Economic Interest until such prospective transferee has
been admitted as a Substituted Member.
ARTICLE 8
DISSOLUTION AND TERMINATION
8.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence the following
events:
(i) When the period fixed for the duration of the Company shall
expire;
(ii) By the unanimous written agreement of all Members;
(iii) Entry of a decree of judicial dissolution pursuant to California
Corporations Code Section 27351;
(iv) In the event Tentative Map Approval has not occurred on or
before November 1, 2001, or recordation of the Final Subdivision Map has not occurred
on or before June 1, 2002. The dates specified above shall be extended for any period
of time during which there is in effect a moratorium or other similar ban on development
imposed by any Governmental Authority that affects the Property and for any period of
-26-11.25.2000.151 6:147436 4
time of delay by any Governmental Authority which occurs despite the best, good faith
efforts of MSK to prevent such delay.
(v) The death, incapacity, or withdrawal of a Member; or the
bankruptcy or corporate dissolution of a Member.
(b) For purposes of this Agreement, "bankruptcy" means (i) a receiver
is appointed to take possession of all or substantially all of a Member's assets or the
assets of the Company, which appointment is not promptly contested by it and
thereafter vacated within sixty (60) days; or (ii) a Member makes a general assignment
for the Benefit of creditors; or (iii) there is a filing of a petition or the commencement of
proceedings by a Member for reorganization, liquidation or any other relief under the
Bankruptcy Code or any other Federal or State insolvency laws, or commencement of
any such proceedings against a Member to which it consents or acquiesces or fails to
terminate within ninety (90) days after the commencement thereof.
8.2 Winding Up. On the dissolution of the Company, the Company shall
engage in no further business other than that necessary to wind up the business and
affairs of the Company. The Manager shall wind up the affairs of the Company. The
Manager shall give written Notice of the commencement of winding up by mail to all
known creditors and claimants against the Company whose addresses appear in the
records of the Company. After paying or adequately providing for the payment of all
known debts of the Company (except debts owing to Members) the remaining assets of
the Company shall be distributed or applied in the following order of priority:
(a) To pay the expenses of liquidation.
(b) To repay outstanding loans to the Company by Members. If there
are insufficient funds to pay such loans in full, each Member shall be repaid in the ratio
that the Member's respective loan, together with interest accrued and unpaid thereon,
bears to the total of all such loans from Members, including all interest accrued and
unpaid on those loans. Such repayment shall first be credited to unpaid principal and
the remainder shall be credited to accrued and unpaid interest.
(c) Among the Members in accordance with the provisions of Section
3,5, provided, however, that if dissolution occurs prior to recordation of the Final
Subdivision Map due to any event under Section 3.3/b), 4,5, 8.1 (a}(iv) or 8.1 (a)(v)
affecting MSK, at Green's option, the Property shall be distributed to Green,
irrespective of the respective capital account balances of the parties and free and clear
of any claim of the Company or MSK.
8.3 Cancellation of Articles. When all debts, liabilities and obligations have
been paid and discharged or adequate provisions have been made therefor and all of
the remaining property and assets have been distributed to the Members, a Certificate
of Cancellation shall be executed and filed, as provided in the California Act. Upon the
-27-11.25.2000:1518:147436 4
filing of the Certificate of Dissolution, the existence of the Company shall cease, except
for the purpose of suits, other proceedings and appropriate action as provided in the
California Act. The Member shall thereafter be trustee for the Members and creditors
of the Company and as such shall have authority to distribute any Company property
discovered after dissolution, convey real estate and take such other action as may be
necessary on behalf of and in the name·of the Company.
8.4 Return of Capital. Except as provided by law, upon dissolution, each
Member shall look solely to the assets of the Company for the return of its Capital
Contribution. If the Company property remaining after the payment or discharge of the
debts and liabilities of the Company is insufficient to return the Capital Contribution of
each Member, such Member shall have no recourse against any other Member.
ARTICLE 9
INVESTMENT REPRESENTATIONS
Each Member hereby represents and warrants to, and agrees with, the Members
and the Company as follows:
9.1 Preexisting Relationship or Experience. He or she 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 or her business or financial experience, or by
reason of the business or financial experience of his or her 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 or she is capable of evaluating the
risks and merits of an investment in the Company and of protecting his or her own
interests in connection with this investment.
9.2 No Advertising. He or she 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 Membership Interest.
9.3 Investment Intent. He or she is acquiring the Membership Interest for
investment purposes for his or her own account only 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 direct or indirect Beneficial interest in or right to the
Membership Interest.
-28-11.25.2000:1516.147436 4
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Interpretation. This Agreement has been negotiated at arm's length and
between persons sophisticated and knowledgeable in the matters dealt with in this
agreement. In addition, each party has been given the opportunity to consult with
experienced and knowledgeable legal counsel. Accordingly, any rule of law (including
Civil Code section 1654) or legal decision that would require interpretation of any
ambiguities in this Agreement against the party that has drafted it is not applicable and
is waived. The provisions of this Agreement shall be interpreted in a reasonable
manner to effect the purpose and intent of the parties to this Agreement.
10.2 Notices. All notices and other communications under this Agreement
("Notice") shall be in writing and shall be deemed given: (1) when personally delivered,
or (2) two (2) business days after being deposited in the United States mail, postage
prepaid, certified or registered, or (3) the next business day after being deposited with a
recognized overnight mail or courier delivery service, or (4) when transmitted by
facsimile or telecopy transmission, with receipt acknowledgment upon transmission,
addressed as follows:
Green:
COPY TO:
MSK:
Gary Green, Inc.
San Diego Commercial Real Estate Services
1565 Hotel Circle South, Suite 390
San Diego, CA 92108
FAX No. (619) 497-2265
Joseph L. Marshall, Esq.
Sullivan Hill Lewin Rez & Engel, PLC
550 West "C" St., Suite 1500
San Diego, California 92101
FAX No. (619) 231-4372
MSK Development Group
5142 Avenida Encinas
Carlsbad, CA 92008
FAX No. (760) 931-2784
Notice of change of address will be given by written notice in the same manner set forth
in this paragraph.
10.3 Application of California Law. This Agreement, and the application or
interpretation hereof. shall be governed exclusively by its terms and by the laws of the
State of California, and specifically the California Act.
-29-11.:25.2000:1518:147436 4
10.4 Mediation-Arbitration. In the event of any dispute arising out of or relating
to this Agreement, or the breach thereof, the Parties agree first to try in good faith to
settle the dispute by mediation under the Commercial Mediation Rules of the American
Arbitration Association, before resorting to arbitration. Thereafter, any remaining
unresolved controversy or claim arising out of or r81ating to this contract, or breach
thereof, shall be settled by arbitration in San Diego, California, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
10.5 Amendments. Any amendment to this Agreement may be proposed to
the Members by Members holding not less than a majority of all Interests in the
Company. A vote on an amendment to this Agreement shall be taken within thirty (30)
days after notice thereof has been given to the Members unless such period is
otherwise extended by applicable laws, regulations, or agreement of the Members. A
proposed amendment shall become effective at such time as it has been approved by
all of the Members.
10.6 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings, designations,
powers of attorney and other instruments necessary to comply with any laws, rules or
regulations.
10.7 Construction. Whenever th"e singular number is used in this Agreement
and when required by the context, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders and vice versa.
10.8 Headings. The headings in this Agreement are inserted for convenience
only and are in no way intended to describe, interpret, define, or limit the scope, extent
or intent of this Agreement or any provision hereof.
10.9 Waivers. The failure of any Party to seek redress for violation of or to
insist upon the strict performance of any covenant or condition of this Agreement shall
not prevent a subsequent act, which would have originally constituted a violation, from
having the effect of an original violation.
10.10 Rights and Remedies Cumulative. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any Party
shall not preclude or waive the right to use any or all other remedies. Said rights and
remedies are given in addition to any other rights the Parties may have by law, statute,
ordinance or otherwise.
10.11 Severability. If any provision of this Agreement or the application thereof
to any person or circumstance shall be invalid, illegal or unenforceable to any extent,
-30-1 t.25.2000:1518:147436 (
EXHIBIT "A"
LEGAL DESCRIPTION OF THE PROPERTY
11 25.2000:1518:147436.4
EXHIBIT "B"
BILLING RATE SCHEDULE
11.25.2000:1518:147436 4