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HomeMy WebLinkAbout2006-05-02; City Council; 18547; Crescent Del Sol Estates Affordable Housing1 CITY OF CARLSBAD - AGENDA BILL AB# 18,547 MTG. 5/2/06 DEPT. H/RED TITLE: APPROVAL OF AN AFFORDABLE HOUSING AGREEMENT TO ALLOW A HOUSING ALTERNATIVE TO SATISFY THE INCLUSIONARY HOUSING REQUIREMENT FOR THE CRESCENT DEL SOL ESTATES SUBDIVISION DEPT. HD^^^M" CITYATTY. J.tf CITY MGR. /££P> RECOMMENDED ACTION: ADOPT Council Resolution No.2006-109 APPROVING an Affordable Housing Agreement with Crescent del Sol, LLC, to allow a housing alternative (second dwelling unit) to satisfy the Inclusionary Housing requirement for the Crescent del Sol Estates subdivision. ITEM EXPLANATION: The Crescent del Sol Estates project is located on the north side of Date Avenue, east of Garfield Street. The Planning Commission has approved the development of an eight unit single and two family residential product on a .98 acre parcel of land, with one (1) second dwelling unit to comply with the City's Inclusionary Housing Ordinance. The developer is seeking City Council approval of an Affordable Housing Agreement to allow construction of the second dwelling unit as a housing alternative under the City's Inclusionary Housing Ordinance. The Inclusionary Housing Ordinance allows the Council to approve a housing alternative when that alternative supports specific housing policies and goals. Alternatives include, but are not limited to, acquisition and rehabilitation of affordable units, conversion of existing market units to affordable units, construction of special needs housing projects or programs (shelters, transitional housing, etc.), and the construction of second dwelling units. Approval of the housing alternative shall be based on findings that new construction would be infeasible or present unreasonable hardship in light of such factors as project size, site constraints, market competition, price and product type disparity, developer capability, and financial subsidies available. Due to the small size of the market rate development (8 single and two family units) and the very substantial financial subsidy that would be required to make a market rate unit affordable, the developer has indicated that it would present an unreasonable hardship upon the Crescent del Sol Estates development to require that one of the units be made affordable to a low income household. Therefore, the developer is proposing to construct the second dwelling unit within the approved residential development to satisfy the inclusionary housing requirement. While the proposed second dwelling unit will be a newly constructed unit and will be located within the market rate development as required, it is considered to be a housing alternative, as defined by Section 21.85.070 of the Inclusionary Housing Ordinance. Therefore, the alternative requires City Council approval. Staff Recommendation The developer's justification for constructing a housing alternative to satisfy the inclusionary requirement has been reviewed by Housing and Redevelopment Department staff. Staff concurs with the developer that the small size of the new market rate development and the substantial subsidy required to make one of the units affordable to low income households would be financially difficult and present an unreasonable hardship. Therefore, staff recommends that the City Council approve the proposed affordable housing agreement to allow a second dwelling unit within the market rate development as an alternative to satisfy the inclusionary housing requirement for the Crescent del Sol Estates subdivision. Page 2 Affordable Housing Agreement Prior to the issuance of a final map or issuance of any building permits for the project, the developer is required to enter into an Affordable Housing Agreement with the City that binds the developer to the specifics of the affordable housing project. The Agreement will require the second dwelling unit be rented at an amount which is affordable to a low income household earning 70% or less of the San Diego County Area Median Income (AMI), and the tenant's income does not exceed 80% of AMI. It is requested that the Affordable Housing Agreement, attached as Exhibit 2, be approved by the Council in substantially the form presented and subject to final approval by the City Attorney. ENVIRONMENTAL REVIEW The Planning Director has determined that the project is categorically exempt from the requirements of the California Environmental Quality Act. No further environmental review is required as part of the approval of the alternative to satisfy the City's Inclusionary Housing Ordinance. FISCAL IMPACT The Developer has made no request for financial assistance for this project. Therefore, there will be no fiscal impact to the City. EXHIBITS 1. City Council Resolution No. 2006 -109 , to approve an affordable housing agreement to allow the Crescent del Sol Estates Subdivision to utilize the housing alternative of a second dwelling unit to satisfy the City's Inclusionary Housing requirements. 2. Affordable Housing Agreement. DEPARTMENT CONTACT: Frank Boensch, (760)434-2818, fboen@ci.carlsbad.ca.us 1 CITY COUNCIL RESOLUTION NO. 2006-109 2 APPROVAL OF AN AFFORDABLE HOUSING AGREEMENT WITH CRESCENT DEL SOL, LLC, TO ALLOW A HOUSING ALTERNATIVE THROUGH THE 3 CONSTRUCTION OF A SECOND DWELLING UNIT TO SATISFY THE 4 INCLUSIONARY HOUSING REQUIREMENT FOR THE CRESCENT DEL SOL ESTATES SUBDIVISION. 5 6 WHEREAS, on October 19, 2005, the Planning Commission approved the Crescent del 7 Sol Estates subdivision for the development of 8 single and two family residential units on o property located on the north side of Date Avenue, east of Garfield Street, including a 9 requirement to provide one housing unit affordable to low income households per the City of 10 Carlsbad's Inclusionary Housing Ordinance; and 11 WHEREAS, the developer of the Crescent del Sol Estates subdivision has proposed to 12 meet the project's Inclusionary Housing Ordinance requirement with an alternative housing solution which would result in the developer providing one second dwelling unit within the j5 market rate development which will be affordable to low income households; and 16 WHEREAS, the Inclusionary Housing Ordinance allows, at the discretion of the City 17 Council, a housing alternative when the proposed alternative supports specific housing policies 18 and goals and a determination is made that the new construction would be infeasible or present 19 unreasonable hardship; and 20 WHEREAS, based upon the City Council's determination that it would be financially 21 infeasible and would represent an unreasonable hardship upon the subject developer to make one 22 of the one or two family residential units within the subject development affordable to low 23 income households and the proposed alternative to satisfy the inclusionary requirement through 25 the construction of one second dwelling unit on the site of the market rate development does 26 meet the goals of the Inclusionary Housing Ordinance and the City's Housing Element; and 27 28 1 Page 2 2 3 WHEREAS, the City Council did hold a public meeting to consider the developer's 4 request to approve an affordable housing agreement to allow one second dwelling unit to satisfy the inclusionary housing requirement for the Crescent del Sol Estates subdivision located on the 6 north side of Date Avenue, east of Garfield Street; and 7 WHEREAS, upon hearing and considering all testimony, if any, of all persons desiring 8 to be heard, said City Council considered all factors relating to the proposed inclusionary housing alternative, j j NOW, THEREFORE, BE IT HEREBY RESOLVED that the City Council of the City 12 of Carlsbad, California, does hereby find as follows: 13 1. The above recitations are true and correct. 14 2. The developer's proposal to provide one second dwelling unit affordable to low income households on the site of the market rate development as an alternative to constructing one single or two family residential unit and making it affordable to low . , income households to satisfy the inclusionary housing requirement for the Crescent del Sol Estates subdivision is consistent with the goals and objectives, and serves the 17 priorities of, the City of Carlsbad's Housing Element, Consolidated Plan, the Inclusionary Housing Ordinance, and the Carlsbad General Plan. 18 3. As required by Section 21.85.070 of the Carlsbad Municipal Code, the City Council 19 hereby finds that the requirement to construct one single or two family residential unit and make it affordable to low income households within the Crescent del Sol Estates 20 market rate development would be financially infeasible and would present an unreasonable hardship on the developer due to the development's small project size of 8 units and the substantial subsidy required to make that unit affordable to a low 22 income household. 23 4. That based on the information provided within the City Council staff report and testimony presented during the public meeting of the City Council, the City Council 24 hereby approves an Affordable Housing Agreement, in substantially the form presented and subject to final approval by the City Attorney, to allow one second 25 dwelling unit on the site of the market rate development as an acceptable housing alternative to providing one single or two family residential unit affordable to low income households to satisfy the Inclusionary Housing requirement for the Crescent 27 del Sol Estates subdivision. 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5. That the Community Development Director or his or her designee is authorized by the City Council to execute all documents related to approval of the subject alternative inclusionary housing proposal, including but not limited to an Affordable Housing Agreement in substantially the form presented to the City Council and subject to final approval by the City Attorney. PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the 2nd day of May t 2006, by the following vote, to wit: AYES: Council Members Lewis, Hall, Kulchin, Packard, Sigafoose NOES: None ABSENT: None ABSTAIN: ATTEST: LORRAINE M. WOOD, v x •*• ' \x "'»mn^x PageS (SEAL) COPY Recording Requested by: City of Carlsbad When Recorded Mail to: City of Carlsbad City Clerk's Office Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad. California 92008 (Space above for Recorder's Use) AFFORDABLE HOUSING AGREEMENT THIS AFFORDABLE HOUSING AGREEMENT ("Agreement") is entered into this2Aa day of May ,2006, by and between the CITY OF CARLSBAD, a municipal corporation (hereinafter referred to as the "City"), and Crescent del Sol a limited liability company, (hereinafter referred to as the "Developer"), is made with reference to the following: RECITALS A. Developer is the owner of certain real property in the City of Carlsbad, County of San Diego, State of California, described in "Attachment A", which is attached hereto and incorporated herein by this reference, and which is the subject of a Tentative Map CT 05-01 , Condominum Permit 05-09, and Coastal Development Permit 05-06. which provides conditional approval of the construction of eight ( 8 ) condominium units ("Project"). B. Condition No. 12 of Planning Commission Resolution No. 5974. states that this Affordable Housing Agreement shall be entered into between the City and the Developer as a means of satisfying the Developers' affordable housing obligation ("Affordable Housing Obligation"), as such is defined under Chapter 21.85 of the Carlsbad Municipal Code. Planning Commission Resolution No.5974 provides that the Affordable Housing Obligation will be satisfied by applying the requirements set forth in this Agreement for one (1) affordable housing lot ("Affordable Housing Lot"). The Affordable Housing Lot which are subject to this Agreement are: Lot E.U.A. #4 of Carlsbad Tract No, 05-01 in the City of Carlsbad, County of San Diego, State of California, according to Map thereof No. 1803 filed with the County Recorder of San Diego County on August 25. 1924 . C. Developer intends to construct the required inclusionary units concurrent with the project's market units that are also identified on Exhibit "A". The Affordable Housing Lots shall be subject to this Agreement and this Agreement shall be recorded on each Affordable Housing Lot. NOW, THEREFORE, incorporating the foregoing Recitals and in consideration of the mutual covenants contained herein, the parties agree as follows: 1. The Recitals Are True And Correct. 2. SATISFACTION OF AFFORDABLE HOUSING REQUIREMENTS THROUGH CONSTRUCTION OF A SECOND DWELLING UNIT. 1/30/03 Performance under this Agreement satisfies the Developers' obligation for affordable housing under Chapter 21.85 of the Carlsbad Municipal Code as applied to the land covered by Tentative Map CT 05-01 . including Condition No. 12 listed in Planning Commission Resolution No. 5974 and, any other applicable condition of approval. 3. SECOND DWELLING UNITS. (a) Construction of Second Dwelling Units. Developer shall at the time a residential structure is constructed on the Affordable Housing Lot, include in such residential structure a Second Dwelling Unit as defined under and subject to the requirements contained in Municipal Code Section 21.10.015. (b) Restriction on Rental of Second Dwelling Unit. The maximum monthly rent for any Second Dwelling Unit, subject to this Agreement, which becomes rented or leased shall not exceed an amount of thirty percent (30%) of 1712th of the gross annual income of a low-income household, adjusted for household size, at seventy percent (70%) of the San Diego County median income, as such median income is published by the United States Department of Housing and Urban Development from time to time. For purposes of this Agreement, "Rent" shall include a utility allowance as established and adopted by the City of Carlsbad Housing Authority, as well as all required monthly payments made by the tenant to the lessor in connection with use and occupancy of a housing unit and land and facilities associated therewith, including any separately charged fees, utility charges, or service charges assessed by the lessor and payable by the tenant (but not including fees and charges resulting from any default by the tenant or damage caused by the tenant, or fees or charges paid by the tenant to third party utilities or other providers). A sample schedule showing the calculation of the maximum rental amount as for 2006 is attached to this Agreement as Attachment "B". (c) Restriction on Tenant Income. The Affordable Units shall be available to households with incomes not exceeding 80% of the median income for San Diego County, adjusted for actual household size. (d) Declaration. Developer shall require the purchaser from Developer of an Affordable Housing Lot upon which a Second Dwelling Unit has been constructed to sign an affidavit or declaration under penalty of perjury, in a form prescribed by the City Planning Director, which states that if the Second Dwelling Unit on the affordable housing lot is rented that it shall be rented at a monthly rental rate not to exceed the rate set forth in paragraph 3(b). Developer shall forward the original declaration to the City Planning Director for maintenance in the City's files, and retain a copy for its own files in the event proof becomes necessary. (e) Deed Restriction. Prior to the sale of an affected lot, the Developer shall provide proof to the City Planning Director that the language contained in Exhibit "C" has been included in each deed prior to the sale of an affected property and will run with the land so as to restrict subsequent transfers. 4. REMEDIES Failure by the Developer to perform in accordance with this Agreement will constitute failure to satisfy the requirements of Chapter 21.85 of the Carlsbad Municipal Code and Condition No. 12 of Planning Commission Resolution No. 5974 Such failure will allow the City to exercise any and all remedies available to it including but not limited to withholding the issuance of building permits for the lots shown on Carlsbad Tract No. 05-01 . 5. HOLD HARMLESS Developer will indemnity and hold harmless (without limit as to amount) City and its elected officials, officers, employees and agents in their official capacity (hereinafter collectively referred to as 1/30/03 "Indemnitees"), and any of them, from and against all loss, all risk of loss and all damage (including expense) sustained or incurred because of or by reason of any and all claims, demands suits, actions, obtained, allegedly caused by, arising out of or retaining in any manner to Developers' actions or defaults pursuant to this Agreement, and shall protect and defend Indemnitees, and any of them with respect thereto. Developer's shall obtain, at its expense, comprehensive general liability insurance for development of the Project naming Indemnities as additional insureds with aggregate limits of not less than one million dollars ($1,000,000) purchased by Developer from an insurance company duly licensed to engage in the business of issuing such insurance in the State of California, with a current Best's Key Rating of not less than A-:V, such insurance to be evidenced by an endorsement which so provides and delivered to the City Clerk prior to the issuance of any building permit for the Project. 6. NOTICES All notices required pursuant to this Agreement shall be in writing and may be given by personal delivery or by registered or certified mail, return receipt requested to the party to receive such notice at the address set forth below: TO THE CITY: City of Carlsbad Housing and Redevelopment Department Arm: Housing & Redevelopment Director 2965 Roosevelt Street, Suite B Carlsbad, California 92008-2389 TO THE DEVELOPERS: Mr. Wayne Blass, President Crescent del Sol, LLC 7237 Sanderling Court Carlsbad, CA 92011 Any party may change the address to which notices are to be sent by notifying the other parties of the new address, in the manner set forth above. 7. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties and no modification hereof shall be binding unless reduced to writing and signed by the parties hereto. 8. DURATION OF AGREEMENT This Agreement shall terminate and become null and void upon repeal, termination, or modification of any applicable ordinance which act would render the Affordable Housing Obligation unnecessary or unenforceable. The restriction set forth in Paragraph 3(b) above shall terminate as to the Affordable Housing Lot at such time as the Second Dwelling Unit on the Affordable Housing Lot has reached the end of its useful life, which is assumed to be not less than 55 years from the date of completion of original construction. 9. SUCCESSORS This Agreement shall benefit and bind Developers and any successive owners of Affordable Housing Lots. 1/30/03 10. SEVERABILITY In the event any provision contained in this Agreement is to be held invalid, void or unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall nevertheless, be and remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the and year first above written. CITY . '" City of Carlsbad, a Municipal corporation DEVELOPER Cresbent del Sol, LLC By: t /ayne^Blass /Sandra L. Holder President Community Development Director By: Name Title Proper notarial acknowledgment of execution by contractor must be attached. If a Corporation. Agreement must be signed by one corporate officer from each of the following two groups. *Group A. **Group B. Chairman, Secretary, President, or Assistant Secretary, Vice-President CFO or Assistant Treasurer Otherwise, the corporation must attach a resolution certified by the secretary or assistant secretary under corporate seal empowering the officer(s) signing to bind the corporation. APPROVED AS TO FORM: RONALD R. BALL, City Attorney By: 1/30/03 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT I State of California County of »V/- <?/On Date personally appeared before me, LS Place Notary Seal Above ss. _ ^xU me /nd Title of "officer "(e.g., "Jiwe'Ctoe, Notary Publlr^' Nanjrt*T *"" of Sj0ner(s) personally known to me I...1 proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, execute^Hhe instrument. WITNES Though the information below ;s not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of frt/s form to another document. Description of Attached Document Title or Type of Document: Document Date: Signer(s) Other Than Named Above: Capacity(ies) Claimed by Signer Signer's Name: L Individual ! ; Corporate Officer — Title(s): ! j Partner —' :. Limited ! ' General i J Attorney in Fact L ! Trustee I [ Guardian or Conservator [..! Other: Signer Is Representing: Number of Pages: RIGHT THUMBPRINT OF SIGNER Top of ihunib here i /o ATTACHMENT A LEGAL DESCRIPTION OF SUBJECT PROPERTY LOT 1 IN BLOCK'T" OF PALISADES NO. 2 IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 1803, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, AUGUST 25, 1924. 1/30/03 ATTACHMENT B MAXIMUM MONTHLY RENTAL AMOUNT County of San Diego Metropolitan Statistical Area Household Income Limits Note: The following household Income limits are adjusted for a high cost area as per the Federal Housing Act of 1937 and calculated using HCD methodology to comply with Health and Safety Code Sections 50052.5 and 50093. 2006 San Diego MSA Median Income $ 64,900 U.S. Department of Homing and Urban Development EFFECTIVE: March 8, 2006 Hshold Size ONE TWO THREE FOUR FIVE SIX SEVEN EIGHT 30% Annual Monthly 30.00% Income Income Monthly $14,500 $16,550 $16,650 $20,700 $22,350 $24,000 $25,650 $27,300 $1.208 $1.379 $1,554 $1.725 $1.863 $2.000 $2,138 $2.275 $363 $414 $466 $518 $559 $600 $641 $683 35% Annual Monthly 30.00% Income Income Monthly $16,900 $19.300 $21.750 $24,150 $26.100 $28.000 $29.950 $31.900 $1.408 $1,608 $1,813 $2.013 $2.175 $2,333 $2.496 $2,658 $423 $483 $544 $604 $653 $700 $749 $798 40% Annual Monthly 30.00% Income Income Monthly $19,300 $22,100 $24,850 $27,600 $29,800 $32.000 $34,200 $36,450 $1,608 $1,842 $2,071 $2,300 $2,483 $2,667 $2,850 $3,038 $483 $553 $621 $690 $745 $800 $855 $911 Very Low Income 50% Annual Monthly 30.00% Income Income Monthly $24,150 $27.600 $31,050 $34,500 $37.250 $40.000 $42,800 $45,550 $2,013 $2,300 $2,588 $2,875 $3,104 $3,333 $3,567 $3,796 $604 $690 $776 $863 $931 $1,000 $1,070 $1,139 Hshold Size ONE TWO THREE FOUR FIVE SIX SEVEN EIGHT 60% Annual Monthly 30.00% Income Income Monthly $29,000 $33,100 $37,250 $41,400 $44,700 $48,000 $51.350 $54,650 $2,417 $2,758 $3,104 $3,450 $3,725 $4,000 $4.279 $4.554 $725 $828 $931 $1,035 $1,118 $1,200 $1,284 $1,366 65% Annual Monthly 30.00% Income Income Monthly $31,400 $35,900 $40,350 $44,850 $48,450 $52,050 $55,600 $59,200 $2,617 $2,992 $3,363 $3.738 $4,038 $4.338 $4.633 $4.933 $785 $898 $1.009 $1.121 $1.211 $1,301 $1,390 $1.480 70% Annual Monthly 30.00% Income Income Monthly $33,800 $38.650 $43.450 $46,300 $52.150 $56.050 $59,900 $63,750 $2,817 $3.221 $3,621 $4,025 $4,346 $4,671 $4,992 $5,313 $845 $966 $1,086 $1,208 $1.304 $1.401 $1,498 $1,594 Low Income 80% Annual Monthly 30.00% Income Income Monthly $38,650 $44,150 $49,700 $55,200 $59,600 $64.050 $68.450 $72,850 $3,221 $3,679 $4,142 $4,600 $4,967 $5,338 $5.704 $6.071 $966 $1,104 $1,243 $1.380 $1.490 $1,601 $1.711 $1.821 Hshold Size ONE TWO THREE FOUR FIVE SIX SEVEN EIGHT 100% Annual Monthly 30.00% Income Income Monthly $45,450 $51.900 $58,400 $64,900 $70,100 $75,300 $80,500 $85,650 $3,788 $4,325 $4,867 $5,408 $5,842 $6.275 $6.708 $7.138 $1,136 $1,298 $1,460 $1,623' $1,753 $1,883 $2,013 $2,141 115% Annual Monthly 30.00% Income Income Monthly $52,250 $59,700 $67,150 $74,650 $80,600 $86,600 $92,550 $98,500 $4,354 $4,975 $5,596 $6.221 $6.717 $7,217 $7.713 $8,208 $1,306 $1,493 $1.679 $1,866 $2,015 $2,165 $2,314 $2,463 Moderate Income 120% Annual Monthly 30.00% Income Income Monthly $54,500 $62.300 $70,100 $77,900 $84,100 $90,350 $96,550 $102,800 $4,542 $5,192 $5,842 $6,492 $7,008 $7,529 $8,046 $8,567 $1,363 $1.558 $1,753 $1,948 $2,103 $2,259 $2,414 $2,570 140% Annual Monthly 30.00% Income Income Monthly $63,600 $72,700 $81,750 $90,850 $98,150 $105.400 $112,650 $119,950 $5,300 $6,058 $6,813 $7.571 $8,179 $8,783 $9,388 $9,996 $1,590 $1.818 $2.044 $2.271 $2,454 $2,635 $2,816 $2,999 Note: Income levels 80% and below are adjusted by a HUD high cost area allowance. This general Income Information Is calculated from the U.S. Department of Housing and Urban Development (HUD) Income figure*. Specific program requirements may vary. 1/30/03 ATTACHMENT C DEED RESTRICTION A Second Dwelling Unit has been constructed as part of this property, and shall be maintained and utilized in accordance with the requirements of Carlsbad Municipal Code Section 21.10.015 for the useful life of the main structure (estimated to be 55 years). The maximum monthly rent for the Second Dwelling Unit, if rented or leased, shall not exceed an amount equal to thirty percent (30%) of the gross monthly income of a low-income household, adjusted for household size, at seventy percent (70%) of the San Diego County median income as such median income is published by the United States Department of Housing and Urban Development from time to time. The Affordable Units shall be available to households with incomes not exceeding 80% of the median income for San Diego County, adjusted for actual household size. Prior to subsequent transfers of the property, seller shall require the purchaser to submit a signed affidavit or declaration under penalty of perjury on a form satisfactory to the City Planning Director, to the Planning Department, which acknowledges that the purchaser has read and understand the restrictions as they relate to the Second Dwelling Unit. 1/30/03 May 04 2006 3:59PM HP LHSERJET 333O P-2 OPERATING AGREEMENT for CRESCENT DEL SOL, LLC A. THIS OPERATING AGREEMENT is entered into as of February 17, 2004 by and between Wayne Blassingame, Carol Blassingame and Tuzo Jerger (sometimes referred to as "Class B Members," or "Participating Members")and each of the other persons whose names are set forth in Schedule A under the heading Class A Members and such persons and any additional persons admitted after the date of this Agreement (sometimes referred to herein as "Class A Members" or "Non-Participating Members"). All the "Members" are sometimes referred to individually as a "Member" and/or collectively as the "Members." B. The Members have formed a limited liability company under the Beverly-Killea Limited Liability Company Act. The Articles of Organization of the Company filed with the California Secretary of State on February 2, 2004 are hereby adopted and approved by the Members. A copy of the Articles are attached hereto as Schedule D. C. The Members enter into this Agreement 'to form and provide for the governance of the Company and the conduct of its business, and to specify their relative rights and obligations. NOW THEREFORE, the Members agree as follows: ARTICLE I: DEFINITIONS Capitalized terms ' used in this Agreement have the meanings specified in this Article or elsewhere in this Agreement and when not so defined shall have the meanings set forth in California Corporations Code section 17001. 1.1. "Act" means the Beverly-Killea Limited Liability Company Act (California Corporations Code §§17000-17655), including amendments from time to time. 1.2. "Affiliate" of a Member means (1) any Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Member. The term "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through membership, ownership of voting securities, by contract, or otherwise. May 04 20O6 3:59PM HP LRSERJET 333O P-3 terminated by the provisions of this Agreement or as provided by law. 2,8. The name and address of the Manager, who is also a Member is as follows: Name Address Wayne Blassingame "7237 Sanderling Court, Carlsbad, California 92009 ARTICLE III: CAPITAL AND CAPITAL CONTRIBUTIONS 3.1. The names, addresses, initial Capital Contributions and Class A Interests of the Class A Members are set forth on Schedule A. The names, addresses, and Class B Interests of the Class B Members are set forth on Schedule B. If a Member fails to make the initial Capital Contributions specified in this Section within 30 days after the effective date of this Agreement, that Member's entire Membership Interest shall terminate, and that Member shall indemnify and hold the Company and the other Members harmless from any loss, cost, or expense, including reasonable attorney fees caused by the failure to make the initial Capital Contribution. 3.2. The Manager may determine from time to time that Capital Contributions in addition to the Members' initial Capital Contributions are needed to enable the Company to conduct its business. On making such a determination, the Manager shall give notice to all Members in writing at least 90 days before the date on which such additional Capital Contribution is due. The Notice shall set forth the amount of additional Capital Contribution needed, the purpose for which it is needed, and the date by which the Members shall contribute. Each Member shall be required to make an additional Capital Contribution in an amount that bears the same proportion to the total additional Capital Contribution that such Member's Capital Account balance bears to the total Capital Account balances of all Members. No Member may voluntarily make any additional Capital Contribution. 3.3. If a Member fails for 30 days to make an additional Capital Contribution required under Section 3.2: (a) The Defaulting Member shall indemnify and hold the Company and the other Members harmless from any loss, cost, or expense, 04 2006 3:59PM HP LRSERJET 3330 P-4 13.12. Time is of the essence of every provision of this Agreement that specifies a time for performance. 13.13. This Agreement is made solely for the benefit of the parties to this Agreement and their respective permitted successors and assigns, and no other person or entity shall have or acquire any right by virtue of this Agreement. IN WITNESS WHEREOF, th4 parties have executed or caused to be executed this Agreement on\the day and year first above written. CLASS B MEMBERS: lassingame, Managing Member Carol , eraper C --- ^ U 37