CONTRIBUTION AND FORMATION AGREEMENT

Exhibit 10.1

EXECUTION VERSION

 

CONTRIBUTION AND FORMATION AGREEMENT

-By and Among-

LANDSOURCE COMMUNITIES DEVELOPMENT LLC

-and-

LENNAR CORPORATION, LENNAR HOMES OF CALIFORNIA, INC., LENNAR

LAND PARTNERS SUB, INC., LENNAR LAND PARTNERS SUB II, INC., LNR NWHL

HOLDINGS, INC., and

LNR LAND PARTNERS SUB, LLC ,

(as the Existing Members)

-and-

MW HOUSING PARTNERS III, L.P.

(as MWHP)

DATED AS OF DECEMBER 28, 2006

 

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

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TABLE OF CONTENTS

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EXHIBITS AND SCHEDULES

 

 

 

 

 

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CONTRIBUTION AND FORMATION AGREEMENT

This CONTRIBUTION AND FORMATION AGREEMENT is dated as of the 28 ^th day of December 2006 (the “ Effective Date ”) by and among LANDSOURCE COMMUNITIES DEVELOPMENT LLC (“ LandSource ”), a Delaware limited liability company; LENNAR CORPORATION , a Delaware corporation, LENNAR HOMES OF CALIFORNIA, INC. (“ Lennar Homes ”), a California corporation, LENNAR LAND PARTNERS SUB, INC. , a Delaware corporation, LENNAR LAND PARTNERS SUB II, INC. , a Nevada corporation, LNR NWHL HOLDINGS, INC. (“ LNR NWHL ”), a Delaware corporation, and LNR LAND PARTNERS SUB, LLC (“ LNR Land ”), a Delaware limited liability company (collectively, the “ Existing Members ,” and together with LandSource, the “ LandSource Parties ”); and MW HOUSING PARTNERS III, L.P. (“ MWHP ”), a California limited partnership.

RECITALS

WHEREAS , the Existing Members currently own 100% of the issued and outstanding Ownership Interests of LandSource; and

WHEREAS , MWHP desires to invest in LandSource by contributing a combination of cash and property to LandSource, and LandSource desires to accept such contributions and to issue the Contribution Interest to MWHP in exchange for contributions of cash and property, subject to the terms and conditions set forth in this Agreement.

NOW , THEREFORE , in consideration of the mutual promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

ARTICLE 1

DEFINED TERMS

1.1 Defined Terms . Capitalized terms not otherwise defined herein shall have the respective meanings set forth in Exhibit A , or, if not defined herein, in the Restated Operating Agreement.

ARTICLE 2

FORMATION AND CONTRIBUTION

2.1 Issuance of the Contribution Interest . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, MWHP hereby agrees to receive from LandSource, in consideration for the MWHP Subsidiary Contribution and the MWHP Preliminary Cash Contribution, and LandSource hereby agrees to issue to MWHP, the Contribution Interest. The “ Contribution Interest ” shall mean an Interest in LandSource that constitutes at least a sixty percent (60%) Percentage Interest and not greater than a seventy-five percent (75%) Percentage Interest, based on the amount of the MWHP Preliminary Final Cash Contribution, as determined by MWHP in its sole discretion; provided that MWHP’s cash contribution shall not be less than the MWHP Minimum Cash Contribution Amount, except as otherwise provided in Section 2.5(e) below. In the event that MWHP contributes the MWHP

Minimum Cash Amount and the aggregate Capital of MWHP is less than sixty percent (60%) of the total Capital of the Members, then the LandSource Estimated Value shall be adjusted to the extent that may be necessary to reduce the aggregate Capital of the LandSource Members so that MWHP’s Capital constitutes sixty percent (60%) of the total Capital.

2.2 Formation of the New Subsidiary; Contribution of MWHP Property; Transfer of MWHP Interest .

(a) On or prior to a date that is not later than three (3) Business Days prior to the Closing Date (the “ MWHP Contribution Date ”), MWHP will cause to be formed an entity named LandSource Holding Company, LLC (the “ New Subsidiary ”) as a single member limited liability company under the Delaware Limited Liability Company Act, 6 Del. C. Sec 18-101 et seq. (as it may be amended, the “ Act ”) by filing with the Delaware Secretary of State the New Subsidiary’s certificate of formation, the form and content of which shall be subject to the prior approval of LandSource, which shall not be unreasonably withheld, delayed or conditioned. The New Subsidiary shall be treated for federal income tax purposes as a disregarded entity and MWHP shall take no action that would result in any contrary tax treatment.

(b) Effective on the MWHP First Closing Date, MWHP will, and MWHP will cause Sterling Falls, LLC, a New Jersey limited liability company and a wholly owned subsidiary of MWHP (the “ MWHP Sub ”), to contribute to the capital of the New Subsidiary (collectively, the “ MWHP Subsidiary Contribution ”), (i) all of MWHP’s and MWHP Sub’s right, title and interest in and to the real property that is legally described in Schedule 2.2(b)(1) (the “ MWHP Land ”), free and clear of Liens (other than the Liens set forth in Schedule 2.2(b)(2) (the “ MWHP Permitted Encumbrances ”), and (ii) to the extent assignable or transferable, all of MWHP’s and MWHP Sub’s right, title and interest of every kind and nature whatsoever, tangible or intangible, vested or unvested, contingent or otherwise in and to the following (together with the MWHP Land, the “ MWHP Property ”):

(i) any and all work in progress, backlog, and including any and all Improvements thereto and/or thereon;

(ii) all easements, rights-of-way, water rights, mineral rights, air rights, privileges, appurtenances and other rights pertaining to the MWHP Property;

(iii) any land lying in the bed of any street, road, alley or avenue opened or proposed, public or private, in front of or adjoining the MWHP Property; any award made or to be made in lieu thereof; any unpaid award for damage to the MWHP Property by reason of change of grade of any street; any strips and gores adjoining or adjacent to the MWHP Property; pre-paid taxes, pre-paid impact fees, and hook-up fees, if any; preliminary and final plats, site plans, surveys, soil tests, engineering plans and studies related to the MWHP Property;

(iv) all intangible property and intangible property rights owned by MWHP and/or MWHP Sub in connection with the MWHP Property (collectively, the “ MWHP Intangible Property ”), including:

(A) all Authorizations obtained by or on behalf of MWHP and/or MWHP Sub for the development of the MWHP Property;

 

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(B) all Records relating to the MWHP Property, other than the Records listed in Schedule 2.2(b)(iv)(B) ;

(C) all Claims that either MWHP or MWHP Sub is entitled to assert, whether choate or inchoate, known or unknown, contingent or noncontingent with respect to the MWHP Property;

(D) all copyrights, trademarks, service marks and other marks and trade or business names or right to use the same relating to the ownership, use, development and operation of the MWHP Property, other than the name MW Housing Partners, MacFarlane Partners, MacFarlane Housing, Weyerhaeuser Realty Investors or any combination thereof or derivation therefrom;

(E) all of MWHP’s and/or MWHP Sub’s insurance benefits, including all rights and proceeds, arising from or relating to any the MWHP Property (including any MWHP Assigned Contracts);

(F) all of the MWHP Assigned Contracts; and

(G) all prepaid amounts and accounts receivable relating to any of the foregoing.

(c) Effective as of the MWHP Contribution Date (after giving effect to the MWHP Subsidiary Contribution) and as of the Closing Date, MWHP will be the sole owner, legally and beneficially, of all of the issued and outstanding Ownership Interests in the New Subsidiary (the “ New Subsidiary Interest ”).

2.3 Contribution by MWHP . At the Closing, in consideration for the issuance of the Contribution Interest, MWHP hereby agrees to make the following contributions to LandSource:

(a) MWHP Interest Contribution . MWHP hereby agrees to contribute the New Subsidiary Interest to the capital of LandSource (the “ MWHP Interest Contribution ”), making the New Subsidiary a wholly-owned subsidiary of LandSource.

(b) Cash Contribution . MWHP hereby agrees to contribute, at the Closing, cash to the capital of LandSource (the “ MWHP Preliminary Cash Contribution ”) in an amount determined pursuant to Schedule 2.3(b) (the “ MWHP Preliminary Cash Contribution Amount ”). The MWHP Preliminary Cash Contribution shall be not less than Three Hundred Six Million Dollars ($306,000,000) (the “ MWHP Minimum Cash Contribution Amount ”).

(c) Estimation . MWHP acknowledges and agrees that the MWHP Preliminary Cash Contribution Amount is a Closing Date estimate and is subject to a post-Closing adjustment in accordance with Section 2.5(c), based on the formula set forth in Schedule 2.5(c)(2) , using actual amounts (including the MWHP Final Property Value and the LandSource Final Value) to be determined in accordance with Section 2.5(c) (the “ MWHP Final Cash Contribution ”).

 

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(d) Use of Cash or Property Contributions . In no event, shall any of the cash or property contributed by MWHP be distributed to the Existing Members as part of the LandSource Special Distribution except with the prior written consent of each of the Existing Members.

2.4 Financing; Special Distribution; Financing Shortfall .

(a) Financing; Special Distribution . The Parties agree to use diligent, commercially-reasonable, good faith efforts to consummate, as soon as practicable, a secured debt financing transaction (the “ Financing ”) with Barclays Capital PLC (“ Barclays ”), as administrative agent, sole lead arranger and sole bookrunner, pursuant to the terms of that certain commitment letter dated as of December 19, 2006, attached hereto as Exhibit B (as it may be amended by Barclays and the Parties, the “ Barclays Commitment Letter ”), pursuant to which the New Subsidiary shall receive, at the Closing, gross aggregate loan proceeds in the approximate amount of One Billion Three Hundred Sixty-Five Million Dollars ($1,365,000,000) as such amount may be adjusted pursuant to the terms and conditions of the Barclays Commitment Letter or as otherwise agreed to by the Parties and Barclays (the gross amount of the proceeds of the Financing actually received is hereinafter referred to as the “ Barclays Financing Proceeds ”) but in any event not less than One Billion Three Hundred Million Dollars ($1,300,000,000) (the “ Minimum Loan Amount ” ) , or, except as provided in Section 2.4(b), either Party may terminate this Agreement and elect not to close. The Parties agree that the Gross Closing Debt Financing Proceeds shall be applied, to the extent required, by the New Subsidiary at Closing, and hereby agree to take appropriate action to cause New Subsidiary, to pay a special distribution (the “ LandSource Special Distribution ”) to LandSource (which, in turn, shall distribute such amount to the Existing Members as Class A Special Distributions pursuant to the terms of the Restated Operating Agreement) in the aggregate amount equal to the LandSource Special Distribution Amount, as such amount shall be preliminarily determined pursuant to Section 2.5(b)(iii), which amount shall be paid by wire transfers in accordance with the written instructions of each of the Existing Members provided prior to the Closing Date and shall be subject to a post-Closing adjustment pursuant to Section 2.5(c). The Parties acknowledge and agree that, for administrative convenience, LandSource may effectuate the LandSource Special Distribution by directing Barclays or its agent to pay such amounts directly to the Existing Members, rather than to the New Subsidiary or LandSource. Any remaining proceeds from the Financing shall be used, in conjunction with the proceeds of the MWHP Preliminary Cash Contribution, to pay off in full the LandSource Payable Debt, which shall exclude the Indebtedness set forth in Schedule 2.4 (the “ Remaining Debt ”), which shall remain outstanding at Closing.

(b) Financing Shortfall . The Parties acknowledge that it is possible that the actual amount of the Barclays Financing Proceeds in connection with the Financing may be less than the Minimum Loan Amount, in which case, all or any of the Existing Members (or any of their respective Affiliates) shall have the right (upon the unanimous consent of the Existing Members), but not the obligation, to loan (such loan is hereinafter referred to as a “ Financing Shortfall Loan ”) to the Company, in the aggregate, an amount equal to the amount by which the Minimum Loan Amount exceeds the Barclays Financing Proceeds (the gross proceeds of the Financing Shortfall Loan is hereinafter referred to as the “ Financing Shortfall Amount ”). In the event that all or any of the Existing Members (or any of their respective Affiliates) (each participant, a “ Shortfall Lender ”) elects to make a Financing Shortfall Loan to

 

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the Company, the terms and conditions of such Financing Shortfall Loan shall, subject to the approval of Barclays, be made on substantially the same payment terms and conditions as the Financing (or as otherwise agreed by the Executive Committee); provided, however, that the Financing Shortfall Loan shall bear interest at a rate equal to the rate or, if more than one rate, the blended rates of interest that would have been applicable under the Barclays Commitment Letter had the Financing Shortfall Loan been made as part of the Financing in accordance with the Barclays Commitment Letter; provided further , that the Shortfall Lender’s rights in connection with the Financing Shortfall Loan shall be subordinate to the rights of Barclays; and provided further , that the Financing Shortfall Loan shall be made on an unsecured basis.

2.5 Value of LandSource; MWHP Property and Adjustments .

(a) Certain Acknowledgments . The Parties hereby acknowledge and agree to the following:

(i) Notwithstanding Section 2.7, the respective values of LandSource and the MWHP Property are factors in determining the respective amounts of the LandSource Special Distribution and the MWHP Interest Contribution.

(ii) The estimated fair market value of the MWHP Property, as determined by the Parties as of July 1, 2006 (the “ Valuation Date ”), is equal to Seven Hundred and Twenty-Five Million Dollars ($725,000,000) (the “ MWHP Estimated Property Value ”). The MWHP Estimated Property Value is subject to a preliminary adjustment for purposes of the Closing in accordance with the methodology set forth in Section 2.5(b)(ii) (the “ MWHP Preliminary Adjustment ”; as so adjusted, the “ MWHP Preliminary Property Value ”). Furthermore, the MWHP Preliminary Property Value is subject to a post-Closing adjustment in accordance with the methodology set forth in Section 2.5(c) (the “ MWHP Final Adjustment ”), as so adjusted, the “ MWHP Final Property Value ”).

(iii) The estimated fair market value, as agreed to by the Parties, of LandSource (including all assets, other than the Excluded Assets, and net of all Liabilities as of the Valuation Date, other than LandSource Payable Debt and any liabilities associated with Excluded Assets, as determined by the Parties as of the Valuation Date, is equal to Two Billion Four Hundred and Thirty-Four Million Three Hundred Thirty-Nine Thousand Two Hundred Sixty-Four Dollars ($2,434,339,264) (the “ LandSource Estimated Value ”). The LandSource Estimated Value is subject to a preliminary adjustment for purposes of the Closing in accordance with the methodology set forth in Section 2.5(b)(i) (the “ LandSource Preliminary Adjustment ”; together with the MWHP Preliminary Adjustment, the “ Preliminary Adjustments ”; the LandSource Estimated Value, as so adjusted, is hereinafter referred to as the “ LandSource Preliminary Value ”); and the LandSource Preliminary Value is subject to a post-Closing adjustment in accordance with the methodology set forth in Section 2.5(c) (the “ LandSource Final Adjustment ”; together with the MWHP Final Adjustment and the Recomputations of the Special Distribution Amount and the MWHP Cash Contribution as provided in Section 2.5(c), the “ Final Adjustments ”; each of the Preliminary Adjustments and the Final Adjustments, is referred to individually as an “ Adjustment ” and collectively as the “ Adjustments ”; and the LandSource Preliminary Value, as so adjusted, is referred to as the “ LandSource Final Value ”).

 

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(b) Preliminary Adjustment . As soon as reasonably practicable following the Effective Date of this Agreement, MWHP and the LandSource Parties shall jointly engage the independent public accounting firm of Deloitte and Touche LLP or its affiliate or such other firm of certified public accountants agreed upon in writing by the Parties (the “ Accounting Firm ”) in connection with the performance of the Adjustments. MWHP, on the one hand, and the Existing Members, on the other hand, shall each pay half of all costs and expenses associated with such engagement. The Accounting Firm’s engagement (the “ Engagement ”) (i) with respect to the Preliminary Adjustments shall conclude by not later than three (3) Business Days prior to the Closing Date; and (ii) with respect to the Final Adjustments, if any, the Engagement shall commence as soon as reasonably practicable after the Closing Date and shall conclude by not later than sixty (60) days after the Closing Date (each, an “ Engagement Period ”; collectively, the “ Engagement Periods ”). Notwithstanding the foregoing, each Engagement Period may be extended for such longer period as is agreed upon by MWHP, the LandSource Parties and the Accounting Firm and as required in connection with the Accounting Firm’s involvement in any Adjustment Dispute Resolution Process. MWHP and the LandSource Parties hereby agree to cooperate and assist the Accounting Firm in calculating the Adjustments to the extent requested by the Accounting Firm. Each Engagement shall include a review (which shall include a review, special engagement or other appropriate examination by the Accounting Firm as agreed upon by the Parties and the Accounting Firm) for the periods from the Valuation Date through the Closing Date (the “ Adjustment Period ”) of the following (in each case to the extent as reasonably required to perform the Adjustments): (i) all LandSource cash expenditures and receipts, including all LandSource Distributions and LandSource Contributions and all dispositions of any LandSource Property (other than Excluded Assets), by or on behalf of LandSource or any LandSource Subsidiary in connection with the LandSource Property, in each case to the extent as reasonably required to perform the Adjustment; and (ii) all MWHP Aggregate Expenses and MWHP Gross Revenues, including all dispositions of any MWHP Property (not including the MWHP Subsidiary Contribution), by or on behalf of MWHP and/or MWHP Sub in connection with the MWHP Property.

(i) LandSource Preliminary Adjustment . As part of the Engagement, the Accounting Firm shall calculate the LandSource Preliminary Adjustment on the basis of the following:

The LandSource Estimated Value shall be (A)  increased on a dollar-for-dollar basis (a) to the extent, if any, that the Engagement reflects capital contributions from the Existing Members to LandSource during the Adjustment Period (the “ LandSource Contributions ”) plus (b) the LandSource Payable Debt at Closing (prior to being repaid); and (B)  decreased on a dollar-for-dollar basis (a) to the extent, if any, that the Engagement reflects cash distributions from LandSource to the Existing Members (in their capacities as members of LandSource, and other than any payments for goods or services, management fees or other reimbursements) during the Adjustment Period (the “ LandSource Distributions ”) plus (b) the LandSource Payable Debt at July 1, 2006. The LandSource Members and the Accounting Firm shall prepare, at least five (5) Business Days prior to Closing a schedule detailing the LandSource Contributions and LandSource Distributions, as well as the LandSource income and expenses during the Adjustment

 

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Period, including any changes in the LandSource Payable Debt during the period from July 1, 2006 through the Closing Date. All of the foregoing transactions, if any has occurred, shall be evidenced by written evidence of such incurrence and payment that is reasonably satisfactory to MWHP and the Accounting Firm.

(ii) MWHP Preliminary Adjustments . MWHP and the Accounting Firm shall prepare, at least five (5) Business Days prior to Closing, the following: (i) a schedule with respect to MWHP and MWHP Sub detailing (A) all MWHP Aggregate Expenses paid by MWHP and MWHP Sub with respect to the MWHP Property during the Adjustment Period, together with written evidence of such incurrence and payment that is reasonably satisfactory to the LandSource Parties and the Accounting Firm; and (B) all Gross Revenue received by MWHP and MWHP Sub during the Adjustment Period (the “ MWHP Gross Revenue ”), as evidenced by copies of all closing statements (or other evidence acceptable to the Accounting Firm) for the sales of MWHP Property constituting MWHP Gross Revenue (each such schedule, an “ MWHP Aggregate Expenses and Revenue Statement ”). The Accounting Firm shall calculate the MWHP Preliminary Adjustments on the basis of the following:

(A) The MWHP Estimated Property Value shall be increased on a dollar-for-dollar basis to the extent that the Engagement reflects the aggregate amount of MWHP Aggregate Expenses actually paid by MWHP and MWHP Sub during the Adjustment Period.

(B) The MWHP Estimated Property Value shall be decreased by an amount equal to all MWHP Gross Revenue received in cash during the Adjustment Period, as evidenced by copies of all closing statements for the sale of any MWHP Property (or other evidence acceptable to the Accounting Firm).

(iii) At least three (3) Business Days prior to the Closing, the Accounting Firm shall deliver to the Parties for their review a worksheet with supporting computations reflecting the LandSource Preliminary Adjustment and a worksheet with supporting computations reflecting the MWHP Preliminary Adjustment. The Preliminary Adjustments as determined by the Accounting Firm, subject to any further adjustments agreed to by the Parties, shall be utilized by the Parties to determine the MWHP Preliminary Property Value and the LandSource Preliminary Value, which, in turn, shall be used to determine the amount of the LandSource Special Distribution (the “ LandSource Special Distribution Amount ”) (to be determined in accordance with the methodology set forth in Schedule 2.5(c)(1) ) to be paid to the Existing Members on the Closing Date (the “ LandSource Preliminary Special Distribution ”), subject to a final post-Closing adjustment pursuant to Section 2.5(c), and the MWHP Preliminary Cash Contribution.

(c) Final Adjustment . As soon as reasonably practicable following the Closing Date, the Accounting Firm shall review, true up and update the results of the Preliminary Adjustments to reflect (i) the actual final adjustments, if any, to the MWHP Aggregate Expenses actually paid by MWHP and MWHP Sub and MWHP Gross Revenue actually received by MWHP and MWHP Sub, in each case, during the Adjustment Period, to determine the MWHP Final Adjustment; (ii) the actual final adjustments, if any, to the LandSource Contributions, the LandSource Distributions and the LandSource Payable Debt, to determine the LandSource Final

 

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Adjustment; (iii) the MWHP Final Property Value, based on the MWHP Final Adjustment, and the LandSource Final Value, based on the LandSource Final Adjustment; (iv) based on the MWHP Final Property Value and the LandSource Final Value and other final amounts as determined under the Engagement, a recomputation of (A) the LandSource Special Distribution Amount in accordance with the computation set forth in Schedule 2.5(c)(1) and (B) the MWHP Preliminary Cash Contribution in accordance with the computation set forth in Schedule 2.5(c)(2) (collectively, the “ Recomputations ”). The Parties shall use commercially-reasonable efforts to cause the Final Adjustments to be completed by the Accounting Firm within the sixty (60) day period after the Closing Date, including providing the Accounting Firm with full access to each of MWHP’s and LandSource’s books and records sufficiently early in the process so that the Accounting Firm may complete such Final Adjustments within such sixty (60) day period. When completed, the Accounting Firm shall send to the Existing Members and MWHP a notice detailing the determination of the Final Adjustments, including the determinations of the MWHP Final Property Value, the LandSource Final Value and the Recomputations (the “ Final Adjustment Results Notice ”), together with any backup materials supporting such determination. In the event that MWHP, on the one hand, or any LandSource Party, on the other hand, does not agree with the determination of any of the Final Adjustments, such disagreeing Party or Parties (individually and collectively, the “ Disagreeing Party ”) shall advise the other Party or Parties (individually and collectively, the “ Defending Party ”) in writing within ten (10) Business Days after the Disagreeing Party’s receipt of the Final Adjustment Results Notice that the Disagreeing Party disputes the determination of such Final Adjustment and detailing the particular items in the Final Adjustment Results Notice with which it disagrees. The Disagreeing Party and the Defending Party and a certified public accountant chosen (and paid) by the Disagreeing Party (the “ Challenging Accounting Firm ”) shall have an additional ten (10) Business Days to resolve any such disputes. If the Disagreeing Party and the Defending Party cannot resolve the disputes within ten (10) Business Days after such notice of the disputes is delivered, each of the Challenging Accounting Firm and an independent public accounting firm that is the current auditor for the Defending Party shall choose a third certified public accountant whose decision shall be binding upon the Parties. The determination of the Final Adjustment by the Accounting Firm, as detailed in the Final Adjustment Results Notice, shall be conclusive and binding on the Parties; except that if MWHP or the LandSource Parties give timely written notice of any disputes as provided herein, the Final Adjustment agreed upon in writing by MWHP and the LandSource Parties or the decision rendered by the Accounting Firm shall be conclusively determinative for all such purposes. The audit and dispute resolution process for the determination of the Final Adjustments as described in this Section 2.5(c) shall be hereinafter generally referred to, with respect to any such Adjustment, as the “ Adjustment Dispute Resolution Process .” For purposes hereof, the “ Adjustment Determination Date ” means the earliest to occur of (i) the latest date on which MWHP, on the one hand, and the LandSource Parties, on the other hand, notify each other of their respective agreement with the Final Adjustments as determined by the Accounting Firm, (ii) the expiration of the ten (10) Business Day period that MWHP and the LandSource Parties have to object to a Final Adjustment, as determined by the Accounting Firm, without either such Party having given notice of any disputes to the other Party and (iii) the date every dispute regarding any disputed Final Adjustment is resolved as provided in this Section 2.5(c). After taking into account the Final Adjustments, as finally determined in accordance with this Section 2.5(c), (I) the final market value of LandSource including the Final Adjustments as of the Closing Date shall constitute for purposes of this

 

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Agreement the LandSource Final Value, (II) the final market value of the MWHP Interest Contribution including the Final Adjustments shall constitute for purposes of this Agreement the MWHP Final Property Value, and (III) the final Special Distribution Amount of the LandSource Special Distribution is referred to as the “ LandSource Final Special Distribution .”

(d) Adjustments to LandSource Special Distribution . If the amount of the LandSource Final Special Distribution is greater than the amount of the LandSource Preliminary Special Distribution, the New Subsidiary will make a special Distribution to LandSource in the amount of such difference; and LandSource will distribute to each Existing Member an amount equal to such Existing Member’s Pro Rata Share of such amount first, to the extent possible, from the proceeds of any borrowing of the Company that is permitted under the terms of the Financing, and then from other sources, subject to the terms and conditions provided in the Restated Operating Agreement. If, for any reason, such Special Distribution is not made, MWHP shall contribute any required additional cash to the capital of LandSource as an increase to the MWHP Final Cash Contribution Amount to the extent, if any, that such cash on hand was not previously included in such MWHP Final Cash Contribution Amount determination. If the LandSource Final Special Distribution is less than the LandSource Preliminary Special Distribution, each Existing Member shall return to LandSource such Existing Member’s Pro Rata Share of such difference. Any amount returned under this Section when taken together with the LandSource Preliminary Special Distribution shall be treated as a net Distribution by the Existing Members for purposes of this Agreement. Any payments due pursuant to this Section 2.5(d) shall be made within twenty (20) Business Days after the Adjustment Determination Date.

(e) Adjustments to MWHP Preliminary Cash Contribution Amount . If the MWHP Preliminary Cash Contribution Amount is greater than the MWHP Final Cash Contribution Amount (determined pursuant to Schedule 2.5(c)(2) ), LandSource will return to MWHP the amount of such difference. Any amount returned under this Section when taken together with MWHP’s capital contributions pursuant to this Agreement will be treated as a net contribution by MWHP for purposes of this Agreement. If the MWHP Preliminary Cash Contribution Amount is less than the MWHP Final Cash Contribution Amount, MWHP shall fund to LandSource the amount of such difference. Any payments due pursuant to this Section 2.5(e) shall be made within twenty (20) Business Days after the Adjustment Determination Date.

(f) Capital Accounts . The Members of LandSource shall receive Capital Accounts in LandSource on account of the foregoing contributions and Distributions as set forth in the Restated Operating Agreement.

(g) G&A Expenses; Management Fee . During the Adjustment Period, the Accounting Firm shall review and determine (i) the general and administrative expenses paid by LandSource or any of the LandSource Subsidiaries, including any reimbursements or payments to any and all of the Existing Members (but not including any management fees or Distributions) or any other expenditure of LandSource or any of the LandSource Subsidiaries for general and administrative expenses (collectively, the “ G&A Expenses ”) and (ii) all management fees paid by LandSource and any LandSource Subsidiary to any and all of the Existing Members (“ Management Fees ”), in each case, from the Valuation Date through the Closing Date (the “ G&A/Management Fee Measurement

 

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Period ”). At least three (3) Business Days prior to the Closing, the Accounting Firm shall deliver to the Parties for their review a worksheet with supporting computations reflecting the actual G&A Expenses (the “ Preliminary G&A Determination ”) and the actual Management Fees (the “ Preliminary Management Fees ”) determined by the Accounting Firm for the G&A/Management Fee Measurement Period (as to the G&A Expenses, the “ Preliminary G&A Expenses ”; and as to the Management Fees, the “ Preliminary Management Fees ”). If the Preliminary G&A Expenses exceed one and one-half percent (1.5%) of Gross Revenues for the G&A/Management Fee Measurement Period or if the Preliminary Management Fees exceed one and one-half percent (1.5%) of Gross Revenues for the G&A/Management Fee Measurement Period, then, at the Closing, the Existing Members shall reimburse LandSource for the amount by which either or both of the following are applicable: (i) the Preliminary G&A Expenses exceed one and one-half percent (1.5%) of Gross Revenues for the G&A/Management Fee Measurement Period (the “ G&A Reimbursement ”); and (ii) the Preliminary Management Fees exceed one and one-half percent (1.5%) of Gross Revenues for the G&A/Management Fee Measurement Period (the “ Management Fee Reimbursement ”); provided, that any such reimbursements by the Existing Members shall not constitute Capital. The Accounting Firm’s determination of Preliminary G&A Expenses and Preliminary Management Fees shall be subject to a final post-Closing adjustment (the “ Final G&A/Management Fee Determination ”). As soon as reasonably practical following the Closing Date, the Accounting Firm shall review, true up and update the results of the Preliminary G&A Determination and the Preliminary Management Fee Determination to reflect the actual final amount of the G&A Expenses paid during the G&A/Management Fee Measurement Period and the actual final amount of Management Fees paid during the G&A/Management Fee Measurement Period (the “ Final G&A Expenses ”). The Parties will use commercially-reasonable efforts to cause the Final G&A/Management Fee Determination to be completed by the Accounting Firm within the sixty (60) day period following the Closing Date. When completed, the Accounting Firm shall send the Parties a notice which contains the Final G&A Expenses and the Final Management Fees, including any backup materials supporting such determinations, and such notice shall be deemed a Final Adjustment Results Notice. Any dispute by the Parties with respect to the Final G&A/Management Fee Determination by the Accounting Firm shall be subject to the Adjustment Dispute Resolution Process in Section 2.5(c) as if the Final G&A/Management Fee Determination was a Final Determination thereunder. Upon the Adjustment Determination Date, if any, with respect to the G&A Expenses and/or Management Fees:

(i) if Final G&A Expenses less than or equal to the G&A Cap, then the Existing Members shall be entitled to a return of the entire G&A Reimbursement;

(ii) if Final G&A Expenses exceed the G&A Cap, then the Existing Members shall be required to reimburse LandSource for an amount by which Final G&A Expenses exceed the G&A Cap; provided, however, that such amount shall be reduced by the amount of any G&A Reimbursement previously paid; and provided, further, that the Existing Members shall be entitled to a refund of the portion of any G&A Reimbursement previously paid to the extent that it exceeds the amount determined to be due by the Existing Members pursuant to this Subsection (ii);

 

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(iii) if Final Management Fees are less than or equal to the Management Fee Cap, then the Existing Members shall be entitled to a return of the entire Management Fee Reimbursement; and

(iv) if Final Management Fees exceed the Management Fee Cap, then the Existing Members shall be required to reimburse LandSource for an amount by which Final Management Fees exceed the Management Fee Cap; provided, however, that such amount shall be reduced by the amount of any Management Fee Reimbursement previously paid; and provided, further, that the Existing Members shall be entitled to a refund of the portion of any Management Fee Reimbursement previously paid to the extent that it exceeds the amount determined to be due by the Existing Members pursuant to this Subsection (iv);

Any payments with respect to subparagraphs (i) through (iv) of this Section 2.5(g) shall be made within twenty (20) Business Days after the Adjustment Determination Date. For purposes of Section 2.5(g), “ Management Fee Cap ” shall mean a number equal to one and one-half percent (1.5%) of Gross Revenues and “ G&A Cap ” shall mean a number equal to one and one-half percent (1.5%) of Gross Revenues.

2.6 Contribution of LandSource Assets . At the Closing and simultaneously with the MWHP Interest Contribution, LandSource will contribute to the capital of New Subsidiary (the “ LandSource Subsidiary Contribution ”), free and clear of all Liens other than the Liens set forth in Schedule 2.6(1) (the “ LandSource Permitted Encumbrances ”), all of its assets, which consist of (i) the Ownership Interests owned by LandSource in each of the LandSource Subsidiaries identified in Schedule 2.6(2) (the “ Top Tier Subsidiaries ”) and (ii) to the extent assignable or transferable, all of LandSource’s right, title and interest of every kind and nature whatsoever, tangible or intangible, vested or unvested, contingent or otherwise, if any, in and to the following (together with the Top Tier Subsidiaries, the “ LandSource Property ”):

(i) all cash (except for any cash that the Parties agree shall not be contributed);

(ii) all tangible personal property,

(iii) all copyrights, trademarks, service marks and other marks and trade or business names or the right to use the same relating to the ownership, use, development and operation of the LandSource Property;

(iv) all other intangible property and intangible property rights owned by LandSource (all intangible property of LandSource is collectively referred to as the “ LandSource Intangible Property ”), including:

(A) all Authorizations obtained by or on behalf of LandSource for the development of any LandSource Property;

(B) all Records relating to the LandSource Property, other than the Records set forth in Schedule 2.6(iv)(B) (hereinafter, the “ LandSource Excluded Records ”);

 

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(C) all Claims that LandSource is entitled to assert, whether choate or inchoate, known or unknown, contingent or noncontingent with respect to the LandSource Property;

(D) all of LandSource’s insurance benefits, including rights and proceeds, arising from or relating to any of the LandSource Property (including any LandSource Assigned Contracts);

(E) all of LandSource’s right, title and interest of every kind and nature whatsoever, tangible or intangible, vested or unvested, contingent or otherwise, in and/or with respect to each and all LandSource Assigned Contracts; and

(v) all prepaid amounts, accounts and accounts receivable relating to any of the foregoing.

Notwithstanding anything to the contrary, LandSource shall not contribute any of the LandSource Properties listed on Schedule 2.6(3) (hereinafter, the “ Excluded Assets ”) to the New Subsidiary, the LandSource Property shall not include any Excluded Assets, and each of the Parties hereby expressly agrees that LandSource may, and it may cause any of the LandSource Subsidiaries to, make and deliver such bills of sale, assignments, deeds and other documents of transfer and conveyance, to cause to be transferred, sold and assigned from any LandSource Subsidiary each and every Excluded Asset, at any time, whether before or after the Closing Date and whether or not for any consideration. Any consideration received shall constitute Excluded Assets for all purposes hereunder. To the extent that the Existing Members determine that it is not practical or feasible to make such transfer, sale or assignment, in the sole and absolute discretion of the Existing Members, then, rather than effecting any transfer, sale or assignment of the Excluded Assets out of a LandSource Subsidiary, the Parties hereby agree that the Excluded Assets, and all right, title and interest in and to such Excluded Assets (including all Gross Profits, profits participations, accounts, accounts receivable, revenues and the like) shall be accounted for separately in any of the financial statements of LandSource and the Existing Members shall receive special Distributions in respect of Available Cash derived from such Excluded Assets and special allocations of Profits and Losses in connection therewith, as provided in the Restated Operating Agreement.

2.7 Realization Events . Subject to the terms and conditions in this Section 2.7, the Existing Members shall be eligible to be issued Preferred Capital by LandSource, with such rights, Preferred Return, Distribution preferences and other attributes as are described in the Restated Operating Agreement, in an aggregate amount of up to Six Hundred Sixty Million Dollars ($660,000,000.00) (each time that the Existing Members are issued Preferred Capital pursuant to the terms of this Section 2.7 is hereinafter referred to as a “ Realization Event ”).

(a) First Period. By not later than five (5) Business Days following November 30, 2009, the Parties shall engage the Accounting Firm to calculate the Gross Revenues of LandSource and its Subsidiaries generated during the period from December 1, 2006 through November 30, 2009 (the “ First Period ”) in connection with the sale of the properties identified in Schedule 2.7(a) (as such schedule may be updated from time to time by the Parties by a written instrument signed by each of them, the “ Realization Properties ”), which schedule breaks down the Realization Properties between those to be sold during the First Period (the “ First

 

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Period Realization Properties ”) and those to be sold during the Second Period (the “ Second Period Realization Properties ”; together with the First Period Realization Properties, the “ Aggregate Realization Properties ”). If the Gross Revenues received by LandSource (including through its Subsidiaries) during the First Period from the sale of the First Period Realization Properties (the “ First Period Gross Revenues ”), as determined by the Accounting Firm, are less than $682,156,929 (the “ First Minimum Target ”), then, except as otherwise provided in this Section 2.7, no Preferred Capital will be issued to the Existing Members for the First Period. If the First Period Gross Revenues are equal to or in excess of $693,377,807 (the “ First Maximum Target ”), then Preferred Capital will be issued to the Existing Members in the amount of Three Hundred Million Dollars ($300,000,000.00) (the “ First Maximum Amount ”). If the First Period Gross Revenues are greater than the First Minimum Target but are less than the First Maximum Target, then the Existing Members will be issued Preferred Capital in an amount equal to the product of (i) the First Maximum Amount multiplied by (ii) a fraction, the numerator of which is equal to (A) the First Period Gross Revenues minus (B) the First Minimum Target, and the denominator of which is the First Maximum Target minus the First Minimum Target (such product, the “ First Prorated Amount ”).

(b) Second Period. By not later than five (5) Business Days following November 30, 2011, the Parties shall engage the Accounting Firm to calculate the Gross Revenues of LandSource and its Subsidiaries generated during the period from December 1, 2006 through November 30, 2011 (the “ Second Period ”; the First Period and the Second Period are sometimes referred to individually, as a “ Realization Period ”; collectively, as the “ Realization Periods ”) in connection with the sale of the Second Period Realization Properties. If the Gross Revenues received by LandSource (including through its Subsidiaries) during the Second Period from the sale of the Second Period Realization Properties (the “ Second Period Gross Revenues ”), as determined by the Accounting Firm, are less than $1,029,145,049 (the “ Second Minimum Target ”; together with the First Minimum Target, the “ Aggregate Minimum Target ”), then, except as otherwise provided in this Section 2.7, no Preferred Capital will be issued to the Existing Members for the Second Period. If the Second Period Gross Revenues are equal to or in excess of $1,130,530,536 the “ Second Maximum Target ”; together with the First Maximum Target, the “ Aggregate Maximum Target ”), then Preferred Capital will be issued to the Existing Members in the amount of Three Hundred and Sixty Million Dollars ($360,000,000.00) (the “ Second Maximum Amount ”; together with the First Maximum Amount, the “ Aggregate Maximum Amount ”). If the Second Period Gross Revenues are greater than the Second Minimum Target but are less than the Second Maximum Target, then the Existing Members will be issued Preferred Capital in an amount equal to the product of (i) the Second Maximum Amount multiplied by (ii) a fraction, the numerator of which is equal to (A) the Second Period Gross Revenues minus (B) the Second Minimum Target, and the denominator of which is the Second Maximum Target minus the Second Minimum Target (such product, the “ Second Prorated Amount ”).

(c) Makeup Period; Makeup Realizations . Provided that during the applicable Realization Period, and during the period of up to two (2) years thereafter, the Managing Member has used commercially-reasonable efforts (1) to entitle the Realization Properties that are targeted to be sold during such Realization Period and develop the Realization Properties into single family residential homesites and/or commercial sites, in accordance with the Business Plan and (2) after the properties are so entitled and

 

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developed, to sell the Realization Properties, then, if the First Maximum Target or the Second Maximum Target has not been achieved, during the applicable Realization Period, the Existing Members will continue to have an opportunity, in accordance with the requirements of this Section 2.7(c), to achieve such First Maximum Target or Second Maximum Target (or to reach or further surpass the First Minimum Target or the Second Minimum Target, as the case may be) and thereby receive Preferred Capital (or additional Preferred Capital), as set forth in this Section 2.7(c).

(i) Following the expiration of the First Period, if the First Maximum Target has not been achieved, then, at any time during the period from December 1, 2009 and on or before November 30, 2011 (the “ First Make Up Period ”):

If the Gross Revenues received by LandSource (including through its Subsidiaries) during the period from December 1, 2006 through the end of the First Make Up Period from the sale of the First Period Realization Properties (the “ First Make Up Gross Revenues ”) are equal to or greater than the Appreciated First Maximum Target as determined as of such date, as determined by the Accounting Firm, then, upon the expiration of the First Make Up Period, in accordance with Section 2.7(d), Preferred Capital will be issued to the Existing Members in an amount equal to (i) the First Maximum Amount minus the First Prorated Amount of Preferred Capital issued to the Existing Members (if any). If, at the end of the First Make Up Period, the First Make Up Gross Revenues are greater than the Appreciated First Minimum Target but are less than the Appreciated First Maximum Target, then the Existing Members will be issued Preferred Capital in the amount, if any, by which (I) the product of (i) the First Maximum Amount multiplied by (ii) a fraction, the numerator of which is equal to (A) the First Make Up Gross Revenues minus (B) the Appreciated First Minimum Target, and the denominator of which is the Appreciated First Maximum Target minus the Appreciated First Minimum Target; exceeds (II) the First Prorated Amount of Preferred Capital issued to the Existing Members (if any).

(ii) Following the expiration of the Second Period, if the Second Maximum Target has not been achieved, then, at any time during the period commencing December 1, 2011 and ending November 30, 2013 (the “ Second Make Up Period ”; each of the First Make Up Period and the Second Make Up Period, a “ Make Up Period ”):

(A) If the Gross Revenues received by LandSource (including through its Subsidiaries) during the period from December 1, 2009 through the end of the Second Make Up Period from the sale of the Second Period Realization Properties (the “ Second Make Up Gross Revenues ”) are equal to or greater than the Appreciated Second Maximum Target, as determined as of such date, as determined by the Accounting Firm, then, upon the expiration of the Second Make Up Period, in accordance with Section 2.7(d), Preferred Capital will be issued to the Existing Members in an amount equal to (i) the Second Maximum Amount minus the Second Prorated Amount of Preferred Capital issued to the Existing Members (if any). If, at the end of the Second Make Up Period, the Second Period Make Up Gross Revenues are greater than the Appreciated Second Minimum Target but are less than the Appreciated Second Maximum Target, then the Existing Members will be issued Preferred Capital in the amount, if any, by which (I) the product of (i) the Second Maximum Amount multiplied by (ii) a fraction, the numerator of which is equal to (A) the Second Make Up Gross Revenues minus (B) the Appreciated Second Minimum Target, and the denominator of which is the Appreciated Second Maximum Target minus the Appreciated Second Minimum Target; exceeds (II) the Second Prorated Amount of Preferred Capital issued to the Existing Members (if any).

 

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(B) If, after taking into account all of the Preferred Capital, if any, issued or to be issued to the Existing Members under Sections 2.7(a), 2.7(b), 2.7(c)(i) and 2.7(c)(ii)(A), the Existing Members have not been issued the Aggregate Maximum Amount of Preferred Capital, then:

If, at any time during the period from December 1, 2006 through the end of the Second Make Up Period, the Gross Revenues received by LandSource (including through its Subsidiaries), from the sale of the Aggregate Realization Properties (the “ Aggregate Make Up Gross Revenues ”) are equal to or greater than the Appreciated Total Maximum Target, as determined by the Accounting Firm, then, upon the expiration of the Second Make Up Period, in accordance with Section 2.7(d), Preferred Capital will be issued to the Existing Members in an amount equal to (i) the Aggregate Maximum Amount minus the aggregate amount of Preferred Capital, if any, issued or to be issued to the Existing Members pursuant to this Section 2.7. If, at the end of the Second Make Up Period, the Aggregate Make Up Gross Revenues are greater than the Appreciated Total Minimum Target but are less than the Appreciated Total Maximum Target, then the Existing Members will be issued Preferred Capital in the amount, if any, by which (I) the product of (i) the Aggregate Maximum Amount multiplied by (ii) a fraction, the numerator of which is equal to (A) the Aggregate Make Up Gross Revenues minus (B) the Appreciated Total Minimum Target, and the denominator of which is the Appreciated Total Maximum Target minus the Appreciated Total Minimum Target; exceeds (II) the aggregate amount of Preferred Capital, if any, issued or to be issued to the Existing Members pursuant to this Section 2.7.

(d) As soon as practicable after the end of the applicable Realization Period or during or at the end of the applicable Make Up Period, as the case may be, but not later than ninety (90) days thereafter, the Accounting Firms will provide to the LandSource Members a report reflecting the Gross Revenues for the applicable period and any Preferred Capital that is required to be issued to the Existing Members hereunder. If any of the LandSource Members dispute the findings of the Accountants and the Members cannot agree upon the amount of the Gross Revenues in connection with sales of the Realization Properties or the proper amount of Preferred Capital to be issued pursuant to this Section 2.7, any Member may elect for such dispute to be resolved pursuant to the Adjustment Dispute Resolution Process (with the terms in Section 2.5(c) to be applied in the context of this Section 2.7). All Preferred Capital that is issued pursuant to this Section 2.7 shall be issued to the Existing Member within five (5) Business Days after the Parties have agreed upon (or a final determination has been made with respect to) the determination of the amount of Preferred Capital that is required to be issued under each applicable subsection of this Section 2.7.

(e) For purposes of this Section 2.7, the following capitalized terms have the meanings ascribed to them below:

(i) “ Appreciated First Minimum Target ” means the First Minimum Target as such amount shall be increased during the First Make Up Period by a factor equal to 3.9% per year, compounded annually (prorated based on a 360 day year for any partial year).

 

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(ii) “ Appreciated First Maximum Target ” means the First Maximum Target as such amount shall be increased during the First Make Up Period by a factor equal to 5.0% per year, compounded annually (prorated based on a 360 day year for any partial year).

(iii) “ Appreciated Second Minimum Target ” means the Second Minimum Target as such amount shall be increased during the Second Make Up Period by a factor equal to 3.9% per year, compounded annually (prorated based on a 360 day year for any partial year).

(iv) “ Appreciated Second Maximum Target ” means the Second Maximum Target as such amount shall be increased during the Second Make Up Period by a factor equal to 5.0% per year, compounded annually (prorated based on a 360 day year for any partial year).

(v) “ Appreciated Total Minimum Target ” means the Aggregate Minimum Target as such amount shall be increased from December 1, 2006 through the end of the Second Make Up Period by a factor equal to 3.9% per year, compounded annually (prorated based on a 360 day year for any partial year).

(vi) “ Appreciated Total Maximum Target ” means the Aggregate Maximum Target as such amount shall be increased from December 1, 2006 through the end of the Second Make Up Period by a factor equal to 5.0% per year, compounded annually (prorated based on a 360 day year for any partial year).

ARTICLE 3

CLOSING

3.1 Closing Date .

(a) The closing of the MWHP Subsidiary Contribution (the “ MWHP First Closing ”) shall take shall take place at the offices of (i) North American Title Company (the “ Title Company ”), 505 S. Main Street, #101 Orange, California 92868, which shall act as the master closing agent and coordinate the other offices of the Title Company in states other than California in which the MWHP Land is located, or such other location as agreed to by the Parties, at least one Business Day prior the Closing Date (the “ MWHP First Closing Date ”). The delivery of all documents and instruments to be recorded in connection with the Closing (the “ Recordable Documents ”) shall be made through the Title Company; provided, however, that all of the non-recordable agreements, assignments, and other documents and instruments to be delivered in connection with the MWHP First Closing pursuant to this Agreement shall be delivered directly among the applicable parties to the MWHP First Closing at the MWHP First Closing (or other applicable date, if one is expressly provided for herein or in such agreements, assignments or other documents or instruments) and not to the Title Company. The MWHP First Closing shall occur when (i) all of the deliveries set forth in Article VII required to be delivered as of the MWHP First Closing Date have been made, and (ii) the Title Company is irrevocably committed to issue the

 

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Subsidiary Title Policy (which shall include a Fairway Endorsement) to the New Subsidiary pursuant to Section 6.9, and (iii) all Recordable Documents have been received by the Title Company and are recorded in the appropriate public records. MWHP and the Existing Members shall each bear one-half (1/2) of all costs, fees, expenses and other amounts payable to the Title Company in connection with the duties described in this Section 3.1(a).

(b) The closing of the MWHP Interest Contribution, the LandSource Subsidiary Contribution and the related transactions as contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Lennar Corporation, 25 Enterprise Drive, Aliso Viejo, CA 92691, or such other location as agreed to by the Parties. The Closing shall take place on the closing date for the Financing, which the Parties anticipate will be on or around February 15, 2007, or on such other date and time as agreed to by the Parties (the date on which such Closing occurs being herein referred to as the “ Closing Date ”). The Closing shall occur when (i) all of the deliveries set forth in Article VII required to be delivered as of the Closing Date have been made, and (ii) all of the conditions set forth in Articles VIII and IX required to be performed as of the Closing Date have been performed, satisfied or waived by the applicable parties. The Closing shall be effective as of 12:01 A.M. (Pacific time) on the Closing Date (the “ Effective Time ”). At the Closing, MWHP shall deliver to LandSource the MWHP Preliminary Cash Contribution by wire transfer of immediately available funds (in accordance with wire transfer instructions provided by LandSource prior to the Closing Date.

3.2 Restated LandSource Operating Agreement . At the Closing, the issuance of the Contribution Interest to MWHP shall be effected by the Existing Members and MWHP (collectively, the “ LandSource Members ”) executing and delivering the Second Amended and Restated Limited Liability Company Agreement of LandSource, in the form attached hereto as Exhibit C , as it may be revised by the LandSource Members (the “ Restated Operating Agreement ”).

3.3 New Subsidiary Operating Agreement . At the Closing, LandSource will enter into an operating agreement of the New Subsidiary in the form reasonably agreed to by the LandSource Members.

3.4 Delivery of Certificates and Other Instruments of Transfer .

(a) MWHP .

(i) At the MWHP First Closing, MWHP shall, and MWHP shall cause MWHP Sub to, deliver to the New Subsidiary (a) specific deeds, certificates, assignments, bills of sale, endorsements and other good and sufficient instruments of conveyance and transfer (as shall have been previously approved by the Parties as to form and content prior to the formation of the New Subsidiary and the effectuation of the MWHP Subsidiary Contribution), which shall be effective to vest in the New Subsidiary title in and to all the MWHP Property free and clear of all Liens (other than MWHP Permitted Encumbrances); and (b) all Records and other data and all other assets, properties and rights included in or in connection with the MWHP Property.

 

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(ii) At the Closing, MWHP shall deliver to LandSource (a) true and correct copies of all documents that effectuated the MWHP First Closing, (b) such specific certificates, assignments, bills of sale, endorsements and other good and sufficient instruments of conveyance and transfer, as have been previously approved by the Parties as to form and content, which shall be effective to vest in LandSource ownership of 100% of the New Subsidiary, free and clear of all Liens, except to Liens created in connection with the Financing; and (iii) all Records and other data and all other assets, properties and rights included in or in connection with the New Subsidiary.

(b) LandSource . At the Closing, LandSource shall execute and deliver to the New Subsidiary (i) such specific certificates, assignments, bills of sale, endorsements and other good and sufficient instruments of conveyance and transfer, as have been previously approved by the Parties as to form and content, which shall be effective to vest in the New Subsidiary title to all the LandSource Property, free and clear of all Liens (other than LandSource Permitted Encumbrances); and (ii) all Records and other data and all other assets, properties and rights included in the LandSource Property other than the LandSource Excluded Records.

(c) Possession . The Parties shall, simultaneously with such deliveries pursuant to the preceding subsections, put the New Subsidiary in actual possession and operating control of the MWHP Property and, indirectly through the Top Tier Subsidiaries, the LandSource Property.

3.5 Transfer Taxes . Each of the Parties agree that all transfer taxes and fees and other sales, use, recording, deed, purchase, documentary or similar fees and taxes, if any, resulting from the transactions contemplated by this Agreement shall be shared equally between the Existing Members, on the one hand, and MWHP, on the other hand.

3.6 Assumption of Certain Liabilities . The New Subsidiary will assume at the Effective Time and pay, honor and discharge when due:

(a) all Liabilities of MWHP and MWHP Sub scheduled to be paid or performed on or after the Effective Time that are (I) described in Schedule 3.6(a) or (II) arising exclusively under the MWHP Assigned Contracts (collectively, the “ MWHP Assumed Liabilities ”), and no other Liabilities of MWHP or MWHP Sub or any of their respective Affiliates whatsoever; and

(b) all Liabilities of LandSource scheduled to be paid or performed on or after the Effective Time that are (I) described in Schedule 3.6(b) (including, the Remaining Debt) or (II) arising under the LandSource Assigned Contracts (collectively, the “ LandSource Assumed Liabilities ”) and no other Liabilities of LandSource or any of its Affiliates whatsoever.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF LANDSOURCE

Except as disclosed in the document of even date herewith delivered by LandSource to MWHP referring to the representations and warranties in this Agreement (the “ LandSource Disclosure Schedule ”), any exception so disclosed in the LandSource Disclosure Schedule to specifically identify the Section of this Agreement to which such exception relates, each of the LandSource Parties hereby

 

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makes the representations and warranties set forth in this Article 4 to MWHP. Prior to the Closing Date, LandSource shall have the opportunity to update the LandSource Disclosure Schedule, in whole or in part, which has been previously delivered by it pursuant to this Agreement to account for any fact or circumstance covered by (or which may be covered by) such schedule that may have changed since the date that such schedule was originally delivered to MWHP or which may have been omitted in good faith, such that the LandSource Disclosure Schedule shall be, as of the Closing Date, true, correct, complete and accurate in every material respect as of the Closing Date; provided, however, that if any such change in the LandSource Disclosure Schedule would constitute a Material Adverse Effect, including with respect to any material LandSource Property, MWHP may elect to terminate this Agreement pursuant to Section 10.1(b). Notwithstanding anything to the contrary contained herein or in any document, instrument or agreement executed and delivered pursuant hereto (including in the LandSource Disclosure Schedule), the representations, warranties and covenants concerning LandSource, any of its Subsidiaries or any of the LandSource Properties, unless otherwise expressly referencing Excluded Assets, do not and shall not be interpreted or deemed to include any representation or warranty relating, in any fashion or manner, to any of the Excluded Assets (or any matter or thing specifically relating thereto) or any covenant or obligation with respect to the Excluded Assets (or any matter or thing specifically relating thereto).

4.1 Organization, Standing and Power . LandSource and each LandSource Subsidiary is duly organized, validly existing, and in good standing under the Laws of the state of such entity’s formation. LandSource and each LandSource Subsidiary has all necessary and appropriate power and authority to own its properties and to carry on its business, as now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which it is so required; except where such failure would not have a Material Adverse Effect.

4.2 Capital Structure and Real Property . Set forth in Section 4.2 of the LandSource Disclosure Schedule, is a true, complete, accurate, and current list of the names of the holders of Ownership Interests of LandSource and the LandSource Subsidiaries (including all Owners and all holders of any Ownership Interest convertible, exercisable or otherwise exchangeable for LandSource’s and the LandSource’s Subsidiaries’ respective Ownership Interests) and such holders’ respective percentage ownership interest of such Ownership Interests, and a listing of all material real property owned by LandSource and each of LandSource’s Subsidiaries.

4.3 Authority .

(a) Except for obtaining the consent of the board of directors of each of the Existing Members, LandSource has full power and authority to execute and deliver this Agreement and the other agreements and instruments to be executed and delivered by it in connection herewith, and to consummate the transactions contemplated hereby and thereby. This Agreement has been and, as of the Closing Date, each of such other agreements and instruments will be, duly executed and delivered by LandSource and (assuming due authorization, execution and delivery by MWHP), this Agreement constitutes, and each of such other agreements and instruments when duly executed and delivered by LandSource will constitute, legal, valid and binding obligations of LandSource, enforceable

 

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against it in accordance with their respective terms, except as such enforcement may be limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium or other Laws affecting or relating to the rights of creditors generally, or (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in equity or at Law.

(b) The execution and delivery of this Agreement and the other agreements and instruments to be executed and delivered in connection herewith by LandSource, and the consummation by LandSource of the transactions contemplated hereby and thereby, will not (i) violate, or conflict with, result in any breach of, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or require any consent pursuant to, any provision of the Organizational Documents of LandSource or any of the LandSource Subsidiaries, or (ii) to the knowledge of LandSource, violate, or conflict with, result in any breach of, constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or require (other than those which have been or prior to the Closing Date will be obtained) any consent pursuant to, or result in the creation of any Lien on any asset of LandSource or any of the LandSource Subsidiaries under, any material Contract of LandSource or any of the LandSource Subsidiaries, or (iii) violate any material Law applicable to LandSource or any of the LandSource Subsidiaries, or (iv) permit or result in the acceleration of the maturity of any material Indebtedness of LandSource or the LandSource Subsidiaries that is not to be paid off at Closing.

(c) Except (i) as has already been obtained and is currently maintained, (ii) as may be obtained prior to Closing, (iii) matters disclosed to MWHP in writing prior to the Closing, (iv) for matters for which the failure to obtain shall not have a Material Adverse Effect upon the applicable LandSource Property, (v) as related to the LandSource Payable Debt, (vi) for any consent required from the PUC in connection with the Water Company, and (vii) for the consent of the board of directors of each of the Existing Members, no permit or approval of, or other designation, notice, declaration or filing with or other consent with respect to, any Governmental Entity, financial institution, or any other Person is required to be obtained by LandSource or any of the LandSource Subsidiaries in connection with the execution or delivery by LandSource of this Agreement and/or the other agreements and instruments to be executed and delivered in connection herewith, or the performance of any of the LandSource’s obligations hereunder and thereunder.

4.4 Litigation . There is no action, suit, proceeding, claim, dispute, arbitration, inquiry, examination, inspection or investigation (each, an “ Action ”; collectively, “ Actions ”) pending by or before any Governmental Entity, arbitrator, mediator, agency, court, tribunal or other jurisdictional body or, to the Knowledge of LandSource, threatened against LandSource or any of the LandSource Property or LandSource Subsidiaries.

4.5 Compliance With Laws . LandSource and each of the LandSource Subsidiaries, are in compliance with their respective Organizational Documents and, in all material respects, with all applicable Laws; provided, however, that with respect to any Environmental and Safety Laws, the representations and warranties of Section 4.6 are the only representation and warranties that are made by LandSource Parties under this Agreement. Since January 1, 2005, LandSource has not received any written notice of any material violation by LandSource or any LandSource Subsidiary of any applicable Law.

 

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4.6 Environmental Matters .

(a) No material violation of any applicable Environmental and Safety Laws has occurred in connection with the business or assets of LandSource or any LandSource Subsidiary (including any depositing, storage, disposal or other placing of Hazardous Materials on or under, or any migration thereof to or from, any LandSource Real Property (including any and all Improvements thereon) or any equipment on any LandSource Real Property) resulting from or relating to the acts or omissions by or on behalf of LandSource or any of its Affiliates or, to the knowledge of LandSource, any other Person;

(b) any Hazardous Materials generated by or under the control of LandSource or any of its Affiliates, or, to LandSource’s knowledge, any other Person, in connection with the business or assets of LandSource or any LandSource Subsidiary has been generated, transported, stored and/or disposed of materially in accordance with all applicable Environmental and Safety Laws;

(c) neither of LandSource nor any of its Affiliates, nor to the knowledge of LandSource, any other Person, has received written notice of any actual or alleged violation, breach, noncompliance and/or Liability or potential Liability with respect to any of the assets of LandSource or any LandSource Subsidiary under any applicable Environmental and Safety Laws (including any and all Environmental Permits);

(d) no judicial proceedings or governmental, administrative or other Action to which LandSource or any of its Affiliates is or, to the knowledge of LandSource, will be named as a party is pending or, to the knowledge of LandSource, threatened, under any applicable Environmental and Safety Laws in connection with the business or assets of LandSource or any LandSource Subsidiary;

(e) to the knowledge of LandSource, there are no consent or other decrees, or consent, administrative or other orders, or any other administrative, judicial or other requirements, in each case, arising out of any judicial, governmental or administrative Actions in connection with the business or assets of LandSource or any LandSource Subsidiary to which LandSource or any of its Affiliates is named as a party under any applicable Environmental and Safety Laws; and

(f) neither LandSource nor any of its Affiliates, or, to the knowledge of LandSource, any other Person, has released any Hazardous Materials in connection with the business or assets of LandSource or any LandSource Subsidiary in material violation of, or in amounts or in a manner that reasonably could be expected to give rise to material Liability under, any applicable Environmental and Safety Laws.

4.7 Taxes and Tax Returns .

(a) LandSource and each of the LandSource Subsidiaries has filed or caused to be filed in a timely manner all Tax Returns required to be filed under any United States federal, state or local or any foreign Law pertaining to Taxes and such Tax Returns are in

 

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all material respects true, complete and correct. LandSource and each of the LandSource Subsidiaries has paid or made provision for the payment of, all Taxes required to be shown as due and payable by LandSource and each of the LandSource Subsidiaries on such Tax Returns.

(b) There are no outstanding waivers or consents regarding the application of the statute of limitations or extension thereof with respect to any Taxes or Tax Returns of LandSource or any of the LandSource Subsidiaries.

(c) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of LandSource or any of the LandSource Subsidiaries and no deficiencies for any Taxes have been asserted or assessed against LandSource or any of the LandSource Subsidiaries with respect to any Tax Returns which have not been resolved or paid in full.

(d) No power of attorney has been granted by LandSource or any of the LandSource Subsidiaries with respect to any matter relating to Taxes or Tax Returns which is currently in force.

(e) No Liens (other than LandSource Permitted Encumbrances) are outstanding or have been asserted with respect to any Taxes or Tax Returns of LandSource or any of the LandSource Subsidiaries, other than for Taxes not yet due and payable.

(f) There are no contracts, agreements or other arrangements which could result, as a result of the transactions contemplated by this Agreement, in the payment by LandSource or by any of the LandSource Subsidiaries of an “Excess Parachute Payment” as that term is used in Section 280G of the Code or the payment by LandSource or by any of the LandSource Subsidiaries of compensation which will not be deductible because of Section 162(m) of the Code.

(g) Each of LandSource and each LandSource Subsidiary that is a partnership or a limited liability company is a disregarded entity or an entity taxable as a partnership for federal tax purposes.

(h) No written claim has been made by any taxing authority in a jurisdiction where LandSource or any LandSource Subsidiary does not file Tax Returns that the relevant entity is or may be subject to taxation by that jurisdiction.

(i) The unpaid Taxes of LandSource and each LandSource Subsidiary for all tax periods through the date of the Most Recent Balance Sheet do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Most Recent Balance Sheet.

(j) Neither LandSource nor any LandSource Subsidiary has (i) any liability for the Taxes of any Person under as a transferee or successor, pursuant to any contractual obligation (other than pursuant to customary commercial contracts not primarily related to Taxes), or otherwise for any Taxes of any other person, or (ii) is a party to or bound by any Tax indemnity, Tax sharing, Tax allocation or similar agreement.

 

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(k) All Taxes that LandSource or any LandSource Subsidiary was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been properly paid to the appropriate Governmental Authority.

(l) There are no adjustments under Section 481 of the Code (or any similar adjustments under any provision of the Code or the corresponding foreign, state or local Tax laws) that are required to be taken into account by LandSource or any LandSource Subsidiary in any period ending after the Closing Date by reason of a change in method of accounting in any taxable period ending on or before the Closing Date or as a result of the transactions contemplated by this Agreement.

(m) Neither LandSource nor any LandSource Subsidiary has ever been required to make any disclosure to the IRS pursuant to Code Section 6111 or Section 1.6011-4 of the Treasury Regulations promulgated thereunder.

4.8 LandSource Assets . The LandSource Property contributed by LandSource to the New Subsidiary pursuant to the LandSource Subsidiary Contribution represents all of the assets directly owned by LandSource as of the Effective Date, other than the LandSource Excluded Contracts and the Excluded Assets.

4.9 Balance Sheets . Set forth in Section 4.9 of the LandSource Disclosure Schedule are the following balance sheets (collectively, the “ Balance Sheets ”): (i) audited consolidated balance sheet for LandSource and the consolidated LandSource Subsidiaries for the fiscal year ended November 30, 2005; and (ii) unaudited consolidated balance sheet as of July 1, 2006 for LandSource and the consolidated LandSource Subsidiaries (the “ Most Recent Balance Sheet ”). The Balance Sheets have been prepared in accordance with GAAP throughout the periods covered thereby and present fairly the financial condition of LandSource and the LandSource Subsidiaries as of such dates; provided, however, that the Most Recent Balance Sheets are subject to normal year-end adjustments and lack footnotes and other presentation items required by GAAP.

4.10 Employee Benefits .

(a) Section 4.10 of the LandSource Disclosure Schedule contains a complete and accurate list of each pension, retirement, profit sharing, savings, employee stock ownership, stock bonus, stock option, stock purchase, restricted stock, compensation, severance, termination, bonus, incentive, commission, deferred compensation, health, fringe benefit, insurance, supplemental benefit, medical, education reimbursement or other plan, agreement, policy or arrangement, including each “employee benefit plan” as defined in Section 3(3) of ERISA, that is (or was) sponsored, maintained or contributed to (or required to be contributed to) by LandSource or any of its ERISA Affiliates, whether written or unwritten, for the benefit of current or former employees, officers and/or directors of LandSource or any of its ERISA Affiliates (each a “ Plan ”). LandSource and each of its ERISA Affiliates, as applicable, (i) is in compliance in all material respects with, and not in violation of, any and all of its material obligations and agreements under each Plan, (ii) is not in violation of any law, regulation, rule or other requirement of any governmental authority (including, but not limited to, ERISA and the Code) with respect to any such Plan. No “reportable event” within the meaning of Section 4043 of ERISA nor any

 

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event described in Section 4062 or 4063 of ERISA has occurred. Complete and accurate copies of the following items relating to each Plan, where applicable, have been delivered to MWHP or its representatives: (a) all Plan documents (or written summaries of any unwritten Plans) and related trust agreements, insurance contracts or other