PARTICIPATION AGREEMENT
Exhibit
10.3
THIS
PARTICIPATION AGREEMENT (this “Participation
Agreement”) is made as of February 3, 2010, by and between SPT-LAKE ELSINORE HOLDING CO.,
LLC, a Delaware limited liability company (“Seller”),
and X. X. XXXXXX LOS ANGELES
HOLDING COMPANY,
INC., a California corporation (“Buyer”),
collectively the “Parties”.
Recitals:
A Pursuant
to that certain Purchase and Sale Agreement and Joint Escrow Instructions, dated
for reference purposes as of December 8, 2009, by and between Seller and Buyer, as may
be amended from time to time (collectively, the “Purchase
Agreement”), Buyer is acquiring from Seller 65 residential single family
lots, situated in Lake Elsinore, California (the “Property”).
B As
additional consideration for the purchase of the Property, and in addition to
the Purchase Price, Buyer has agreed to pay to Seller the ‘Participation Amount’
(as defined below), if any, that may be received by Buyer from the sale of a
Unit (as defined below), subject to the terms and conditions set forth
below.
NOW,
THEREFORE, in consideration of the above and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
1. Definitions.
Capitalized terms used in this Participation Agreement and not defined below or
in Schedule
“1”
attached hereto shall have the meanings set forth in the Purchase
Agreement.
a. “Escrow
Agent” means
the escrow agent for the sale of Units.
b. “Home Closing
Statement” means a written
statement prepared by the Escrow Agent identifying the homebuyer, the property
address, the date of the Unit closing and the Gross Sales Price of the home as
reflected on the HUD-1 settlement statement, solely for the purpose of Seller
verifying compliance with Buyer's obligation to pay the Participation
Amount.
c. “Participation
Amount” means those amounts payable by Buyer to Seller pursuant to Section 2
below.
d. “Gross
Profit” is defined in Schedule
“1”
attached hereto.
e. “Gross Profit
Margin” is defined in Schedule
“1”
attached hereto.
f. “Unit” means
a Lot improved by Buyer with a single family dwelling for sale to the
home-buying public.
2. Participation
Amount. Seller shall be entitled to receive fifty percent (50%) of any
Gross Profit that exceeds a twenty-four percent (24%) Gross Profit Margin on the
sale of the Units to be developed by Buyer on the Lots (the “Participation
Amount”).
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3. Payment
of Participation Amount. Within ninety (90) days after the sale of the
last Unit constructed within the Property, Buyer shall deliver an accounting to
Seller together with a payment in an amount equal to the Participation Amount,
if any, for the residences.
4. Financial
Records and Statements of Buyer. Buyer shall keep and maintain, or cause
to be kept and maintained, accurate financial books and records with respect to
the development of the Property in accordance with generally accepted accounting
principles as modified by the provisions of this Agreement. Seller
shall have the right at all reasonable times and upon at least 5 business days
prior written notice, to inspect Buyer’s books and records for the purposes of
verifying the retail purchase price received by Buyer for Units, the Gross
Profit Margin calculation, and the allowable deductions used in calculating
Gross Profit and any other deductions or credits claimed by Buyer in determining
the amount of the Participation Amount. Any deficiency in amounts due
Seller for the Participation Amount determined based upon such review by Seller
shall be due and payable by Buyer to Seller within 15 days after receipt of
notice thereof from Seller. If Seller’s audit discloses that
Participation Amount was less than the amounts previously paid to Seller, Seller
shall pay to Buyer an amount equal to the excess of such amounts received over
the Participation Amount within 15 days after Seller’s receipt of the
audit. Notwithstanding any provision to the contrary in this
Agreement, including in any Exhibit or Schedule hereto, Seller shall not be
entitled to a copy of a homebuyer’s HUD-1 settlement statement or any other
information that Buyer or the escrow agent for the sale of Units would not be
permitted by law to disclose; in such event, Buyer shall provide to Seller such
substitute documentary information sufficient for Seller to enable Seller to
verify the terms of sale of each Unit. Seller shall have thirty (30) days from
Buyer’s delivery to Seller of the accounting and supporting data within which to
make a written objection regarding Buyer’s proposed Participation
Amount.
5. Default
and Remedies.
a. Default. A default shall be
deemed to have occurred if the breaching party has not effected or commenced to
effect a cure within ten (10) days after a written notice from the other party
specifying the breach.
b. Dispute Resolution. If there
is a dispute between the parties regarding the calculation and/or payment of the
Participation Amount, then either party may elect to have such dispute resolved
pursuant to Section 32 of the Purchase Agreement, the terms of which are
incorporated herein by this reference.
6. Notice.
Any notice authorized, required, or permitted to be given hereunder shall be
delivered to the parties at the addresses and in the manner set forth in the
Purchase Agreement.
7. Miscellaneous
Provisions.
a. Governing Law. This
Participation Agreement shall be governed and interpreted under the laws of the
State of California.
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b. Section Headings. The section
headings used in this Participation Agreement are for reference and convenience
purposes only, and shall not be used in the interpretation of this Participation
Agreement.
c. Exhibits. All exhibits
attached hereto are incorporated in this Participation Agreement by reference
and made a part of this Participation Agreement.
d. Integration; Amendment in
Writing. This Participation Agreement contains the entire agreement
between the Parties relating to the payment of any Participation Amount, and
neither party shall be bound by any oral statement or oral or written agreement
made prior to or contemporaneous with this Participation Agreement and not
included within this Participation Agreement. The foregoing does not
affect the validity of the Purchase Agreement. This Participation Agreement
cannot be amended except by written agreement executed by the
Parties.
e. No Partnership or Joint
Venture. Nothing contained in this Participation Agreement is intended to
create, nor shall it ever be construed to make, Seller and Buyer partners or
joint venturers.
f. Severability. The provisions
of this Participation Agreement are severable, and if any provision or part
hereof or the application thereof to any person or circumstances shall ever be
held by any court of competent jurisdiction to be invalid or unconstitutional
for any reason, the remainder of this Participation Agreement and the
application of such provisions or part hereof to other persons or circumstances
shall not be affected thereby.
g. Effective Date. The effective
date of this Participation Agreement is the date the Initial Closing
occurs.
h. Dates for Performance. Should
the date for the giving of any notice, the performance of any act, or the
beginning or end of any period provided for in this Participation Agreement fall
on a Saturday, Sunday or other legal holiday, such date shall be extended to the
next succeeding business day which is not a Saturday, Sunday or legal
holiday.
i. Counterparts and Electronic
Signatures. This Participation Agreement may be executed in one or more
counterparts, of each which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In addition, if any party
uses facsimile-transmitted signed documents, or signed documents which have been
electronically scanned and transmitted by email, Escrow Agent, Escrow Holder and
the other party are authorized to rely upon such documents as if they bore
original signatures.
[Signatures appear
on the following page]
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IN
WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to
be executed as of the day and year first written above.
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Seller:
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SPT-LAKE
ELSINORE HOLDING CO., LLC, a Delaware limited
liability
company
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By:
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Xxxxxxx
Partners, L.P., a Delaware limited partnership, sole
member
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By:
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Xxxxxxx
General Partner, LLC, a Delaware
limited
liability company, general partner
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By:
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Xxxxxxx
Properties Trust, Inc., a Maryland
corporation,
manager
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By:
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/s/ Xxxxxxx
X. Xxxxxxx
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||||
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Xxxxxxx
X. Xxxxxxx,
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|||||
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President
and CEO
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Buyer:
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X.
X. XXXXXX LOS ANGELES HOLDING COMPANY, INC., a
California
corporation
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By:
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/s/
Xxxxxxx Xxxxxxxxxxx
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||||
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Xxxxxxx
Xxxxxxxxxxx, Vice
President
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SCHEDULE
1
Definition of “Gross Profit
Margin”
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IF:
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A =
Sales Revenue
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Defined
as the sum of the sales price of each residence pursuant to a sale to a
member of the home buying public as reflected on the Home Closing
Statement for such residence, including any premium for location,
elevation, view or lot size, but excluding prices for extras and options
offered by Buyer in connection with the sale of any residence, including
special or upgraded amenities, floor plan modifications, room options,
appliance upgrades, cabinetry upgrades, countertop upgrades, finish
carpentry upgrades, electrical options, fireplace options and all other
options and upgrades, and minus sales incentives or concessions given to
the home buyer.
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B =
Land & Improvements
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Defined
as Purchase Price paid to Seller for the Property plus all escrow, title
and closing costs, costs of third parties in connection with due diligence
review of the Property, brokerage commissions and legal fees, incurred and
paid by Buyer in connection with the acquisition of title to the Property;
additional improvements by Buyer (see Schedule 1-B) including but not
limited to, grading, paving, curb, gutter and sidewalk, erosion control,
landscaping, irrigation, walls and fences, mailboxes, dirt hauling, and
repairs to asphalt and concrete; miscellaneous site specialties; soft
costs including but not limited to civil, soils, and structural
engineering, architects, design professionals and other consultants; meter
deposits, mailboxes and pressure regulators, soils testing, export of lot
spoils, and lot re-certifications; any association fees; the costs of
non-recurring, capitalized indirect construction costs (which for the
purposes of this agreement shall be 1.50% of Sales Revenue); the costs of
DRE and HOA setup and administration (not including XXX xxxx); and permits
and fees paid by Buyer in connection with developing the Property,
including plan check and inspection fees, but excluding fees paid for
obtaining building permits for the residences.
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C =
Sticks and Bricks
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Defined
as hard construction cost items and fees paid at building permit (see
Schedule 1-A).
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D =
Other Costs
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Defined
as all costs paid by Buyer in connection with the close of escrow for the
sale of residences to members of the home-buying public, including, but
not limited to, closing costs, including normal escrow and title charges
and property taxes, documentary transfer tax, buyer referral fees,
Homeowner Association Fees, third party co-broker real estate commissions,
and a warranty expense accrual calculated at 1.0% of the sales
price for detached product and 1.5% for attached
product.
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SCHEDULE 1
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E =
Gross Profit =
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A –
(B + C + D)
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GROSS
PROFIT MARGIN =
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E ÷
A
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SCHEDULE 1
SCHEDULE
1-A
Item
Building
Permits
Temporary
Power
Phase I
Environmental
Area
drains
Utility
Connections
Lot
Grade
Termite
Plumbing
Concrete
Foundation
Concrete
Flatwork
Windows
Fireplaces
Framing
Electric
Light
Fixtures
Prewire
Security
Heating
& A/C
Sheet
Metal
Gutters
Ornamental
Iron
Stucco
Exterior
Tiles
Roofing
Painting
Garage
Doors
Insulation
Drywall
Finish
Carpentry
Hardware
Cabinets
Ceramic
Counter Tops
Marble
Counter Tops
Shower
Enclosure
Appliances
Flooring
Clean-Up
Grading
Utility
Trenching
Fencing
Landscaping
Contingency
SCHEDULE 1-A
SCHEDULE
1-B
Land Development
Costs
DEVELOPMENT
IMPROVEMENTS
Erosion
Control
Grading
Storm
Drain
Sewer
Water
Concrete
Paving
Utilities
Landscape
and Irrigation
Walls
Misc.
Specialties
Contingency
SITE
FEES
Utility
Fees
Development
Fees
Water
District Fees
Sewer
District Fees
Bonds
School
Fees
CONSULTANTS
Dry
Utilities Engineer
Civil
Engineer
Landscape
Architect
Soils
Engineer
Architect
Structural
Engineer
Energy
Consultant
Site
Consultant
DEVELOPMENT
IMPROVEMENTS
EROSION
CONTROL
Sand
Bags, Silt Fencing, Jute Mesh
Labor for
storm clean-up of slopes and streets
GRADING
Rough
Grade & Re-Grade
Spin Lots
for House
Dirt Haul
from Site
Labor and
Equip. for Weed Control
SCHEDULE 1-B
STORM
DRAIN
SEWER
WATER
CONCRETE
Sidewalks
& Approaches
Grading
Curb and
Gutter
Repair of
Same
PAVING
Pave
Streets
Cap
Streets
Parking
Lot Grading
Repairs,
Re-Seal
UTILITIES
Main
& Laterals, Joint Trench, Street Lights
LANDSCAPE
AND IRRIGATION
Slope
Installation
Front
yards & Street Trees
Water for
Slopes
Landscape
Maint. (common area & slopes)
Model
Landscaping
WALLS/FENCING
Retaining
Walls
Perimeter
Walls
Property
Line Walls (wood, wrought iron, concrete, etc.)
Model
Trap Fence
MISC.
SPECIALTIES
Mail
Boxes
Street
Signs
Street
Sweeper
Water
Truck
Electric
Controllers & Temp. Power
Temporary
Fences
Misc.
Site Fees (Encroachment Permits, Variance)
Plans
& Blueprints
Trailers
Toilets
Trash
Bins
SCHEDULE 1-B
CONTINGENCY
SITE
FEES
UTILITY
FEES
Gas,
Electric, Telephone & Cable
DEVELOPMENT
FEES
WATER
DISTRICT FEES
SEWER
DISTRICT FEES
BONDS
CONSULTANTS
DRY
UTILITIES ENGINEER
CIVIL
ENGINEER
LANDSCAPE
ARCHITECT
SOILS
ENGINEER
ARCHITECT
STRUCTURAL
ENGINEER
ENERGY
CONSULTANT
SITE
CONSULTANT (independent inspector)
SCHEDULE 1-B
