AMENDED AND RESTATED
OPERATING AGREEMENT OF
SPRING VALLEY TERRACE APARTMENTS, L.L.C.
TABLE OF CONTENTS
Page
I. DEFINITIONS................................................................1
1.1 "Accountant" ...............................................1
1.2 "Act" ......................................................2
1.3 "Actual Tax Credit" ........................................2
1.4 "Adjusted Capital Account Deficit" .........................2
1.5 "Affiliate" ................................................2
1.6 "Agreement" or "Operating Agreement" .......................2
1.7 "Assignee" .................................................2
1.8 "Bankruptcy" or "Bankrupt" .................................2
1.9 "Break-even Operations" ....................................3
1.10 "Capital Account" .........................................3
1.11 "Capital Contribution" .....................................3
1.12 "Code" .....................................................3
1.13 "Company"...................................................3
1.14 "Company Minimum Gain"......................................3
1.15 "Completion of Construction" ...............................4
1.16 "Compliance Period" ........................................4
1.17 "Consent of the Special Member" ............................4
1.18 "Construction Contract" ....................................4
1.19 "Construction Loan" ........................................4
1.20 "Contractor" ...............................................4
1.21 "Debt Service Coverage" ....................................4
1.22 "Deferred Management Fee" ..................................4
1.23 "Developer" ................................................5
1.24 "Development Fee" ..........................................5
1.25 "Disinterested Member"......................................5
1.26 "Distributions" ............................................5
1.27 "Fair Market Value" ........................................5
1.28 "First Year Certificate" ...................................5
1.29 "Force Majeure".............................................5
1.30 "Gross Asset Value" ........................................5
1.31 "Hazardous Substance".......................................6
1.32 "Improvements"..............................................6
1.33 "Income and Losses".........................................8
1.34 "Insurance" ................................................8
1.35 "Insurance Company" ........................................8
1.36 "Interest" .................................................8
1.37 "Investor Member"...........................................8
1.38 "Involuntary Withdrawal"....................................8
1.39 "Land Purchase Note"........................................9
1.40 "LIHTC".....................................................9
1.41 "Liquidation"...............................................9
1.42 "Majority in Interest"......................................9
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1.43 "Managing Member(s)"........................................9
1.44 "Management Administration Fee".............................9
1.45 "Management Agent"..........................................9
1.46 "Management Agreement"......................................9
1.47 "Member"....................................................9
1.48 "Member Nonrecourse Debt"..................................10
1.49 "Member Nonrecourse Debt Minimum Gain".....................10
1.50 "Member Nonrecourse Deductions"............................10
1.51 "Minimum Set-Aside Test"...................................10
1.52 "Mortgage", "Mortgage Note" or "Mortgage Loan".............10
1.53 "Net Operating Income".....................................11
1.54 "Nonrecourse Deductions"...................................11
1.55 "Nonrecourse Liability"....................................11
1.56 "Operating Deficit" .......................................11
1.57 "Operating Deficit Guarantee Period".......................11
1.58 "Operating Loans"..........................................11
1.59 "Permanent Mortgage Commencement" .........................11
1.60 "Person" ..................................................12
1.61 "Prime Rate"...............................................12
1.62 "Project" .................................................12
1.63 "Project Documents" .......................................12
1.64 "Projected Tax Credits" ...................................12
1.65 "Projected Annual Tax Credits" ............................12
1.66 "Qualified Income Offset Item".............................12
1.67 "Qualified Tenants" .......................................12
1.68 "Rent Restriction Test" ...................................12
1.69 "Reporting Fee"............................................12
1.70 "Revised Projected Tax Credits"............................13
1.71 "Sale or Refinancing"......................................13
1.72 "Sale or Refinancing Proceeds" ............................13
1.73 "Special Member"...........................................13
1.74 "State" ...................................................13
1.75 "State Tax Credit Agency" .................................13
1.76 "Substitute Member" .......................................13
1.77 "Tax Credit" ..............................................13
1.78 "Tax Credit Conditions"....................................13
1.79 "Tax Credit Period"........................................14
1.80 "TRA 1986" ................................................14
1.81 "Treasury Regulations" ....................................14
1.82 "Withdrawing Member".......................................14
1.83 "Withdrawing" or "Withdrawal"..............................14
II. NAME ...............................................................14
III. PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE .......................14
3.1 Principal Executive Office ................................14
3.2 Agent for Service of Process ..............................14
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IV. PURPOSE ............................................................15
V. TERM ...............................................................15
VI. MANAGING MEMBER CONTRIBUTIONS AND LOANS.............................15
6.1 Capital Contribution of Managing Member....................15
6.2 Construction and Operating Obligations.....................15
6.3 Managing Member Loans......................................16
VII. MEMBER'S CAPITAL CONTRIBUTIONS......................................16
7.1 Withdrawing Member.........................................16
7.2 Capital Contribution of Investor Member....................16
7.3 Repurchase of Investor Member's Interest...................19
7.4 Capital Contribution of Special Member.....................19
7.5 Liability of Investor Member and Special Member............19
7.6 Reduction of Capital Contribution..........................20
7.7 Return of Capital Contribution.............................21
7.8 Liability of Investor Member...............................22
VIII. WORKING CAPITAL AND RESERVES ..........................................22
8.1 Operation and Maintenance Reserve .........................22
8.2 Debt Service Coverage Reserve Account .....................22
8.3 Operating Reserve Account..................................22
8.4 Lease-up Reserve Account...................................23
8.5 Other Reserves.............................................23
IX. MANAGEMENT AND CONTROL .............................................23
9.1 Power and Authority of Managing Member ....................23
9.2 Payments to the Managing Member and Others ................23
9.3 Specific Powers of the Managing Member.....................25
9.4 Authority Requirements.....................................25
9.5 Limitations on Managing Member's Power and Authority ......26
9.6 Restrictions on Authority of Managing Member...............27
9.7 Duties of Managing Member..................................27
9.8 Company Expenses ..........................................29
9.9 Managing Member Expenses ..................................30
9.10 Other Business of Members .................................30
9.11 Covenants, Representations and Warranties..................30
9.12 Option to Acquire..........................................33
X. ALLOCATIONS OF INCOME, LOSSES AND CREDITS ..........................35
10.1 General ...................................................35
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10.2 Allocations From Sale or Refinancing.......................35
10.3 Special Allocations........................................36
10.4 Curative Allocations.......................................38
10.5 Other Allocation Rules.....................................39
10.6 Tax Allocations: Code Section 704(c)......................40
10.7 Allocation Among Investor Members and Assignees............40
10.8 Allocation Among Managing Members..........................40
10.9 Modification of Allocations ...............................40
XI. DISTRIBUTION .......................................................41
11.1 Distribution of Net Operating Income ......................41
11.2 Distribution of Sale or Refinancing Proceeds...............41
XII. VOLUNTARY TRANSFERS OF NON-MANAGING MEMBER'S INTEREST
IN THE COMPANY......................................................42
12.1 Restrictions on Transfer...................................42
12.2 Conditions Precedent to Transfers..........................42
12.3 Assignment of Investor Member's Interest ..................42
12.4 Effective Date of Transfer ................................43
12.5 Invalid Assignment ........................................43
12.6 Assignee's Rights to Allocations
and Distributions .......................................43
12.7 Substitution of Assignee as Investor Member................43
12.8 Death, Bankruptcy, Incompetency, etc.
of a Investor Member ....................................44
XIII. WITHDRAWAL, REMOVAL AND REPLACEMENT OF MANAGING MEMBER.................44
13.1 Resignation of Managing Member.............................44
13.2 Removal of Managing Member.................................44
13.3 Effects of a Withdrawal....................................46
13.4 Successor General Partner..................................47
13.5 Admission of Additional or Successor Managing Member.......48
13.6 Transfer of Interest ......................................48
13.7 No Goodwill Value..........................................48
XIV. BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS,
FISCAL YEAR AND BANKING ............................................49
14.1 Books and Accounts ........................................49
14.2 Accounting Reports ........................................49
14.3 Other Reports .............................................50
14.4 Late Reports ..............................................52
14.5 Annual Site Visits.........................................52
14.6 Tax Returns................................................52
14.7 Fiscal Year ...............................................52
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14.8 Banking ...................................................52
14.9 Certificates and Elections ................................53
XV. DISSOLUTION, WINDING UP, TERMINATION AND
LIQUIDATION OF THE COMPANY..........................................53
15.1 Dissolution of Company.....................................53
15.2 Return of Capital Contribution upon Dissolution ...........53
15.3 Distributions of Assets ...................................54
15.4 Deferral of Liquidation....................................55
15.5 Liquidation Statement .....................................55
15.6 Articles of Dissolution....................................55
XVI. AMENDMENTS .........................................................55
XVII. TREATMENT AS LIMITED LIABILITY COMPANY..............................56
XVIII. NATURE OF MEMBERS' INTEREST.........................................56
XIX. MISCELLANEOUS ......................................................56
19.1 Voting Rights .............................................56
19.2 Meeting of Partnership ....................................57
19.3 Notices ...................................................57
19.4 Successors and Assigns ....................................57
19.5 Recording of Articles of Organization of the Company.......57
19.6 Amendment of Articles of Organization of the Company.......58
19.7 Counterparts ..............................................58
19.8 Captions ..................................................58
19.9 Certain Provisions.........................................58
19.10 Saving Clause..............................................59
19.11 Number and Gender .........................................59
19.12 Entire Agreement ..........................................59
19.13 Governing Law .............................................59
19.14 Attorney's Fees ...........................................59
19.15 Receipt of Correspondence .................................59
19.16 Security Interest and Right of Set-Off ....................59
19.17 Tax Matters Partners......................................... 59
EXHIBIT A - Legal Description......................................A-1
EXHIBIT B - Form of Legal Opinion..................................B-1 - B-4
EXHIBIT C - Certification and Agreement............................C-1 - C-4
EXHIBIT D - Managing Member Certif ication.........................D-1 - D-4
EXHIBIT E - Form of Completion Certificate.........................E-1
EXHIBIT F - Accountant's Certificate ..............................F-1
EXHIBIT G - Sample Contractor Letter...............................G-1
EXHIBIT H - Report of Operations...................................H-1 - H-10
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AMENDED AND RESTATED
OPERATING AGREEMENT OF
SPRING VALLEY TERRACE APARTMENTS, L.L.C.
This Amended and Restated Operating Agreement is being entered into
effective as of the date written below by and between Spring Valley Terrace,
Inc., an Arizona nonprofit corporation as the managing member (the "Managing
Member"), WNC Housing Tax Credit Fund VI, L.P., Series 5, a California limited
partnership as a member (the "Investor Member"), WNC Housing, L.P., as the
special member (the "Special Member") and Human Action for Chandler, an Arizona
non-profit corporation, dba Coordinated Community Services of Arizona, as the
withdrawing member (the "Withdrawing Member").
WHEREAS, Spring Valley Terrace Apartments, L.L.C., an Arizona limited
liability company (the "Company") recorded Articles of Organization of the
Company with the Arizona Corporation Commission on September 10, 1996. An
Operating Agreement dated as of September 7, 1996, was entered into by and among
the Company and the initial members, Spring Valley Terrace, Inc., an Arizona
nonprofit corporation as the managing member (the "Managing Member") and Human
Action for Chandler, an Arizona non-profit corporation, dba Coordinated
Community Services of Arizona, as a member (the "Withdrawing Member") (the
"Original Operating Agreement).
WHEREAS, the Members desire to enter into this Agreement to provide
for, among other things, (i) the continuation of the Company, (ii) the admission
of the Investor Member and the Special Member as members of the Company, (iii)
the liquidation of the Withdrawing Member's Interest in the Company, (iv) the
payment of Capital Contributions by the Investor Member and the Special Member
to the Company, (v) the allocation of Income, Losses, Tax Credits and
distributions of Net Operating Income and other cash funds of the Company among
the Members (vi) the respective rights, obligations and interests of the Members
to each other and to the Company, and (vii) certain other matters.
WHEREAS, the Members desire hereby to amend and restate the Original
Operating Agreement.
NOW, THEREFORE, in consideration of their mutual agreements herein set
forth, the Members hereby agree to amend and restate the Operating Agreement in
its entirety to provide as follows:
ARTICLE I
DEFINITIONS
Section 1.1 "Accountant" shall mean Xxxxxx Xxxxxxx, CPA or such other
firm of independent certified public accountants as may be engaged by the
Managing Member with the consent of the Special Member. Notwithstanding any
provision of this Agreement to the contrary, the Special Member shall have the
discretion to dismiss the Accountant for cause if such Accountant fails to
provide, or inaccurately provides, the information required in Section 14.2 and
14.3 of this Agreement.
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Section 1.2 "Act" shall mean the Arizona Limited Liability Company Act
and all amendments to the Act.
Section 1.3 "Actual Tax Credit" shall mean as of any point in time, the
total amount of the LIHTC actually allocated by the Company to the Investor
Member and the Special Member, representing ninety-nine and 99/100th percent
(99.99%) of the LIHTCs actually received by the Company, as shown on the
applicable tax return of the Company.
Section 1.4 "Adjusted Capital Account Deficit" shall mean with respect
to any Member, the deficit balance, if any, in such Member's Capital Account as
of the end of the relevant fiscal year, after giving effect to the following
adjustments:
(a) Credit to such Capital Account any amounts which such Member is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Sections
1.704-2(b)(2)(ii)(d)(4), 1.704-2(b)(2)(ii)(d)(5) and 1.704-2(b)(2)(ii)(d)(6) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
Section 1.5 "Affiliate" shall mean (i) any Person directly or
indirectly controlling, controlled by, or under common control with another
Person; (ii) any Person owning or controlling 10% or more of the outstanding
voting securities of such other Person; (iii) any officer, director, trustee, or
partner of such other Person; and (iv) if such Person is an officer, director,
trustee or general partner, any company for which such Person acts in any such
capacity.
Section 1.6 "Agreement" or "Operating Agreement" shall mean this
Amended and Restated Operating Agreement, as it may be amended from time to
time. Words such as "herein", "hereby" and "hereunder" when used with reference
to this Agreement, refers to this Agreement as a whole, unless the context
otherwise requires.
Section 1.7 "Assignee" shall mean a Person who has acquired all or a
portion of the Investor Member's beneficial interest in the Company and has not
become a substitute Investor Member.
Section 1.8 "Bankruptcy" or "Bankrupt" shall mean the making of an
assignment for the benefit of creditors, becoming a party to any liquidation or
dissolution action or proceeding, the commencement of any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially
distressed debtors, or the appointment of a receiver, liquidator, custodian or
trustee and, if any of the same occur involuntarily, the same not being
dismissed, stayed or discharged within 90 days; or the entry of an order for
relief under Title 11 of the United States Code. A Member shall be deemed
Bankrupt if the Bankruptcy of such Member shall have occurred and be continuing.
2
Section 1.9 "Break-Even Operations" shall mean when the Company has Net
Operating Income as determined by the Accountant and approved by the Special
Member.
Section 1.10 "Capital Account" shall mean, with respect to each Member,
the account maintained for such Member comprised of such Member's Capital
Contribution as increased by allocations of Company Income (or items thereof)
and any items in the nature of income or gain which are specially allocated
pursuant to Article X hereof, and decreased by the amount of any Distributions
made to such Member, and allocations of Company Losses (or items thereof) and
any items in the nature of expenses or losses which are specially allocated
pursuant to Article X hereof.
In the event of any transfer of an interest in the Company in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
The foregoing definition and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), as amended or any successor thereto, and
shall be interpreted and applied in a manner consistent with such Treasury
Regulation.
Section 1.11 "Capital Contribution" shall mean the total amount of
money, or the Fair Market Value of property (net of liabilities securing such
contributed property that the Company is considered to assume or take subject to
under Section 752 of the Code), contributed to the Company, if any, by all the
Members or any class of Members or any one Member as the case may be (or by a
predecessor-in-interest of such Member or Members), reduced by any of such
capital which shall have been returned pursuant to Section 7.3, 7.4 or 7.5 of
this Agreement. A loan to the Company by a Member shall not be considered as a
Capital Contribution.
Section 1.12 "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute.
Section 1.13 "Company" shall mean the limited liability company
continued under this Agreement.
Section 1.14 "Company Minimum Gain" shall mean the amount determined by
computing, with respect to each nonrecourse liability of the Company, the amount
of gain, if any, that would be realized by the Company if a reduction occurs in
the amount by which the nonrecourse liability exceeds the adjusted basis in the
Project encumbered by the nonrecourse liability. Such computation shall be made
in a manner consistent with Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
Section 1.15 "Completion of Construction" shall mean the completion of
construction of the Project substantially in accordance with the Project
Documents in order to obtain the required certificates of occupancy (or the
local equivalent) for all twenty (20) apartment units as evidenced by the
issuance of the certificate of occupancy by the governmental agency having
jurisdiction over the Project or by the issuance of the inspecting architect's
certification, in a form substantially similar to that attached hereto as
3
Exhibit "E". The construction shall be completed in good workmanlike manner,
free and clear of all mechanics, materialmen's or similar liens. All other costs
and expenses must be paid with respect to the Project through completion,
including but not limited to costs of financing.
Section 1.16 "Compliance Period" shall mean the period set forth in
Section 42 (i)(1) of the Code, as amended, or any successor statute.
Section 1.17 "Consent of the Special Member" shall mean the prior
written consent or approval of the Special Member.
Section 1.18 "Construction Contract" shall mean the construction
contract in the amount of $978,052 entered into between the Company and the
Contractor pursuant to which the Projected is being constructed.
Section 1.19 "Construction Loan" shall mean the loan obtained from
Xxxxx Fargo Bank, N.A. in the principal amount of $456,000 at an interest rate
equal to 1.25% in excess of lender's Prime Rate in effect from time to time per
annum for a term of 12 months. Where the context admits, the term Construction
Loan shall include any deed, deed of trust, note, security agreement, assumption
agreement or other instrument executed in connection with the Construction Loan
which is binding on the Company.
Section 1.20 "Contractor" shall mean Western Plains Development Corp.,
which is the general construction contractor of the Project.
Section 1.21 "Debt Service Coverage" shall mean the ratio between the
Net Operating Income (excluding Mortgage payments) and the debt service required
to be paid on the Mortgage(s); as example, a 1.15 Debt Service Coverage means
that for every $1.00 of debt service required to be paid there must be $1.15 of
Net Operating Income available. A worksheet for the calculation of Debt Service
Coverage is found in the Report of Operations attached hereto as Exhibit "H" and
incorporated herein by this reference.
Section 1.22 "Deferred Management Fee" shall have the meaning set
forth in Section 9.2(c) hereof.
Section 1.23 "Developer" shall mean Human Action for Chandler, an
Arizona non-profit corporation, dba Coordinated Community Services of Arizona.
Section 1.24 "Development Fee" shall mean the fee payable to the
Developer pursuant to Section 9.2(a) of this Agreement for services incident to
the development and construction of the Project in accordance with the
Development Fee Agreement between the Company and the Developer dated the even
date herewith and incorporated herein by this reference.
Section 1.25 "Disinterested Member" shall mean a Member who is not
related (within the meaning of Section 267 (b) of the Code and Section 707 (b)
4
(1) of the Code) to either the Member whose Interest is to be transferred as
provided in Article XII or the proposed transferee of such Interest.
Section 1.26 "Distributions" shall mean the total amount of money, or
the Gross Asset Value of property (net of liabilities securing such distributed
property that such Member is considered to assume or take subject to under
Section 752 of the Code), distributed to Members with respect to their interests
in the Company, but shall not include any payments to the Managing Member or its
Affiliates for fees or other compensation as provided in this Agreement or any
guaranteed payment within the meaning of Section 707(c) of the Code, as amended,
or any successor thereto.
Section 1.27 "Fair Market Value" shall mean, with respect to any
property, real or personal, the price a ready, willing and able buyer would pay
to a ready, willing and able seller of the property, provided that such value is
reasonably agreed to between the parties in arm's-length negotiations and the
parties have sufficiently adverse interests.
Section 1.28 "First Year Certificate" shall mean the certificate to be
filed by the Managing Member with the Secretary of the Treasury within 90 days
following the close of the first taxable year of the Project as required by Code
Section 42(1)(1), as amended, or any successor thereto.
Section 1.29 "Force Majeure" shall mean any act of God, strike,
lockout, or other industrial disturbance, act of the public enemy, war,
blockage, public riot, fire, flood, explosion, governmental action, governmental
delay, restraint or inaction and any other cause or event, whether of the kind
enumerated specifically herein, or otherwise, which is not reasonably within the
control of a Member to this Agreement claiming such suspension.
Section 1.30 "Gross Asset Value" shall mean with respect to any asset,
the asset's adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as determined
by the contributing Member and the Managing Member, provided that, if the
contributing Member is a Managing Member, the determination of the fair market
value of a contributed asset shall be determined by appraisal;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values, as determined by the Managing
Member, as of the following times: (i) the acquisition of an additional interest
in the Company by any new or existing Member in exchange for more than a de
minimis Capital Contribution; (ii) the distribution by the Company to a Member
of more than a de minimis amount of Company property as consideration for an
interest in the Company; and (iii) the liquidation of the Company within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g): provided, however,
that the adjustments pursuant to clauses (i) and (ii) above shall be made only
if the Managing Member reasonably determines that such adjustments are necessary
or appropriate to reflect the relative economic interests of the Members in the
Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal the gross fair market value of such asset on
5
the date of distribution as determined by the distributee and the Managing
Member, provided that, if the distributee is a Managing Member, the
determination of the fair market value of the distributed asset shall be
determined by appraisal; and
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset Values shall not be adjusted
pursuant to this Section 1.30(d) to the extent the Managing Member determines
that an adjustment pursuant to Section 1.30(b) hereof is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 1.30(d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1.30(a), Section 1.30(b), or Section 1.30(d) hereof, such Gross Asset
Value shall thereafter be adjusted by the depreciation taken into account with
respect to such asset for purposes of computing Income and Losses.
Section 1.31 "Hazardous Substance" shall mean and include any
substance, material or waste, including asbestos, petroleum and petroleum
products (including crude oil), that is or becomes designated, classified or
regulated as "toxic" or "hazardous" or a "pollutant" or that is or becomes
similarly designated, classified or regulated, under any federal, state or local
law, regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications promulgated pursuant thereto.
Section 1.32 "Improvements" shall mean the twenty (20) unit apartment
complex for elderly and handicapped built in accordance with the plans and
specifications and Project Documents.
Section 1.33 "Income and Losses" shall mean, for each fiscal year or
other period, an amount equal to the Company's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Income or Losses pursuant to
this Section 1.33 shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Income and Losses pursuant to this Section 1.33 shall be subtracted
from such taxable income or loss;
6
(c) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to Section 1.30(a) or (b) hereof, the amount of such adjustment shall
be taken into account as gain or loss from the disposition of such asset for
purposes of computing Income and Losses;
(d) Gain or loss resulting from any disposition of Company assets with
respect to which gain or loss is recognized for federal income purposes shall be
computed by reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation for such fiscal year or other period,
computed as provided below; and
(f) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Sections 10.3 or 10.4 hereof shall not
otherwise be taken into account in computing Income or Losses.
Depreciation for each fiscal year or other period shall be calculated
as follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period for federal income tax purposes, except that if the Gross Asset Value of
an asset differs from its adjusted basis for federal income tax purposes at the
beginning of such year or other period, depreciation shall be an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis; provided, however,
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
Managing Member.
Section 1.34 "Insurance" shall mean:
(a) During the course of construction, the Insurance shall
include builder's risk insurance, liability insurance on the minimum amount of
$1,000,000 per occurrence with an aggregate of $2,000,000 and worker's
compensation.
(b) During operations the Insurance shall include business
interruption coverage covering actual sustained loss for 12 months, worker's
compensation, hazard coverage (including but not limited to fire, or other
casualty loss to any structure or building on the Project in an amount equal to
full replacement value of the damaged property without deducting for
depreciation) and general liability coverage against liability claims for bodily
injury or property damage in the minimum amount of $1,000,000 per occurrence and
an aggregate of $2,000,000.
(c) All liability coverage shall include an umbrella liability
coverage in a minimum amount of $1,000,000 per occurrence and an aggregate of
$2,000,000.
7
(d) All Insurance polices shall name the Company as the
named insured;
(e) All Insurance policies shall include a provision
to notify the insured prior to cancellation;
(f) Hazard coverage must include inflation and building
or ordinance endorsements; and
(g) The builder's risk coverage shall equal the
construction contract amount.
Section 1.35 "Insurance Company" shall mean any insurance company
engaged by the Managing Member for the Company with the Consent of the Special
Member which Insurance Company shall have an A rating or better for financial
safety by A.M. Best or Standard & Poor's.
Section 1.36 "Interest" shall mean the entire interest of a Member in
the Company at any particular time, including the right of such Member to any
and all benefits to which a Member may be entitled hereunder and the obligation
of such Member to comply with the terms of this Agreement.
Section 1.37 "Investor Member" shall mean WNC Housing Tax Credit Fund
VI, L.P., Series 5, a California limited partnership, and such other Persons as
are admitted to the Company as additional or substitute Investor Members
pursuant to this Agreement.
Section 1.38 "Involuntary Withdrawal" shall mean any Withdrawal caused
by death, adjudication of insanity or incompetence, or Bankruptcy of a Managing
Member, or the removal of a Managing Member pursuant to Section 13.2 hereof.
Section 1.39 "Land Purchase Note" shall mean the Note Secured by Deed
of Trust in the amount of $38,000 dated November 13, 1997 by and between Spring
Valley Terrace Apartments, L.L.C. as the maker and Spring Valley Development
Corporation as the seller. The Land Purchase Note shall be repaid in full on or
before the Member's second Capital Contribution payment from either Construction
Loan proceeds, the Members' Capital Contribution or the Managing Members' Fund.
Section 1.40 "LIHTC" shall mean the low-income housing tax credit
established by TRA 1986 and which is provided for in Section 42 of the Code, as
amended, or any successor thereto.
Section 1.41 "Liquidation" shall mean with respect to the Company the
orderly sale and liquidation of the Project and other Company property following
the first to occur of (a) the date upon which the Company is terminated under
Section 708(b)(1) of the Code unless continued by a vote of the Members, (b) the
date upon which the Company ceases to be a going concern (even though it may
continue in existence for the purpose of winding up its affairs, paying its
debts and distributing any remaining balance to its Members), or (c) the date
this Agreement terminates pursuant to its terms; and means, with respect to a
Member at a time when the Company is not in Liquidation, the liquidation of such
Member's interest in the Company under Treasury Regulation 1.761-1(d), as
amended, or any successor thereto.
8
Section 1.42 "Majority In Interest" shall mean a combination of any
members who, in the aggregate, own more than 50% of the Membership Interests of
all Members.
Section 1.43 "Managing Member(s)" shall mean Spring Valley Terrace,
Inc., an Arizona nonprofit corporation and such other Persons as are admitted to
the Company as additional or substitute Managing Members pursuant to this
Agreement, selected to manage the affairs of the Company.
Section 1.44 "Management Administration Fee" shall have the meaning
set forth in Section 9.2(d) hereof.
Section 1.45 "Management Agent" shall mean the property management
company which oversees the property management functions for the Project and
which is on-site at the Project. The initial Management Agent shall be
Xxx-Xxx Realty Corp.
Section 1.46 "Management Agreement" shall mean the agreement between
the Company and the Management Agent for property management services.
Section 1.47 "Member" shall mean each person, including the Managing
Member, the Special Member and the Investor Member, designated as a member of
the Company in Exhibit "A" hereto or any other Person admitted as a member of
the Company in accordance with this Agreement or Act.
Section 1.48 "Member Nonrecourse Debt" shall mean the definition set
forth in Section 1.704-2(b)(4) of the Treasury Regulations.
Section 1.49 "Member Nonrecourse Debt Minimum Gain" shall mean an
amount, with respect to each Member Nonrecourse Debt, equal to the Company
Minimum Gain that would result if such Member Nonrecourse Debt were treated as a
Nonrecourse Liability (as defined in Section 1.704-2 (b)(3) of the Treasury
Regulations), determined in accordance with Section 1.704-2(i)(3) of the
Treasury Regulations.
Section 1.50 "Member Nonrecourse Deductions" shall mean the definition
set forth in Sections 1.704-2 (i)(1) and 1.704-2(i)(2) of the Treasury
Regulations.
Section 1.51 "Minimum Set-Aside Test" shall mean the 40-60 set-aside
test pursuant to Section 42(g), as amended, of the Code with respect to the
percentage of apartment units in the Project to be occupied by Qualified Tenants
whose incomes are less than the required percentage of the area median gross
income. Notwithstanding, the Company has agreed that 40% of the apartment units
will be rented to tenants with incomes of 50% or less of the area median income,
as adjusted for family size.
Section 1.52 "Mortgage", "Mortgage Note" or "Mortgage Loan" shall
collectively mean the nonrecourse promissory notes whereby the Company promises
to pay the following: (a) to Washington Mutual Bank in the principal amount of
$162,000 plus interest on the principal at a rate subject to the availability of
fixed rate funds from the Federal Home Loan Bank of San Francisco Community
9
Advance Program plus 2.00% points for a term of 15 years and amortized over 30
years; and (b) to Human Action for Chandler, an Arizona non-profit corporation,
dba Coordinated Community Services of Arizona in the principal amount of
$462,987 at 1% interest for a term of 20 years; the Members agree that cash flow
to the Property after payment of Project expenditures, the first Mortgage and
the payment of any deferred development fees, shall be deposited in a restricted
account. Where the context admits, the term "Mortgage" or "Mortgage Loan" shall
include any mortgage, deed, deed of trust, note, regulatory agreement, security
agreement, assumption agreement or other instrument executed in connection with
the Mortgage Note which is binding on the Company; and in case any Mortgage is
replaced or supplemented by any subsequent mortgage or mortgages, the Mortgage
shall refer to any such subsequent mortgage or mortgages. In the event the terms
of the Mortgage are not as specified herein and the Special Member determines in
its discretion that the Debt Service Coverage falls below 1.15 then at the
request of the Special Member the Managing Member shall reduce the principal of
the Mortgage to an amount the Special Member determines is adequate to produce a
1.15. Reduction of the principal amount of the Mortgage will be first made from
the Debt Service Coverage Reserve Account specified in Section 8.2. The Mortgage
funds and the Capital Contribution, specifically Section 7.2(b)(3), shall be
used to retire the Construction Loan and if there are any funds remaining the
Mortgage funds shall be used to retire any outstanding hard construction costs
including labor and materials.
Section 1.53 "Net Operating Income" shall mean: (a) the excess of
actual receipt on a cash basis by the Company of revenues from operations of the
Company, including, without limitation, rental income (but not any subsidy
thereof from the Managing Member or an Affiliate thereof), but excluding
prepayments, security deposits and interest thereon, (b) over all cash operating
obligations of the Company (other than those covered by insurance) in accordance
with the applicable budget adopted by the Company in accordance with Section
14.3(j) of this Agreement (the "Budget"), including, without limitation, the
payment of the Mortgage, the Management Agent fees (which shall be deemed to
include that portion of such fees which is deferred and not currently paid), the
Reporting Fee, the funding of reserves in accordance with Article VIII of this
Agreement, and a reserve for all taxes or payments in lieu of taxes and any
other expenses which may reasonably be expected to be paid in a subsequent
period but which on an accrual basis are allocable to the period in question,
such as insurance premiums, audit, tax or accounting expenses (excluding
deductions for cost recovery of buildings, improvements and personal property
and amortization of any financing fees). Without limiting the generality of the
foregoing, the Company's gross revenues for purposes of this Section shall not
include Capital Contributions, borrowings, any lump-sum payment or any other
extraordinary receipt of funds thereby, or interest or any other income earned
on investment of its funds, and unless otherwise provided in a Budget, the cash
operating obligations of the Company shall be deemed to include real estate
taxes for the period at the fully assessed rate.
Section 1.54 "Nonrecourse Deductions" shall have the meaning given it
in Treasury Regulations Section 1.704-2(b)(1).
Section 1.55 "Nonrecourse Liability" shall have the meaning given it in
Treasury Regulations Section 1.704-2(b)(3).
10
Section 1.56 "Operating Deficit" shall mean for any fiscal year when
the Company does not have Net Operating Income as determined by the Accountant
and approved by the Special Member.
Section 1.57 "Operating Deficit Guarantee Period" shall mean the period
commencing with the date of this Agreement and ending three years following
three consecutive months of Break-Even Operations.
Section 1.58 "Operating Loans" shall mean loans made by the Managing
Member to the Company pursuant to Article VI of this Agreement, which loans do
not bear interest and are repayable only as provided in Article XI of this
Agreement.
Section 1.59 "Permanent Mortgage Commencement" shall mean the first day
on which all of the following have occurred: (a) the Construction Loan shall
have been repaid in full and or funds escrowed for payment of the Construction
Loan; (b) the principal amount, interest rate and maturity date of the Mortgage
and the Mortgage Note shall have been finally determined; and (c) amortization
of the Mortgage shall have commenced.
Section 1.60 "Person" shall mean an individual, proprietorship, trust,
estate, partnership, joint venture, association, company, corporation or other
entity.
Section 1.61 "Prime Rate" shall mean the base rate of interest which
lender establishes from time to time and which serves as the basis upon which
effective rates of interest are calculated. Any change in the rate of interest
on the Construction Loan due to a change in the Prime Rate shall become
effective on the date each change in the Prime Rate is announced by the
construction lender.
Section 1.62 "Project" shall mean the approximately 2.86 acres of land
in Mayer, Yavapai County, Arizona, as more fully described in Exhibit "A"
attached hereto and incorporated herein by this reference, and any and all
improvements now or hereafter to be constructed thereon, specifically including
a twenty (20) unit low to moderate income units for elderly and handicapped
residents.
Section 1.63 "Project Documents" shall mean and include all documents
delivered to or required by the construction lender and/or any governmental
agency having jurisdiction over the Project in connection with the construction
and financing of the Project, including but not limited to, the construction
loan agreement, construction contract and the approved plans and specifications
for the development and construction of the Project.
Section 1.64 "Projected Tax Credits" shall mean LIHTC in the
aggregate amount of $1,102,150.
Section 1.65 "Projected Annual Tax Credits" shall mean LIHTC in the
amount of $27,548 for 1998, $110,193 per year for each of the years 1999 through
2007, and $82,645 for 2008, which the Managing Member has projected to be the
total amount of LIHTC which will be allocated to the Investor Member by the
Company, constituting 99.98% of the aggregate amount of LIHTC of $1,102,150 to
be available to the Company.
11
Section 1.66 "Qualified Income Offset Item" shall have the meaning set
forth in Treasury Regulation Section 1.704-1(b)(2)(ii)(d), or any successor
provision.
Section 1.67 "Qualified Tenants" shall mean any tenants who have
incomes of 60% or less of the area median gross income, as adjusted for family
size, so as to make the Project eligible for LIHTC.
Section 1.68 "Rent Restriction Test" shall mean the test pursuant to
Section 42 of the Code whereby the gross rent charged to tenants of the
low-income apartment units in the Project must not exceed 30% of the applicable
income standards.
Section 1.69 "Reporting Fee" shall mean the fee payable to the Investor
Member commencing in 1999 equal to $500 for the Investor Member's services in
monitoring the operations of the Company and for services in connection with the
Company's accounting matters and assisting with the preparation of tax returns
and the reports required in Section 14.2 and 14.3 of this Agreement. If in any
year the Reporting Fee is not paid in full then the unpaid portion thereof shall
accrue and be payable on a cumulative basis in the first year in which there is
sufficient Net Operating Income.
Section 1.70 "Revised Projected Tax Credits" shall have the meaning
set forth in Section 7.4(a) hereof.
Section 1.71 "Sale or Refinancing" shall mean any of the following
items or transactions: a sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, a condemnation of or casualty at
the Project or any part thereof, a claim against a title insurance company, the
refinancing or any Mortgage Note or other indebtedness of the Company and any
similar item or transaction; provided, however, that the payment of Capital
Contributions by the Partners shall not be included within the meaning of the
term "Sale or Refinancing."
Section 1.72 "Sale or Refinancing Proceeds" shall mean all cash
receipts of the Company arising from a Sale or Refinancing (including principal
and interest received on a debt obligation received as consideration in whole or
in part, on a Sale or Refinancing) less the amount paid or to be paid in
connection with or as an expense of such Sale or Refinancing, and with regard to
damage recoveries or insurance or condemnation proceeds, the amount paid or to
be paid for repairs, replacements or renewals resulting from damage to or
partial condemnation of the Project.
Section 1.73 "Special Member" shall mean WNC Housing, L.P., a
California limited partnership, and such other Persons as are admitted to the
Company as additional or substitute Special Member pursuant to this Agreement.
Section 1.74 "State" shall mean the State of Arizona.
Section 1.75 "State Tax Credit Agency" shall mean the State agency
responsible for the reservation and allocation of LIHTC, in the state and with
respect to the Project.
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Section 1.76 "Substitute Investor Member" shall mean any Person who is
admitted to the Company as an Investor Member pursuant to Section 12.5 or
acquires the Interest of the Investor Member pursuant to Section 7.3 of this
Agreement.
Section 1.77 "Tax Credit" shall mean any credit permitted under the
Code or the law of any state against the federal or a state income tax liability
of any Member as a result of activities or expenditures of the Company
including, without limitation, LIHTC.
Section 1.78 "Tax Credit Conditions" shall mean, for the duration of
the Compliance Period, any and all restrictions including, but not limited to,
applicable federal, state and local laws, rules and regulations, which must be
complied with in order to qualify for the LIHTC or to avoid an event of
recapture in respect of the LIHTC.
Section 1.79 "Tax Credit Period" shall mean the ten year time period
referenced in Code Section 42(f)(1) over which the Projected Tax Credits are
allocated to the Members. It is the intent of the Members that the Projected Tax
Credits will be allocated during the Tax Credit Period and not a longer term.
Section 1.80 "TRA 1986" shall mean the Tax Reform Act of 1986.
Section 1.81 "Treasury Regulations" shall mean the Income Tax
Regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
Section 1.82 "Withdrawing Member" shall mean Human Action for Chandler,
an Arizona non-profit corporation, dba Coordinated Community Services of
Arizona.
Section 1.83 "Withdrawing" or "Withdrawal" (including the verb form
"Withdraw" and the adjectival forms "Withdrawing" and "Withdrawn") shall mean,
as to a Managing Member, the occurrence of the death, adjudication of insanity
or incompetence, or Bankruptcy of such Member, or the withdrawal, removal or
retirement from the Company of such Member for any reason, including any sale,
pledge, encumbering, assignment or other transfer of all or any part of its
Managing Member Interest and those situations when a Managing Member may no
longer continue as a Managing Member by reason of any law or pursuant to any
terms of this Agreement.
ARTICLE II
NAME
The name of the Company shall be "Spring Valley Terrace Apartments,
L.L.C."
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ARTICLE III
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1 Principal Executive Office. The principal executive office
of the Company is located at 000 X. Xxxxxxx Xxxxxx, Xxxxx 00, Xxxxxxxx, Xxxxxxx
00000 or at such other place or places within the State as the Managing Member
may hereafter designate.
Section 3.2 Agent for Service of Process. The name of the agent for
service of process on the Company is Xxxx X. Xxxxxx, whose address is 000 X.
Xxx Xxxxxx, Xxxxx, Xxxxxxx 00000.
14
ARTICLE IV
PURPOSE
The purpose of the Company is to acquire, construct, own and operate
the Project in order to provide, in part, Tax Credits to the Members in
accordance with the provisions of the Code and the Treasury Regulations
applicable to LIHTC and to sell the Project after the 15-year Tax Credit
compliance period. The Company shall not engage in any business or activity
which is not incident to the attainment of such purpose.
ARTICLE V
TERM
The Company term commenced upon the filing of the Articles of
Organization in the office of, and on the form prescribed by, the Corporation
Commission of the State of Arizona, and shall continue until 2050 unless
terminated earlier in accordance with the provisions of this Agreement or as
otherwise provided by law.
ARTICLE VI
MANAGING MEMBER'S CONTRIBUTIONS AND LOANS
Section 6.1 Capital Contribution of Managing Member. The
Managing Member shall make a Capital Contribution in the amount equal to
$100,160
Section 6.2 Construction and Operating Obligations.
(a) The Managing Member shall cause Completion of Construction in
accordance with the Project Documents, and shall equip the Project or cause the
same to be equipped with all necessary and appropriate fixtures, equipment and
articles of personal property, including refrigerators and ranges. If costs and
expenses necessary to effect Completion of Construction exceed the sum of the
Capital Contributions and the proceeds of the Mortgage Note, the Managing Member
shall be responsible for and shall be obligated to pay such deficiencies. Any
such advances by the Managing Member shall be deemed a Capital Contribution . In
addition, if (1) the Improvements are not completed on or before October 1,
1998, ("Completion Date") (which date may be extended in the events of Force
Majeure, but in no event longer than three months from the Completion Date); (2)
prior to completing the Improvements, there is an uncured default under or
termination of the Construction Loan, Mortgage Loan commitment, or other
material documents; or (3) a foreclosure action is commenced against the
Company, then at the Special Member's election, either the Managing Member will
be removed from the Company and the Special Member will be admitted as successor
Managing Member, all in accordance with Article XIII hereof, or the Managing
Member will repurchase the Interests of the Investor Member and the Special
Member for an amount equal to the amounts theretofore paid by the Investor
Member and the Special Member, and the Investor Member and the Special Member
shall have no further Interest in the Company. If the Investor Member elects to
15
have the Managing Member repurchase the Interest of the Investor Member then the
repurchase shall occur within 60 days after the Managing Member receives written
demand from the Investor Member.
(b) From Completion of Construction until three consecutive months of
Break-Even Operations, the Managing Member will personally provide Operating
Loans to pay any Operating Deficits; and for the balance of the Operating
Deficit Guarantee Period the Managing Member will provide Operating Loans to pay
any Operating Deficits up to the aggregate maximum amount of one year's
operating expenses (including debt and reserves) approved by the Managing Member
and the Special Member. Each Operating Loan shall be nonrecourse to the Members,
and shall be repayable out of 50% of the available Net Operating Income or Sale
or Refinancing Proceeds in accordance with Article XI of this Agreement.
Section 6.3 Managing Member Loans. With the prior consent of the
Special Member, and if approved by Washington Mutual Bank, if applicable, the
Managing Member may loan to the Company any sums required by the Company and not
otherwise reasonably available to it, at a rate of interest not to exceed the
lesser of 2% per annum above the then prevailing prime or reference rate charged
by Bank of America N.T. & S.A., Main Office, San Francisco, California, or the
maximum legal rate. The amount and maturity date of any such loan and the rate
of interest thereon shall be evidenced by a written instrument. The Managing
Member shall not charge a prepayment penalty on any such loan.
ARTICLE VII
MEMBER'S CAPITAL CONTRIBUTIONS
Section 7.1 Withdrawing Member. The Withdrawing Member made a Capital
Contribution of $100. Effective as of the date of this Agreement, the
Withdrawing Member's Interest has been liquidated and the Company has reacquired
the Withdrawing Member's Interest in the Company.
Section 7.2 Capital Contribution of Investor Member. The Investor
Member shall make a total Capital Contribution in the amount of $716,254 in cash
on the dates and subject to the conditions hereinafter set forth:
(a) The obligation of the Investor Member to pay the
aforesaid Capital Contribution shall be subject to the satisfaction of the
following conditions:
(1) prior to the initial payment of the Capital Contribution
only, the issuance to the Investor Member of an opinion of the Company's legal
counsel, in a form substantially similar to the form attached hereto as Exhibit
"B" and incorporated herein by this reference;
(2) prior to the initial payment of the Capital Contribution
only, the Managing Member shall deliver to the Investor Member a fully executed
Certificate and Agreement in a form substantially similar to the form attached
hereto as Exhibit "C" and incorporated herein by this reference;
16
(3) prior to the initial payment of the Capital Contribution
only, the Investor Member shall obtain from the Managing Member, with respect to
the Project, a construction pro forma reflecting payment of the construction
expenses and an operation pro forma reflecting income and expenses;
(4) prior to the due date of each installment of such Capital
Contribution except the first payment, the Managing Member shall issue to the
Investor Member a certificate signed by or on behalf of the Managing Member in a
form substantially similar to the form attached hereto as Exhibit "D" and
incorporated herein by this reference, dated not more than five days prior to
such due date, to the effect that all of the representations and warranties set
forth in Section 9.11 are accurate.
(5) prior to the Capital Contribution payment referenced in
Section 7.2(b)(3), the Managing Member shall deliver to the Investor Member the
following: (A) Certificate of Occupancy on all the apartment units in the
Project; (B) copy of the recorded grant deed (warranty deed); (C) title
insurance issued at Permanent Mortgage Commencement in an amount equal to the
Project's debt and equity which policy shall show the Investor Member as an
additional named insured and which policy shall include a fairway and
non-imputation endorsement; (D) a certificate signed by the architect in a form
substantially similar to the form attached hereto as Exhibit "E" and
incorporated herein by this reference, indicating that the Improvements have
been completed in accordance with the plans and specifications; (E) an audited
cost certification with an itemized cost breakdown in the form required by and
submitted to the regulatory agencies; (F) fully executed set of the Mortgage
Documents; (G) copy of the Declaration of Restrictive Covenants/Extended Use
Agreement entered into between the Company and the State Tax Credit Agency
responsible for allocating the LIHTC; and
(6) prior to the Capital Contribution payment referenced in
Section 7.2(b)(4), the Managing Member shall deliver to the Investor Member
Internal Revenue Code Form 8609, or any successor form.
(b) Provided the conditions of Section 7.2(a) of this Amended and
Restated Operating Agreement have been met, the Investor Member shall make the
following Capital Contributions:
(1) $149,928 shall be payable upon:
(A) admittance of the Investor Member into the Company;
(B) closing of the Construction Loan; provided
(C) the conditions of Section 7.2(a) of this Agreement have
been met;
(2) $207,841 shall be payable upon:
(A) 90 days after closing of Construction Loan.
This Capital Contribution shall be deposited into the Xxxxx Fargo Bank
construction account and shall be disbursed upon Xxxxx Fargo Bank's approval
and consent. Upon each disbursement, Xxxxx Fargo Bank and/or Managing Member
17
shall provide the Investor Member with a copy of the construction loan draw
request and the inspecting architect's application and certification of
payment (AIA Document G707, or similar form acceptable to the Investor Member);
provided
(B) the conditions of Section 7.2(a) of this
Agreement have been met;
(3) $290,732 shall be payable to Xxxxx Fargo Bank, N.A.,
on behalf of the Company, until the Construction Loan is repaid and upon:
(A) receipt by the Investor Member of a letter from
the Contractor (in a form substantially similar to the form attached hereto as
Exhibit "G" and incorporated herein by this reference) stating all amounts
payable to the Contractor have been paid in full and that the Company is not
in violation of the construction contract; and
(B) verification of Insurance coverage for the
project;
(C) verification that $25,000 has been set aside
by the Member in an interest bearing account at the National Bank of
Southern California to be held and disbursed in accordance with Section 8.2
herein; provided
(D) the conditions of Section 7.2(a) of this
Agreement have been met; and
(4) $67,753 shall be payable to Xxxxx Fargo Bank, N.A., on
behalf of the Company, until the Construction Loan is repaid and upon:
(A) receipt by the Investor Member of tenant
income verification data to determine that 100% of the units in the Project
qualify under Section 42 of the Code;
(B) receipt by the Investor Member of a fully
executed IRS Form 8609;
(C) receipt by the Investor Member of the
first year tax return in which Tax Credits are taken and confirmation that 40
year depreciation was elected;
(D) receipt by the Investor Member of the
construction cost certificate (which includes an itemized cost breakdown,
the Accountant's final tax credit certification setting forth the Project's
eligible basis with the amount of Tax Credits to which the Company is entitled
in a form substantially similar to the form attached hereto as Exhibit "F" and
incorporated herein by this reference); provided
(E) the conditions of Section 7.2(a) of this
Agreement have been met.
Section 7.3 Repurchase of Investor Member's Interest. Within 60 days
after receipt of written demand therefor from the Investor Member and/or the
Special Member, the Company shall repurchase the Investor Member's Interest
and/or the Special Member Interest in the Company by refunding to it in cash the
full amount of the Capital Contribution which the Investor Member and/or the
Special Member has theretofore made in the event that, for any reason, the
Company shall fail to:
18
(a) receive an allocation of LIHTC;
(b) cause the Project to be placed in service by October 1, 1998;
(c) achieve 90% occupancy of the Project by Qualified Tenants by
November 1, 1998;
(d) obtain the closing of the permanent Mortgage Loan by December 1,
1998;
(e) meet both the Minimum Set-Aside Test and the Rent Restriction Test
not later than December 31 of the first year the Members elect the LIHTC to
commence in accordance with the Code;
(f) continue to meet both the Minimum Set-Aside Test and the Rent
Restriction Test during the period when the Investor Member is required to make
its Capital Contribution to the Company; and
(g) obtain the carryover allocation for the allocation of LIHTC beyond
December 31, 1997.
Section 7.4 Capital Contribution of Special Member. The Special Member
shall make a Capital Contribution of $72 at the time of the Investor Member's
Capital Contribution payment referenced in Section 7.2(b)(1) upon the same
conditions. The Special Member shall be in a different class from the Investor
Member and, except as otherwise expressly stated in this Agreement, shall not
participate in any rights allocable to or exercisable by the Investor Member
under this Agreement.
Section 7.5 Liability of Investor Member and Special Member. The
Investor Member and Special Member shall not be liable for any of the debts,
liabilities, contracts or other obligations of the Company. The Investor Member
and Special Member shall be liable only to make Capital Contributions in the
amounts and on the dates specified in this Agreement and, except as otherwise
expressly required hereunder, shall not be required to lend any funds to the
Company or, after their respective Capital Contributions have been paid, to make
any further Capital Contribution to the Company.
Section 7.6 Reduction of Capital Contribution.
(a) As evidenced by IRS Form 8609 and the audited construction cost
certification, if the Investor Member's and the Special Member's 99.99% interest
in the Tax Credit is less than $1,102,040 then the Capital Contribution provided
for in Section 7.2 and Section 7.4 shall be reduced by the amount which will
make the total Capital Contribution to be paid by the Investor Member and the
Special Member to the Company equal to 65% of the total Tax Credits allocated to
the Investor Member and the Special Member. In the event there is a reduction in
the Tax Credits pursuant to this Section 7.6, Projected Tax Credits shall
thereafter be referred to as the "Revised Projected Tax Credits and Projected
Annual Tax Credits shall be referred to as the "Revised Projected Annual Tax
Credit."
19
(b) If the Capital Contribution of the Investor Member is to be reduced
pursuant to this Section 7.6 during the period when the Investor Member is
required to make its Capital Contribution, then the amount of the reduction
shall be applied to the next Capital Contribution owed by the Investor Member.
If the Capital Contribution reduction referenced in this Section 7.6 is greater
than the balance of the Investor Member's Capital Contribution payments
("Reduction Shortfall") then the amount of the Reduction Shortfall shall be paid
by the Managing Member to the Investor Member within ninety days of the Managing
Member receiving notice of the Reduction Shortfall from the Investor Member.
(c) The Managing Member will use its best efforts to rent 100% of the
Project's apartment units to Qualified Tenants over the fifteen (15) year LIHTC
life. If at the end of each calendar year during the first five calendar years
following the year in which the Project is placed in service, the Actual Tax
Credit for any fiscal year or portion thereof is less than the Projected Annual
Tax Credit, or the Revised Projected Annual Tax Credit, if applicable,
pertaining to such fiscal year or portion thereof, then the Capital Contribution
of the Investor Member shall be reduced by an amount equal to the difference
between (A) Projected Annual Tax Credits, or the Revised Projected Annual Tax
Credits, if applicable, and (B) the Actual Tax Credit. Any reduction in Capital
Contribution shall first be applied to reduce the Investor Member's next Capital
Contribution, and any portion of such reduction in excess of such Capital
Contribution shall be applied to reduce succeeding Capital Contributions of the
Investor Member. If no further Capital Contribution payments are due and owing
from the Investor Member, then the entire amount of such reduction shall be
repaid by the Managing Member to the Investor Member from the Manager's share of
Net Operating Income and if not repaid in full by the time of a Sale or
Refinance then the unpaid portion shall be paid from the available funds under
Section 11.2(b) of this Agreement.
(d) In the event that, for any reason, at any time after the first five
calendar years of Company operations, if the amount of the Actual Tax Credit
shall be less than the Projected Tax Credit (or the Revised Projected Tax
Credit, if applicable) (the "Credit Shortfall") then there shall be a
corresponding reduction in the Managing Member's Net Operating Income in an
amount equal to the Credit Shortfall and said amount shall be allocated and paid
to the Investor Member. In the event there is not sufficient funds to pay the
full Credit Shortfall to the Investor Member at the time of the next
Distribution of Net Operating Income then the Investor Member shall be treated
as having made a constructive advance to the Company with respect to such year
(a "Credit Shortfall Loan"), which shall be deemed to have been made on January
1 of such year. Credit Shortfall Loans shall be deemed to bear no interest.
Credit Shortfall Loans shall be repaid in the next year in which sufficient
moneys are available from the Net Operating Income. In the event a Sale or
Refinancing of the Project occurs prior to repayment in full of the Credit
Shortfall Loan then the excess will be paid in accordance with Section 11.2(b).
(e) The Managing Member has represented, in part, that the Investor
Member will receive Projected Annual Tax Credits. In the event the 1998 and 1999
Projected Annual Tax Credits are less than projected then the Investor Member's
Capital Contribution shall be reduced by an amount equal to 70% times the
difference between the Projected Annual Tax Credits for 1998 and 1999 and the
Actual Tax Credits for 1998 and 1999. In addition, if in the event the 1998 and
20
1999 Tax Credits are less than projected then the Special Member's Capital
Contribution shall be reduced following the same equation referenced in the
preceding sentence. If, at the time of determination thereof, the Capital
Contribution adjustment referenced in this Section 7.6(e) is greater than the
balance of the Member's or Special Member's Capital Contribution payment which
is then due, if any, then the Capital Contribution reduction amount shall be
paid by the Managing Member to the Investor Member and/or the Special Member
within ninety days of the Managing Member receiving notice of the reduction from
the Investor Members and/or the Special Member.
(f) The Members recognize and acknowledge that the Investor Member and
the Special Member are making their Capital Contribution, in part, on the
expectation that the Projected Tax Credits are allocated to the Investor Member
and the Special Member over the Tax Credit Period. If the Projected Tax Credits
are not allocated to the Investor Member and the Special Member during the Tax
Credit Period then the Investor Member's and Special Member's Capital
Contribution shall be reduced by an amount agreed upon by the Members, in good
faith, to provide the Investor Member and the Special Member with their
anticipated internal rate of return.
(g) In the event there is a reduction in the qualified basis of the
Project for income tax purposes following an audit by the Internal Revenue
Service (IRS) resulting in a recapture of Tax Credits previously claimed, then,
in addition to any other payments to which the Investor Member and Special
Member are entitled under the terms of this Section 7.6 the Managing Member
shall pay to the Investor Member and Special Member the sum of (1) the
deficiency assessed against the Investor Member or Special Member as a result of
the Tax Credit recapture, (2) any interest and penalties imposed on the Investor
Member or Special Member with respect to such deficiency, and (3) an amount
sufficient to pay any tax liability owed by the Investor Member or Special
Member resulting from the receipt of the amounts specified in (1) and (2).
Section 7.7 Return of Capital Contribution. From time to time the
Company may have cash in excess of the amount required for the conduct of the
affairs of the Company, and the Managing Member may, in its sole discretion,
determine that such cash should, in whole or in part, be returned to the
Investor Member in reduction of its Capital Contribution. Any Distribution to
the Investor Member pursuant to this Section 7.7, shall be deemed to have been
consented to by the Investor Member. No such return shall be made:
(a) Until this Agreement has been amended to reflect such reduction of
capital; and
(b) Unless all liabilities of the Company (except those to Members on
account of amounts credited to them pursuant to this Agreement) have been paid
or there remain assets of the Company sufficient, in the sole discretion of the
Managing Member, to pay such liabilities.
Section 7.8 Liability of Investor Member. The Investor Member shall not
be liable for any of the debts, liabilities, contracts or other obligations of
the Company. The Investor Member shall be liable only to make its Capital
Contribution in the amounts and on the dates specified in this Agreement and
shall not be required to lend any funds to the Company or, after its Capital
Contribution has been paid, to make any further Capital Contribution to the
Company.
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ARTICLE VIII
WORKING CAPITAL AND RESERVES
Section 8.1 Operation and Maintenance Reserve. The Company shall
establish an operating and maintenance account and shall deposit therein an
annual amount equal $200 per unit per year for the purpose of repairs,
maintenance and replacement. Said deposit shall be made monthly in equal
payments. Any balance remaining in the operating and maintenance account at the
time of a sale of the Project shall be allocated and distributed equally between
the Managing Member and the Investor Member subject to the approval of lenders.
Section 8.2 Debt Service Coverage Reserve Account. The Investor Member
shall establish a Debt Service Coverage Reserve Account in the amount of $25,000
from the Capital Contribution proceeds referenced in Section 7.2(b)(3) of this
Agreement. Said funds will be used to make payments on the Washington Mutual
Bank Mortgage Loan in the event the Project does not achieve Break-Even
Operations. Should the Project achieve a Debt Service Coverage of 1.15, not
including funds from the Managing Member or from the Debt Service Coverage
Reserve Account, for 12 consecutive months during the first 18 months, the funds
will be released to the Company.
Section 8.3 Operating Reserve Account.The Managing Member shall
establish the Operating Reserve Account in the initial amount of $20,000 out of
the proceeds of the Capital Contribution set forth in Section 7.2(b)(4) hereof.
This Operating Reserve shall be held in the Operating Reserve account and shall
be used to pay for Operating Deficits throughout the Operating Deficit Guaranty
Period. Upon exhaustion of the Operating Reserve account, continuing shortfalls
shall be funded by the Managing Member with Operating Loans in accordance with
Article VI of this Agreement. Upon expiration of the Operating Deficit Guarantee
Period any funds remaining in the Operating Reserve Account shall be distributed
to the Company.
Section 8.4 Lease-up Reserve Account. The Managing Member shall
establish and maintain the Lease-up Reserve Account in an amount equal to
$10,500 for the purpose of operation expenses and debt liabilities of the
Company. If the Project maintains a 1.15 Debt Service Coverage for 6 consecutive
months than any funds remaining in this Lease-up Reserve Account shall be
distributed to the Company.
Section 8.5 Other Reserves. The Managing Member shall establish out of
funds available to the Company a reserve account sufficient in its sole
discretion to pay any unforeseen contingencies which might arise in connection
with the furtherance of the Company business including, but not limited to, (a)
any rent subsidy required to maintain rent levels in compliance with the LIHTC
laws; and (b) any real estate taxes, insurance, debt service or other payments
for which other funds are not provided for hereunder or otherwise expected to be
available to the Company. The Managing Member shall not be liable for any
good-faith estimate which it shall make in connection with establishing or
maintaining any such reserves nor shall the Managing Member be required to
establish or maintain any such reserves if, in its sole discretion, such
reserves do not appear to be necessary.
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ARTICLE IX
MANAGEMENT AND CONTROL
Section 9.1 Power and Authority of Managing Member. The Managing Member
shall have complete and exclusive control over the management of the Company
business and affairs. Spring Valley Terrace, Inc., an Arizona nonprofit
corporation has been designated as the Managing Member. The Managing Member may
act singularly on behalf of the Company and any exercise of rights, power or
authority granted under the Amended and Restated Operating Agreement to any
other Member requires the consent of the Managing Member. No Member (except one
who may also be a Managing Member, and then only in its capacity as Managing
Member within the scope of its authority hereunder) shall have any right to be
active in the management of the Company's business or investments or to exercise
any control thereover, nor have the right to bind the Company in any contract,
agreement, promise or undertaking, or to act in any way whatsoever with respect
to the control or conduct of the business of the Company, except as otherwise
specifically provided in this Agreement.
Section 9.2 Payments to the Managing Member and Others.
(a) The Company shall pay to the Developer a Development Fee in the
amount of $219,137. The Development Fee shall first be paid from available
proceeds in accordance with Section 9.2(b) of this Agreement and if not paid in
full then the Development Fee will be paid to the extent permitted in Section
11.1 of this Agreement.
(b) The Company shall retain the sum of $716,326 from the proceeds
established in Section 7.2 and Section 7.4 of this Agreement to be used for
supplemental development costs including, but not limited to, land costs,
architectural fees, survey and engineering costs, financing cost, loan fees,
rent-up reserves, building materials and labor and $44,000 Development Fee. If
any funds in this Section 9.2(b) are remaining after Completion of Construction
and all construction costs are paid in full and the Construction Loan retired,
then the remainder shall first be paid toward any unpaid Development Fee and the
balance, if any, shall be paid to the Managing Member as a reduction of the
Managing Member's Capital Contribution.
(c) The Company shall pay to the Management Agent a property management
fee for the leasing and management of the Project in an amount in accordance
with the Management Agreement. The term of the Management Agreement shall not
exceed one year, and the execution or renewal of any Management Agreement shall
be subject to the prior Consent of the Special Member. If the Management Agent
is an Affiliate of the Managing Member then commencing with the termination of
the Operating Deficit Guarantee Period referenced in Section 6.2(b), in any year
in which the Project has an Operating Deficit, 40% of the management fee will be
deferred ("Deferred Management Fee"). Deferred Management Fees, if any, shall be
paid to the Management Agent solely in accordance with and to the extent
permitted by Section 11.1 of this Agreement.
(1) The Managing Member shall, upon receiving any reasonable
request from Mortgage lender requesting such action, dismiss the Management
Agent as the entity responsible for management of the Project under the terms of
the Management Agreement; or, the Managing Member shall dismiss the Management
Agent at the request of the Special Member.
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(2) The appointment of any successor Management Agent is
subject to the Consent of the Special Member which may only be sought after the
Managing Member has provided the Special Member accurate and complete disclosure
respecting the proposed Management Agent.
(d) The Company shall pay to the Managing Member a Management
Administration Fee equal to $1,000 of the available Net Operating Income or in
the event that the Debt Service Coverage as defined in Section 1.21 is greater
than 1.4 then the Company shall pay to the Managing Member a Management
Administration Fee equal to $3,000 in accordance with Section 11.1 of this
Agreement for each fiscal year of the Company commencing in 1998 for services
incident to the administration of the business and affairs of the Company, which
services shall include, but not limited to, maintaining the books and records of
the Company, selecting and supervising the Company's Accountants, bookkeepers
and other Persons required to prepare and audit the Company's financial
statements and tax returns, and preparing and disseminating reports on the
status of the Project and the Company, all as required by Article XIV of this
Agreement. The Management Administration Fee shall be payable within
seventy-five (75) days following each calendar year and shall be payable from
Net Operating Income in the manner and priority set forth in Section 11.1. If
the Management Administration Fee is not paid in any year it shall not accrue
for payment in subsequent years.
Section 9.3 Specific Powers of the Managing Member. Subject to other
provisions of this Agreement, the Managing Member, in the Company's name and on
its behalf, may:
(a) acquire (including by fee or real estate contract), hold, sell,
transfer, assign, lease or otherwise deal with any real, personal or mixed
property, interest therein or appurtenance thereto.
(b) employ, contract and otherwise deal with, from time to time,
Persons whose services are necessary or appropriate in connection with
management and operation of the Company business, including, without limitation,
contractors, agents, brokers, accountants and attorneys, on such terms as the
Managing Member shall determine.
(c) bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the Company.
(d) pay as a Company expense any and all costs and expenses associated
with the formation, development, organization and operation of the Company,
including the expense of annual audits, tax returns and LIHTC compliance.
(e) deposit, withdraw, invest, pay, retain and distribute the Company's
funds in a manner consistent with the provisions of this Agreement.
(f) require in any or all Company contracts that the Managing Member
shall not have any personal liability thereunder but that the Person contracting
with the Company shall look solely to the Company and its assets for
satisfaction.
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(g) execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing.
Section 9.4 Authority Requirements. During the Compliance Period,
the following provisions shall apply:
(a) Each of the provisions of this Agreement shall be subject to, and
the Managing Member covenants to act in accordance with, the Tax Credit
Conditions and all applicable federal, state and local laws and regulations;
(b) The Tax Credit Conditions and all such laws and regulations, as
amended or supplemented, shall govern the rights and obligations of the Members,
their heirs, executors, administrators, successor and assigns, and they shall
control as to any terms in this Agreement which are inconsistent therewith, and
any such inconsistent terms of this Agreement shall be unenforceable by or
against any of the Members;
(c) Upon any dissolution of the Company or any transfer of the Project,
no title or right to the possession and control of the Project and no right to
collect rent therefrom shall pass to any Person who is not, or does not become,
bound by the Tax Credit Conditions in a manner that, in the opinion of counsel
to the Company, would not avoid a recapture thereof on the part of the former
owners; and
(d) Any conveyance or transfer of title to all or any portion of the
Project required or permitted under this Agreement shall in all respects be
subject to the Tax Credit Conditions and all conditions, approvals or other
requirements of the rules and regulations of any authority applicable thereto.
Section 9.5 Limitations on Managing Member's Power and Authority.
Notwithstanding the foregoing provisions of this Article IX, the Managing Member
shall not:
(a) Act in contravention of this Agreement;
(b) Act in any manner which would make it impossible to carry
on the ordinary business of the Company;
(c) Confess a judgment against the Company;
(d) Possess Company property, or assign the Member's right in
specific Company property, for other than the exclusive benefit of the Company;
(e) Admit a Person as a Managing Member except as provided in this
Agreement;
(f) Admit a Person as an Investor Member except as provided in
this Agreement;
(g) Violate the Mortgage Loan or Mortgage Note;
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(h) Cause the Project apartment units to be rented to anyone other
than Qualified Tenants;
(i) Violate the Minimum Set-Aside Test for the Project;
(j) Cause any recapture of the Tax Credits;
(k) Permit any creditor who makes a nonrecourse loan to the Company to
have, or to acquire at any time as a result of making such loan, any direct or
indirect interest in the profits, income, capital or other property of the
Company, other than as a secured creditor;
(l) In the event of Refinancing the maximum loan balance will not
exceed the outstanding balance of the loan as of the date of Refinancing; or
(m) Commingle funds of the Company with the funds of another Person;
provided, however, that the Managing Member may establish a master fiduciary
account pursuant to which separate subtrust accounts are established for the
benefit of affiliated limited liability companies, provided that Company funds
are protected from claims of such other partnerships and/or their creditors.
Section 9.6 Restrictions on Authority of Managing Member. Without the
prior approval of the Majority in Interest, the Managing Member shall not:
(a) Sell, exchange, lease or otherwise dispose of all or a
substantial part of the assets of the Company other than in the ordinary course
of the Company's business;
(b) Incur indebtedness other than the Mortgage Loan in the name
of the Company, other than in the ordinary course of the Company's business;
(c) Engage in any transaction not expressly contemplated by this
Agreement in which the Managing Member has an actual or potential conflict of
interest with the Investor Member;
(d) Admit a Managing Member, or elect to continue the Company's
business after a Managing Member ceases to be a Managing Member (other than by
removal) where there is no remaining or surviving Managing Member;
(e) Contract away the fiduciary duty owed to the Investor Member
at common law;
(f) Take any action which would cause the Project to fail to qualify,
or which would cause a termination or discontinuance of the qualification of the
Project, as a "qualified low income housing project" under Section 42(g)(1) of
the Code, as amended, or any successor thereto, or which would cause the
Investor Member to fail to obtain the Projected Tax Credits or which would cause
the recapture of any LIHTC;
26
(g) Make any expenditure of funds, or commit to make any such
expenditures, other than in response to an emergency, except as provided for in
the annual budget approved by the Special Member, as provided in Section 14.3(i)
hereof;
(h) Cause the merger or other reorganization of the Company; or
(i) Dissolve the Company, except as provided in this Agreement.
Section 9.7 Duties of Managing Member. The Managing Member agrees that
it shall at all times:
(a) Diligently and faithfully devote such of its time to the
business of the Company as may be necessary to properly conduct the affairs of
the Company;
(b) File and publish all certificates, statements or other
instruments required by law for the formation and operation of the Company as a
limited liability company in all appropriate jurisdictions;
(c) Cause the Company to carry Insurance from an Insurance Company;
(d) Have a fiduciary responsibility for the safekeeping and use of all
funds and assets of the Company, whether or not in its immediate possession or
control and not employ or permit another to employ such funds or assets in any
manner except for the benefit of the Company;
(e) Use its best efforts so that all requirements shall be met which
are reasonably necessary to obtain or achieve (1) compliance with the Minimum
Set-Aside Test, the Rent Restriction Test, and any other requirements necessary
for the Project to initially qualify, and to continue to qualify, for LIHTC; (2)
issuance of all necessary certificates of occupancy, including all governmental
approvals required to permit occupancy of all of the apartment units in the
Project; (3) compliance with all provisions of the Project Documents and (4) a
reservation and allocation of LIHTC from the Agency;
(f) Use its best efforts to keep the Project and Project dwelling
units, in decent, safe, sanitary and good condition, repair and working order,
ordinary use and obsolescence excepted, and make or cause to be made from time
to time all necessary repairs thereto (including external and structural
repairs) and renewals and replacements thereof;
(g) Pay, before the same shall become delinquent and before penalties
accrue thereon all Company taxes, assessments and other governmental charges
against the Company or its properties, and all of its other liabilities, except
to the extent and so long as the same are being contested in good faith by
appropriate proceedings in such manners as not to cause any material adverse
effect on the Company's property, financial condition or business operations,
with adequate reserves provided for such payments;
(h) Permit, and cause the Management Agent to permit, the Special
Member and its representatives to have access to the Project and personnel
employed by the Company and by the Management Agent who are concerned with
27
management of the Project at all reasonable times during normal business hours
and to examine all agreements, LIHTC compliance data and plans and
specifications and deliver copies thereof and such reports as may reasonably be
required by the Special Member. The Managing Member shall provide the Special
Member with copies of all correspondence, notices and reports sent pursuant to
or received under the Project Documents or any authority with respect to the
Project at the time such correspondence, notices or reports are sent or
received, copies of all other correspondence of substantial importance which a
prudent investor would wish to examine in connection with the transaction at the
time such correspondence is sent or received, and all reports required by
Article XIV within the required time periods set forth therein;
(i) Exercise good faith in all activities relating to the conduct of
the business of the Company, including the development, operation and
maintenance of the Project, and it shall take no action with respect to the
business and property of the Company which is not reasonably related to the
achievement of the purpose of the Company;
(j) Make any Capital Contributions, advances or loans required to be
made by the Managing Member under the terms of this Agreement;
(k) Establish and maintain all reserves required to be established
and maintained under the terms of this Agreement;
(l) Comply with each and every covenant, representation and warranty
set forth in Section 9.11;
(m) Cause the Management Agent to manage the Project in such a manner
that the Project will be eligible to receive LIHTC with respect to 100% of the
apartment units in the Project. To that end, the Managing Member agrees, without
limitation, to make all elections requested by the Special Member under Section
42 of the Code to allow the Company or its Members to claim the Tax Credit, to
file Form 8609 with respect to the Project as required, for at least the
duration of the Compliance Period to operate the Project and cause the
Management Agent to manage the Project so as to comply with the requirements of
Section 42 of the Code, as amended, or any successor thereto, including, but not
limited to, Section 42(g) and Section 42(i)(3) of the Code, as amended, or any
successors thereto, to make all certifications required by Section 42(l) of the
Code, as amended, or any successor thereto, and to operate the Project and cause
the Management Agent to manage the Project so as to comply with all other Tax
Credit Conditions; and
(n) Perform such other acts as may be expressly required of it under
the terms of this Agreement.
Section 9.8 Company Expenses.
(a) All of the Company's expenses shall be billed directly to and paid
by the Company to the extent practicable. Reimbursements to the Managing Member
or any of its Affiliates by the Company shall be allowed only for the Company's
operating cash expenses and only subject to the limitations on the reimbursement
of such expenses set forth herein. As used in this Section 9.8 the term
"operating cash expenses" shall mean, with respect to any fiscal period, the
28
amount of cash disbursed by the Company in that period in the ordinary course of
business for the payment of its operating expenses, such as expenses for
advertising and promotion, management, utilities, repair and maintenance,
insurance, Member communications, legal, accounting, statistical and bookkeeping
services, use of computing or accounting equipment, travel and telephone
expenses, salaries and direct expenses of Company employees while engaged in
Company business, and any other operational and administrative expenses
necessary for the prudent operation of the Company. Without limiting the
generality of the foregoing, "operating cash expenses" shall include fees paid
by the Company to the Managing Member or any Affiliate of the Managing Member
permitted by this Agreement and the actual cost of goods, materials and
administrative services used for or by the Company, whether incurred by the
Managing Member, an Affiliate of the Managing Member or a nonaffiliated Person
in performing the foregoing functions. As used in the preceding sentence,
"actual cost of goods and materials" means the actual cost of goods and
materials used for or by the Company and obtained from entities not affiliated
with the Managing Member, and actual cost of administrative services means the
pro rata cost of personnel (as if such persons were employees of the Company)
associated therewith, but in no event to exceed the amount which would be
charged by nonaffiliated Persons for comparable goods and services.
(b) Reimbursement to the Managing Member or any of its Affiliates of
operating cash expenses pursuant to Subsection (a) hereof shall be subject to
the following:
(i) No such reimbursement shall be permitted for services for
which the Managing Member or any of its Affiliates is entitled to compensation
by way of a separate fee; and
(ii) No such reimbursement shall be made for (a) rent or
depreciation, utilities, capital equipment or other such administrative items,
and (b) salaries, fringe benefits, travel expenses and other administrative
items incurred or allocated to any "controlling person" of the Managing Member
or any Affiliate of the Managing Member. For the purposes of this Section
9.8(b)(ii), "controlling person" includes, but is not limited to, any Person,
however titled, who performs functions for the Managing Member or any Affiliate
of the Managing Member similar to those of: 1) chairman or member of the board
of directors; (2) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (3) senior management,
such as the vice president of an operating division who reports directly to
executive management; or (4) those holding 5% or more equity interest in such
Managing Member or any such Affiliate of the Managing Member or a person having
the power to direct or cause the direction of such Managing Member or any such
Affiliate of the Managing Member, whether through the ownership of voting
securities, by contract or otherwise.
Section 9.9 Managing Member Expenses. The Managing Member or Affiliates
of the Managing Member shall pay all Company expenses which are not permitted to
be reimbursed pursuant to Section 9.7 and all other expenses which are unrelated
to the business of the Company.
Section 9.10 Other Business of Members. Any Member may engage
independently or with others in other business ventures of every nature and
description, including, without limitation, the acquisition, development,
construction, operation and management of real estate projects and developments
of every type on their own behalf or on behalf of other partnerships, joint
29
ventures, corporations or other business ventures formed by them or in which
they may have an interest, including, without limitation, business ventures
similar to, related to or in direct or indirect competition with the Project
except if prohibited under a non-competition agreement. Neither the Company nor
any Member shall have any right by virtue of this Agreement to such other
ventures or activities or to the income or proceeds derived therefrom.
Section 9.11 Covenants, Representations and Warranties. The Managing
Member covenant, represent and warrant that the following are presently true and
will be true during the term of this Agreement, to the extent then applicable:
(a) The Company is a duly organized limited liability company validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of its
Members.
(b) This Amended and Restated Operating Agreement and the Project
Documents are in full force and effect and neither the Company nor the Managing
Member is in breach or violation of any provisions thereof.
(c) Improvements will be completed in a timely and workmanlike manner
in accordance with all applicable requirements of the Mortgage Loan, all
applicable requirements of all appropriate governmental entities and the plans
and specifications of the Project, and all applicable governmental entities, as
such plans and specifications may be changed from time to time with the approval
of Washington Mutual Bank, F.A and Human Action for Chandler, an Arizona
non-profit corporation, dba Coordinated Community Services of Arizona, and any
applicable governmental entities, if such approval shall be required.
(d) The Project is being operated in accordance with standards and
procedures which are prudent and customary for the operation of properties
similar to the Project.
(e) Additional Improvements on the Project, if any, shall be completed
substantially in conformity with the Project Documents and any other
requirements necessary to obtain Completion of Construction.
(f) There shall be no direct or indirect personal liability of the
Company or of any of the Members for the repayment of principal or interest of
the Mortgage.
(g) The Company is in compliance with all construction and use codes
applicable to the Project and is not in violation of any zoning, environmental
or similar regulations applicable to the Project.
(h) All appropriate public utilities, including water, gas and
electricity, are currently available and will be operating properly for all
units in the Project at the time of first occupancy and throughout the term of
the Company.
30
(i) The Project has obtained, or will obtain before Permanent Mortgage
Commencement, and will maintain throughout the term of this Company Insurance
written by an Insurance Company.
(j) The Company owns the fee simple interest in the Project.
(k) The Construction Contract has been entered into between the Company
and the Contractor; no other consideration or fee shall be paid to the
Contractor other than amounts set forth in the Construction Contract or change
orders approved by the Managing Member.
(l) A builder's risk insurance policy in favor of the Company will be
and is in full force and effect until Completion of Construction.
(m) To the best of the Managing Member's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Project and (2) no aboveground or underground
storage tanks are now or have ever been located on or under the Project. The
Managing Member will not install or allow to be installed any aboveground or
underground storage tanks on the Project. The Managing Member covenants that the
Project shall be kept free of Hazardous Materials and shall not be used to
generate, manufacture, refine, transport, treat, store, handle, dispose of,
transfer, produce or process Hazardous Materials, except in connection with the
normal maintenance and operation of any portion of the Project. The Managing
Member shall comply, or cause there to be compliance, with all applicable
Federal, state and local laws, ordinances, rules and regulations with respect to
Hazardous Materials and shall keep, or cause to be kept, the Project free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The Managing Member must promptly notify the Investor Member and
the Special Member in writing (3) if it knows, or suspects or believes there may
be any Hazardous Substance in or around any part of the Project, any
Improvements constructed on the Project, or the soil, groundwater or soil vapor,
(4) if the Managing Member or the Company may be subject to any threatened or
pending investigation by any governmental agency under any law, regulation or
ordinance pertaining to any Hazardous Substance, and (5) of any claim made or
threatened by any Person, other than a governmental agency, against the Company
or Managing Member arising out of or resulting from any Hazardous Substance
being present or released in, on or around any part of the Project.
(n) The Managing Member has not executed and will not execute any
agreements with provisions contradictory to, or in opposition to, the provisions
of this Agreement.
(o) The Company will allocate to the Investor Member the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(p) As of the date hereof, at funding of the Construction Loan and upon
Permanent Mortgage Commencements, Insurance will be maintained with Company as
named insured and Investor Member and Special Member as additional insured.
(q) No charges or encumbrances exist with respect to the Project other
than those which are created or permitted by the Project Documents or are noted
or excepted in the title policy for the Project.
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(r) The buildings on the Project site shall constitute a "qualified
low-income housing project" as defined in Section 42(g) of the Code, and as
amplified by the Treasury Regulations thereunder. In this connection, not later
than December 31 of the first year in which the Members elect the LIHTC to
commence in accordance the Code, the Project will satisfy the Minimum Set-Aside
Test.
(s) No event or proceeding, including, but not limited to, any (A)
legal actions or proceedings before any court, commission, administrative body
or other governmental authority, and (B) acts of any governmental authority
having jurisdiction over the zoning or land use laws applicable to the Project,
has occurred the continuing effect of which has: (i) materially or adversely
affected the operation of the Company or the Project (except to the extent that
funds are available to the Company to correct or cure such event or proceeding);
(ii) materially or adversely affected the ability of the Managing Member to
perform its obligations hereunder or under any other agreement with respect to
the Project; or (iii) prevented the completion of construction of the
improvements in substantial conformity with the Project Documents, other than
legal proceedings which have been bonded against (or as to which other adequate
financial security has been issued) in a manner as to indemnify the Company
against loss; provided that the foregoing does not apply to matters of general
applicability which would adversely affect the Company, the Managing Member,
Affiliates of the Managing Member or the Project only insofar as they or any of
them are part of the general public.
(t) Neither the Company nor Spring Valley Terrace, Inc. have any
liabilities, contingent or otherwise, which have not been disclosed in
writing to the Investor Member and which in the aggregate do not affect the
ability of the Investor Member to obtain the anticipated benefits of its
investment in the Company.
(u) The Managing Member, and/or Human Action for Chandler, an Arizona
non-profit corporation, dba Coordinated Community Services of Arizona as
guarantor, in the aggregate, has and shall maintain a net worth equal to at
least $1,000,000.
The Managing Member shall individually and collectively be liable to
the Investor Member for any costs, damages, loss of profits, diminution in the
value of its investment in the Company, or other losses, of every nature and
kind whatsoever, direct or indirect, realized or incurred by the Investor Member
as a result of any material breach of the representations and warranties set
forth in this Section 9.11.
Section 9.12 Option to Acquire. After expiration of the Compliance
Period, the Managing Member may give notice (the "Member Notice") to the
Investor Member that it desires to purchase the entire Interest of each of the
Investor Member and the Special Member in the Company. Upon receipt by the
Investor Member and the Special Member, the following events shall occur:
(a) The purchase price of the Interests shall be determined. The
purchase price shall be the greater of (i) the aggregate of the Fair Market
Value of the Interest of the Investor Member and the Fair Market Value of the
Interest of the Special Member or (ii) the "Tax Amount" as hereinafter defined.
Notwithstanding the preceding, the purchase price shall be no less than the
principal amount of all outstanding indebtedness secured by the Project.
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(b) The Investor Member and the Special Member shall negotiate with the
Managing Member for a period of 30 days after the Member Notice is received to
agree upon the Fair Market Value of their respective Interests. In the event an
agreement is not reached within such 30-day period, then the Managing Member or
the Special Member may request that Fair Market Value be determined in
accordance with the process set forth below by sending notice (the "Appraisal
Notice") of same to the other party within 15 days of the expiration of the
30-day period. If an Appraisal Notice is not sent by either party within such
15-day period, then the Managing Member's option shall expire.
(c) If the respective Fair Market Value of the Interests of the
Investor Member and the Special Member are not agreed upon as provided above and
either the Managing Member or the Special Member issues to the other Person an
Appraisal Notice, then the Fair Market Value of such Interests shall be
determined by an appraisal. The appraisal shall be conducted by an independent
appraiser satisfactory to the Managing Member and the Special Member or, in the
event that a single independent appraiser cannot be agreed upon within 30 days
following the date of the Appraisal Notice, the Managing Member and the Special
Member shall each select an independent appraiser and the appraisers so selected
shall select a third independent appraiser. All appraisers so designated shall
be experienced in accounting, business or real estate appraisal. The appraiser
or appraisers shall determine the Fair Market Value of the Interest of each of
the Investor Member and the Special Member. The decision of the appraisers (if
more than one) shall be made by the majority of such appraisers. The appraiser
or appraisers shall render a written report setting forth the Fair Market Value
of such Interests, which decision shall be rendered as expeditiously as possible
by the appraiser or appraisers and which decision shall be final and binding
upon the parties. The reasonable fees and expenses of the appraiser or
appraisers shall be paid one-half by the Managing Member and one-half by the
Investor Member.
(d) The "Tax Amount" shall mean the dollar amount computed in the
following fashion:
(i) The Investor Member and the Special Member shall be deemed
to have gain in an amount equal to the difference between their respective basis
in the Project and an amount equal to the total forgiveness of debt which would
be realized by the Investor Member and the Special Member computed as if the
Investor Member and the Special Member abandoned their Interests in the Company
on the date of the Member Notice. The Tax Amount shall equal the deemed gain as
computed above by a tax rate(s) applied to such gain. The tax rate shall be the
highest individual rate stated in the Code applicable to the type of income (and
if there is more than one rate applicable because of more than one type of
income, the different rates shall be applied to the appropriate portions of such
income). The Investor Member shall cooperate to expeditiously determine the Tax
Amount.
(e) Following determination of the purchase price, the Managing Member
shall have 30 days thereafter to determine whether the Managing Member will
purchase the Interests of the Investor Member and the Special Member at the
purchase price so determined. The Managing Member shall exercise such right by
written notice to the Investor Member and the Special Member within such 30-day
period, and if such right is not so exercised, the option shall lapse in its
entirety.
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(f) If the Managing Member determines to proceed with the purchase, the
purchase price shall be paid in cash, within 90 days following the giving of the
notice required by Section 9.12(e) and, in addition, interest shall be paid on
the purchase price from the date of the Member Notice, payable with the purchase
price, and calculated at the rate of interest set forth in Section 6.3 hereof.
ARTICLE X
ALLOCATIONS OF INCOME, LOSSES AND CREDITS
Section 10.1 General. All items includable in the calculation of Income
or Loss not arising from a Sale or Refinancing, and all Tax Credits, shall be
allocated 99.98% to the Investor Member, .01% to the Special Member and .01% to
the Managing Member.
Section 10.2 Allocations From Sale or Refinancing. All Income and
Losses arising from a Sale or Refinancing shall be allocated between the Members
as follows:
(a) As to Income:
(1) First, an amount of Income equal to the aggregate negative
balances (if any) in the Capital Accounts of all Members having negative Capital
Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of Sale or Refinancing Proceeds, but after giving effect to
Distributions of Net Operating Income and allocations of Income and Losses
pursuant to Section 10.1 for the year) shall be allocated to such Members in
proportion to their negative Capital Account balances until all such Capital
Accounts shall have zero balances; and
(2) Second, an amount of Income sufficient to increase the
Investor Member's positive Capital Account balance to an amount equal to its
Capital Contribution, determined prior to taking into account the Distribution
of Sale or Refinancing Proceeds from the Sale or Refinancing but after giving
effect to allocations pursuant to Section 10.2(a) resulting from the Sale or
Refinancing; and
(3) the balance, if any, of such Income shall be allocated
99.98% to the Investor Member, .01% to the Special Member and .01% to the
Managing Member.
(b) As to Losses:
(1) an amount of Losses equal to the aggregate positive
balances (if any) in the Capital Accounts of all Members having positive Capital
Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of Sale or Refinancing Proceeds, but after giving effect to
Distributions of Net Operating Income and allocations of Income and Losses
pursuant to Section 10.1 for the year) shall be allocated to such Members in
proportion to their positive Capital Account balances until all such Capital
Accounts shall have zero balances; and
(2) the balance of any such Losses shall be allocated 99.98%
to the Investor Member, .01% to the Special Member and .01% to the Managing
Member.
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(c) Notwithstanding the foregoing provisions of Section 10.2(a) and
(b), in no event shall any Losses be allocated to an Investor Member if and to
the extent that such allocation would create or increase an Adjusted Capital
Account Deficit for such Investor Member. In the event an allocation of 99.98%
of each item includable in the calculation of Income or Loss not arising from a
Sale or Refinancing, would create or increase an Adjusted Capital Account
Deficit for the Investor Member, then so much of the items of deduction other
than projected depreciation shall be allocated to the Managing Member instead of
the Investor Member as is necessary to allow the Investor Member to be allocated
99.98% of the items of income and Project depreciation without creating or
increasing an Adjusted Capital Account Deficit for the Investor Member, it being
the intent of the parties that the Investor Member always be allocated 99.98% of
the items of Income not arising from a Sale or Refinancing and 99.98% of the
Project depreciation.
Section 10.3 Special Allocations. The following special allocations shall
be made in the following order:
(a) Except as otherwise provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Company Minimum Gain during any Company fiscal year, each
Member shall be specially allocated items of Company Income and gain for such
fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to
such Person's share of the net decrease in Company Minimum Gain, determined in
accordance with Treasury Regulations Section 1.704-2(g). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member and pursuant thereto. The items to be so
allocated shall be determined in accordance with Section 1.704-2(f)(6) and
1.704-2(j)(2) of the Treasury Regulations. This Section 10.3(a) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Treasury Regulations and shall be interpreted consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the
Treasury Regulations, notwithstanding any other provision of this Article X, if
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any Company fiscal year, each Person who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the
Treasury Regulations, shall be specially allocated items of Company Income and
gain for such fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Person's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i)(4) and
1.704-2(j)(2) of the Treasury Regulations. This Section 10.3(b) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of
the Treasury Regulations and shall be interpreted consistently therewith.
(c) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
35
1.704-1(b)(2)(ii)(d)(6), items of Company Income and gain shall be specially
allocated to each such Member in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible, provided that an allocation
pursuant to this Section 10.3(c) shall be made if and only to the extent that
such Member would have Adjusted Capital Account Deficit after all other
allocations provided for in this Section 10.3 have been tentatively made as if
this Section 10.3(c) were not in the Agreement.
(d) In the event any Member has a deficit Capital Account at the end of
any Company fiscal year which is in excess of the sum of (i) the amount such
Member is obligated to restore, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be
specially allocated items of Company Income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.3(d) shall be made if and only to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 10.3 have been tentatively made as if this Section
10.3(d) and Section 10.3(c) hereof were not in the Agreement.
(e) Nonrecourse Deductions for any fiscal year shall be specially
allocated 99.98% to the Investor Member, .01% to the Special Member and .01% to
the Managing Member.
(f) Any Member Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Managing Member or Investor Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 743(b) is required, pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete liquidation of
his interest in the Company, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or Loss (if the adjustment decreases such basis) and such
gain or Loss shall be specially allocated to the Managing Member and the
Investor Member in accordance with their interests in the Company in the event
that Treasury Regulations Section 1.704-1 (b)(2)(iv)(m)(2) applies, or to the
Member to whom such distribution was made in the event that Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) To the extent the Company has taxable interest income with respect
to any promissory note pursuant to Section 483 or Section 1271 through 1288 of
the Code:
(a) Such interest income shall be specially allocated to
the Investor Member to whom such promissory note relates; and
(b) The amount of such interest income shall be excluded from
the Capital Contributions credited to such Member's Capital Account in
connection with payments of principal with respect to such promissory note.
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(i) In the event the adjusted tax basis of any Code Section 38 property
that has been placed in service by the Company is increased pursuant to Code
Section 50(c), such increase shall be specially allocated among the Members (as
an item in the nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to such property is shared
among the Members.
(j) Any reduction in the adjusted tax basis (or cost) of Company Code
Section 38 property pursuant to Code Section 50(c) shall be specially allocated
among the Members (as an item in the nature of expenses or losses) in the same
proportions as the basis (or cost) of such property is allocated pursuant to
Treasury Regulations Section 1.46-3(f)(2)(i).
(k) Any Income, Loss, or deduction realized as a direct or indirect
result of the issuance of an Interest in the Company by the Company to a Member
(the "Issuance Items") shall be allocated amount the Members so that, to the
extent possible, the net amount of such Issuance Items, together with all other
allocations under this Agreement to each Member, shall be equal to the net
amount that would have been allocated to each such Member if the issuance items
had not been realized.
(l) If any Company expenditure treated as a deduction on its federal
income tax return is disallowed as a deduction and treated as a distribution
pursuant to Section 731(a) of the Code, there shall be a special allocation of
gross income to the Member deemed to have received such distribution equal to
the amount of such distribution.
(m) The allocation to the Managing Member of each material item of
Company income, loss, deduction or credit will not be less than .01% of each
such item at all times during the existence of the Company.
(n) Interest deduction on the Company indebtedness referred to in
Section 6.3 shall be allocated 100% to the Managing Member.
Section 10.4 Curative Allocations. The allocations set forth in
Sections 10.3(a), 10.3(b), 10.3(c), 10.3(d), 10.3(e), 10.3(f), and 10.3(g)
hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company Income, gain, Loss, or deduction pursuant to this Section 10.4.
Therefore, notwithstanding any other provision of the Article X (other than the
Regulatory Allocations), the Managing Member shall make such offsetting special
allocations of Company Income, gain, Loss, or deduction in whatever manner the
Managing Member determines appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 10.3(h), 10.3(i), 10.3(j), 10.3(k) and 10.5. In
exercising its discretion under Section 10.4, the Managing Member shall take
into account future Regulatory Allocations under Section 10.3(a) and 10.3(b)
that, although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 10.3(e) and 10.3(f).
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Section 10.5 Other Allocation Rules.
(a) The basis (or cost) of any Company Code Section 38 property shall
be allocated among the Members in accordance with Treasury Regulations Section
1.46-3 (f)(2)(i). All Tax Credits (other than the investment tax credit) shall
be allocated among the Members in accordance with applicable law. Consistent
with the foregoing, the Members intend that LIHTC will be allocated 99.98% to
the Investor Member, .01% to the Special Member and .01% to the Managing Member.
(b) In the event Company Code Section 38 property is disposed of during
any taxable year, profits for such taxable year (and, to the extent such profits
are insufficient, profits for subsequent taxable years) in an amount equal to
the excess, if any, of (i) the reduction in the adjusted tax basis (or cost) of
such property pursuant to Code Section 50(c), over (ii) any increase in the
adjusted tax basis of such property pursuant to Code Section 50(c) caused by the
disposition of such property, shall be excluded from the profits allocated
pursuant to Section 10.1 hereof and shall instead be allocated among the Members
in proportion to their respective shares of such excess, determined pursuant to
Section 10.3(i) and 10.3(j) hereof. In the event more than one item of such
property is disposed of by the Company, the foregoing sentence shall apply to
such items in the order in which they are disposed of by the Company, so the
profits equal to the entire amount of such excess with respect to the first such
property disposed of shall be allocated prior to any allocations with respect to
the second such property disposed of, and so forth.
(c) For purposes of determining the Income, Losses, or any other items
allocable to any period, Income, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Managing
Member using any permissible method under Code Section 706 and the Treasury
Regulations thereunder.
Section 10.6 Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Treasury Regulations thereunder, Income, Loss, and
deduction with respect to any property contributed to the capital of the Company
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its initial Gross Asset Value
(computed in accordance with this Agreement).
In the event the Gross Asset Value of any Company asset is adjusted pursuant
hereto, subsequent allocations of Income, gain, Loss, and deduction with respect
to such asset shall take account of any variation between the adjusted basis of
such asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made by
the Managing Member in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 10.6 are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Person's Capital Account or
share of Income, Losses, other items, or distributions pursuant to any provision
of this Agreement.
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Section 10.7 Allocation Among Investor Members and Assignees. In the
event that the Interest of the Investor Member hereunder is at any time held by
more than one Member or Assignee all tax items which are specifically allocated
to the Investor Member for any month pursuant to this Article X shall be
apportioned among such Persons according to the ratio of their respective
profit-sharing interests in the Company at the last day of such month.
Section 10.8 Allocation Among Managing Member. In the event that the
Interest of the Managing Member hereunder is at any time held by more than one
Managing Member all tax items which are specifically allocated to the Managing
Member for any month pursuant to this Article X shall be apportioned among such
Persons in such percentages as may from time to time be determined by agreement
among them without amendment to this Agreement or consent of the Investor
Member.
Section 10.9 Modification of Allocations. The provisions of Articles X
and XI and other provisions of this Agreement are intended to comply with
Treasury Regulation Section 1.704 and shall be interpreted and applied in a
manner consistent with such section of the Treasury Regulations. In the event
that the Managing Member determines, in its sole discretion, that it is prudent
to modify the manner in which the Capital Accounts of the Members and Assignees,
or any debit or credit thereto, are computed in order to comply with such
section of the Treasury Regulations, the Managing Member may make such
modification, to the minimum extent necessary, to effect the plan of allocations
and Distributions provided for elsewhere in this Agreement. Further, the
Managing Member shall make any appropriate modifications in the event it appears
that unanticipated events (e.g., the existence of a Company election pursuant to
Code Section 754) might otherwise cause this Agreement not to comply with
Treasury Regulation Section 1.704.
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ARTICLE XI
DISTRIBUTION
Section 11.1 Distribution of Net Operating Income. Net Operating Income
for each fiscal year shall be distributed within seventy-five (75) days
following each calendar year and shall be applied in the following order of
priority:
(a) To pay the Deferred Management Fee, if any;
(b) To pay the Development Fee in accordance with the Development Fee
Agreement;
(c) To the payment of the Operating Loans, if any, made by the
Managing Member;
(d) To the payment of Management Administration Fee in the amount
specified in Section 9.2(d); and
(e) The balance to pay the Human Action for Chandler, an Arizona
non-profit corporation, dba Coordinated Community Services of Arizona Mortgage
Loan which funds shall be held in a restricted account and pledged to the
repayment of the applicable Mortgage Note.
Section 11.2 Distribution Upon Sale or Refinancing. Provided the
Distribution is not determined to be a liquidating distribution pursuant to
Treasury Regulation 1.704- 1(b)(2)(ii)(g), funds available for distribution upon
Sale or Refinancing shall be distributed in the following order:
(a) To the payment of the Mortgage Note and other matured debts and
liabilities of the Company other than accrued payments, debts, or other
liabilities owing to Members or former Members;
(b) To any accrued payments, debts or other liabilities owing to the
Members or former Members, including but not limited to, accrued Reporting Fees
and Operating Loans;
(c) To the establishment of any reserve which the Managing Member, with
the consent of the Special Member, shall deem reasonably necessary for
contingent, unmatured or unforeseen liabilities or obligations of the Company;
(d) To the establishment of any reserves which the Managing Member
shall deem reasonably necessary for contingent, unmatured or unforeseen
liabilities or obligations of the Company;
(e) To the Investor Member equal to its Capital Contribution;
(f) To the Special Member equal to its Capital Contribution;
(g) To the Managing Member in an amount equal to its Capital
Contribution; and
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(h) Thereafter, 40% to the Investor Member and 60% to the Managing
Member.
ARTICLE XII
VOLUNTARY TRANSFERS OF NON-MANAGING
MEMBER'S INTEREST IN THE COMPANY
Section 12.1 Restrictions on Transfer. Without the prior written
consent of a Majority in Interest of the Disinterested Members (which consent
may be given or withheld in their sole discretion), (a) no Member may
voluntarily or involuntarily Transfer, or create or suffer to exist any
Encumbrance against, all or any part of such Member's record of beneficial
interest the Company and (b) no person may be admitted to the Company as a
Member. Except for withdrawals in connection with a Transfer of a Membership
Interest permitted by this Agreement, no Member may withdraw from the Company
without the consent of a Majority in Interest of the Disinterested Members.
Section 12.2 Conditions Precedent to Transfers. Any purported transfer
or encumbrance otherwise complying with Section 12.1 of this Agreement will be
ineffective until the transferor and the proposed transferee furnish to the
Company the instruments and assurances the Members may request, including
without limitation, if requested, an opinion of counsel satisfactory to the
Company that the interest in the Company being transferred or encumbered has
been registered or is exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act"), and applicable state securities laws. No
transfer or encumbrance will be effective if it would result in the
"termination" of the Company under Section 708 of the Code unless all of the
Members give their prior written consent to the transfer or encumbrance.
Section 12.3 Assignment of Investor Member's Interest. The Investor
Member shall not have the right to assign all or any part of its interest in the
Company to any other Person, whether or not a Member, except:
(a) By a written instrument in form and substance satisfactory to the
Managing Member and its counsel, setting forth the name and address of the
proposed transferee, the nature and extent of the interest which is proposed to
be transferred and the terms and conditions upon which the transfer is proposed
to be made, stating that the Assignee accepts and agrees to be bound by all of
the terms and provisions of this Agreement, and providing for the payment of all
reasonable expenses incurred by the Company in connection with such assignment,
including but not limited to the cost of preparing the necessary amendment to
this Agreement;
(b) Upon consent of the Majority in Interest of the Disinterested
Members to such assignment, which shall not be unreasonably withheld;
(c) Upon receipt by the Managing Member of an opinion of counsel
acceptable to the Managing Member that such assignment complies with all
applicable federal and state securities laws; and
41
(d) Upon receipt by the Managing Member of the Assignee's written
representation that the Company interest is to be acquired by him for his own
account for long-term investment and not with a view toward resale,
fractionalization, division or distribution thereof.
Section 12.4 Effective Date of Transfer. Any assignment of an Investor
Member's interest pursuant to Section 12.3 shall become effective as of the last
day of the calendar month in which the last of the conditions to such assignment
are satisfied.
Section 12.5 Invalid Assignment. Any purported assignment of an
interest of a Member otherwise than in accordance with Section 12.3 or Section
12.8 shall be of no effect as between the Company and the purported assignee and
shall be disregarded by the Managing Member in making allocations and
Distributions hereunder.
Section 12.6 Assignee's Rights to Allocations and Distributions. An
Assignee shall be entitled to receive allocations of Company tax items and
Distributions from the Company attributable to the Company interest acquired by
reason of any permitted assignment from and after the first day of the calendar
month following the month which ends with the effective date of the transfer of
such interest as provided in Section 12.4. The Company and the Managing Member
shall be entitled to treat the assignor of such Company interest as the absolute
owner thereof in all respects, and shall incur no liability for allocations of
Company items and Distributions made in good faith to such assignor, until such
time as the written instrument of assignment has been received by the Company.
Section 12.7 Substitution of Assignee as Investor Member.
(a) An Assignee shall not have the right to become a substitute
Investor Member in place of his assignor unless the written consent of the
Majority in Interest of the Disinterested Members to such substitution shall
have been obtained, which consent, in the Majority in Interest of the
Disinterested Members absolute discretion, may be withheld. No consent or other
action of any non-assigning Member shall be required for the admission to the
Company of any substitute Investor Member.
(b) A nonadmitted transferee of a Investor Member's interest in the
Company shall only be entitled to receive that share of allocations,
Distributions and the return of Capital Contribution to which its transferor
would otherwise be entitled with respect to the interest transferred, and shall
have no right to obtain any information on account of the Company's
transactions, to inspect the Company's books and records or have any other of
the rights and privileges of a Investor Member, provided, however, that the
Company shall, if a transferee and transferor jointly advise the Managing Member
in writing of a transfer of an interest in the Company, furnish the transferee
with pertinent tax information at the end of each fiscal year of the Company.
(c) The Managing Member may elect to treat a transferee of a Company
interest who has not become a substitute Investor Member as a substitute
Investor Member in the place of its transferor should it deem in its absolute
discretion that such treatment is in the best interest of the Company.
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Section 12.8 Death, Bankruptcy, Incompetency, etc. of a Investor
Member. Upon the death, dissolution, adjudication of bankruptcy, insanity or
adjudication of incompetency of a Investor Member, such Member's executors,
administrators or legal representatives shall have all the rights of a Member
for the purpose of settling or managing such Member's estate, including such
power as such Member possessed to constitute a successor as a transferee of its
interest in the Company and to join with such transferee in making the
application to substitute such transferee as a Member. However, such executors,
administrators or legal representatives will not have the right to become
substitute Investor Members in the place of their predecessor-in-interest unless
the Majority in Interest shall so consent.
ARTICLE XIII
RESIGNATION, REMOVAL AND REPLACEMENT OF
MANAGING MEMBER
Section 13.1 Resignation of Managing Member. A Managing Member may
resign only with the prior written approval of the Majority in Interest, which
shall be conditioned upon the agreement of one or more successor Managing Member
who satisfy the requirements of Section 13.3 of this Agreement to be admitted as
substitute Managing Member(s).
Section 13.2 Removal of a Managing Member.
(a) The Majority in Interest may remove a Managing Member:
(1) For cause if such Managing Member has:
(A) Been subject to Bankruptcy in accordance with
this Agreement;
(B) Committed any fraud, willful misconduct,
breach of fiduciary duty or other grossly negligent conduct in the performance
of its duties under this Agreement;
(C) Been convicted of, or entering into a plea of
guilty to a felony;
(D) Made personal use of Company funds or
properties;
(E) Violated the terms of the Mortgage Note,
and such violation prompts Washington Mutual Bank or the Human Action for
Chandler, an Arizona non-profit corporation, dba Coordinated Community
Services of Arizona to issue a default letter or acceleration notice to the
Company or a Managing Member and the Managing Member does not cure the noticed
default or acceleration within 30 days of receipt of the notice and such conduct
causes the Company to suffer an uninsurable loss;
(F) Failed to provide any loan, advance, Capital
Contribution or any other payment to the Company required under this Agreement;
43
(G) Failed to obtain the Consent of the Special
Member prior to any decision, act or omission under circumstances where this
Agreement requires that such consent be obtained;
(H) Breached any representation, warranty or
covenant contained in this Agreement or failed to perform any action which may
be required by this Agreement and such conduct caused the Company to suffer an
uninsurable loss;
(I) Caused the Projected Tax Credits to be
allocated to the Members for a term longer than the Tax Credit Period unless
the provisions of Section 7.4(e) of this Agreement apply;
(J) Violated any federal or state tax law which
causes a recapture of LIHTC; or
(K) Failed during any six-month period during
the first 15 years of Project operations to cause at least 85% of the total
apartment units in the Project to qualify for LIHTC, unless such failure is the
result of Force Majeure or unless such failure is cured within 120 days after
the end of the six-month period.
(2) In exercising its powers pursuant to the provisions of
this Section 13.2(a) the Investor Member may elect to remove only one of the
Managing Member, if there is more than one, if the circumstances warrant so that
one Manager's default does not necessarily affect the other Managing Member.
(b) Written notice of the removal for cause of a Managing Member shall
be served upon the defaulting Managing Member either by certified or by
registered mail, return receipt requested, or by personal service. Such notice
shall set forth the reasons for the removal, if any, and the date upon which the
removal is to become effective.
(c) Upon receipt of the notice of removal for cause, the defaulting
Managing Member shall cause an accounting to be prepared covering the
transactions of the Company from the end of the previous fiscal year through the
date of receipt of such notice, and thereafter it shall not sell or dispose of
Company assets in the ordinary course of business of the Company or otherwise
unless such sale or disposition is subject to a contract entered into by and
binding upon the Company prior to the date upon which such notice was received
by the defaulting Managing Member. If possible, the accounting shall be
completed by the effective date of the removal and shall be in sufficient detail
to accurately and fully reflect the earnings or losses for the period and the
financial condition of the Company. The expenses of the accounting shall be
borne by the defaulting Managing Member.
(d) The removal of the defaulting Managing Member for cause shall
become effective upon the date set forth in the notice. Such defaulting Managing
Member shall (i) cease to be a Member of, or have any further interest in, the
Company as of the effective date of the removal; (ii) be entitled to receive as
its sole compensation for its interest in the Company an amount equal to its
Capital Account balance as of the effective date of the removal, payable upon
the dissolution and termination of the Company after all of the Members have
44
been distributed the positive balances in their Capital Accounts; and (iii)
remain liable to restore any deficit balance in its Capital Account as of the
date of its removal as provided in Section 15.3(b) of this Agreement.
Section 13.3 Effects of a Withdrawal. In the event of a Withdrawal, the
entire Interest of the Withdrawing Managing Member shall immediately and
automatically terminate on the effective date of such Withdrawal, and such
Managing Member shall immediately cease to be a Managing Member, shall have no
further right to participate in the management or operation of the Company or
the Project or to receive any allocations or Distributions from the Company or
any other funds or assets of the Company, except as specifically set forth
below. In the event of a Withdrawal, any or all executory contracts, including
but not limited to the Management Agreement, between the Company and the
Withdrawing Managing Member or its Affiliates may be terminated by the Company,
with the Consent of the Special Member, upon written notice to the party so
terminated.
Furthermore, notwithstanding such Withdrawal, the Withdrawing Managing
Member shall be and shall remain, liable as a Managing Member for all
liabilities and obligations incurred by the Company or by the Managing Member
prior to the effective date of the Withdrawal, or which may arise upon such
Withdrawal. Any remaining Member shall have all other rights and remedies
against the Withdrawing Managing Member as provided by law or under this
Agreement.
The Managing Member agrees that in the event of its Withdrawal it will
indemnify and hold the Investor Member and the Special Member harmless from and
against all losses, costs and expenses incurred in connection with the
Withdrawal, including, without limitation, all legal fees and other expenses of
the Investor Member and the Special Member in connection with the transaction.
The following additional provisions shall apply in the event of a
Withdrawal:
(a) In the event of a Withdrawal which is not an Involuntary
Withdrawal, the Withdrawing Managing Member shall have no further right to
receive any future allocations or Distributions from the Company or any other
funds or assets of the Company, nor shall it be entitled to receive or to be
paid by the Company any further payments of fees (including fees which have been
earned but are unpaid) or to be repaid any outstanding advances or loans made by
it to the Company or to be paid any amount for its former Interest. From and
after the effective date of such Withdrawal, the former rights of the
Withdrawing Managing Member to receive or to be paid such allocations,
Distributions, funds, assets, fees or repayments shall be assigned to the other
Managing Member or Managing Members (which may include the Special Member), or
if there is no other Managing Member of the Company at that time, to the Special
Member.
(b) In the event of an Involuntary Withdrawal, except as provided in
Section 13.3(b)(3) below, the Withdrawing Managing Member shall have no further
right to receive any future allocations or Distributions from the Company or any
other funds or assets of the Company, provided that accrued and payable fees
(i.e., fees earned but unpaid as of the date of Withdrawal) owed to the
Withdrawing Managing Member, and any outstanding loans of the Withdrawing
Managing Member to the Company, shall be paid to the Withdrawing Managing Member
in the manner and at the times such fees and loans would have been paid had the
Withdrawing Managing Member not Withdrawn. The Interest of the Managing Member
shall be purchased as follows:
45
(1) If the Involuntary Withdrawal arises from removal for
cause as set forth in Section 13.2(a) hereof, the Withdrawn Managing Member
shall be entitled to receive as its sole compensation for its Interest in the
Company an amount equal to its positive Capital Account balance determined as of
the effective date of the removal, if any, payable upon the dissolution and
termination of the Company after all of the Members have been distributed the
positive balances in their Capital Accounts.
(2) If the Involuntary Withdrawal does not arise from removal
for cause under Section 13.2(a) hereof, and if the Company is to be continued
with one or more remaining or successor Managing Member(s), the Company, with
the Consent of the Special Member, may, but is not obligated to, purchase the
Interest of the Withdrawing Managing Member in Company allocations,
Distributions and capital. The purchase price of such Interest shall be its Fair
Market Value as determined by agreement between the Withdrawing Managing Member
and the Special Member, or, if they cannot agree, by arbitration in accordance
with the then current rules of the American Arbitration Association. The cost of
such arbitration shall be borne equally by the Withdrawing Managing Member and
the Company. The purchase price shall be paid by the Company by delivering to
the Managing Member or its representative the Company's non-interest bearing
unsecured promissory note payable, if at all, upon liquidation of the Company in
accordance with Section 11.2(b). The note shall also provide that the Company
may prepay all or any part thereof without penalty.
(3) If the Involuntary Withdrawal does not arise from removal
for cause under Section 13.2(a) hereof, and if the Company is to be continued
with one or more remaining or successor Managing Member(s), and if the Company
does not purchase the Interest of the Withdrawing Managing Member in Company
allocations, Distributions and capital, then the Withdrawing Managing Member
shall retain its Interest in such items, but such Interest shall be held as a
Special Member.
Section 13.4 Successor Managing Member. Upon the occurrence of an event
giving rise to a Withdrawal of a Managing Member, any remaining Managing Member,
or, if there be no remaining Managing Member, the Withdrawing Managing Member or
its legal representative, shall promptly notify the Special Member of such
Withdrawal (the "Withdrawal Notice"). Whether or not the Withdrawal Notice shall
have been sent as provided herein, the Special Member shall have the right to
become a successor Managing Member (and to become the successor Managing Member
if the Withdrawing Managing Member was previously the Managing Member). In order
to effectuate the provisions of this Section 13.4 and the continuance of the
Company, the Withdrawal of a Managing Member shall not be effective until the
expiration of 120 days from the date on which occurred the event giving rise to
the Withdrawal, unless the Special Member shall have elected to become a
successor Managing Member as provided herein prior to expiration of such 120-day
period, whereupon the Withdrawal of the Managing Member shall be deemed
effective upon the notification of all the other Members by the Special Member
of such election.
Section 13.5 Admission of Additional or Successor Managing Member. No
Person shall be admitted as an additional or successor Managing Member unless
(a) such Person shall have agreed to become a Managing Member by a written
instrument which shall include the acceptance and adoption of this Agreement;
(b) the Consent of the Special Member to the admission of such Person as a
46
substitute Managing Member, which consent may be withheld in the discretion of
the Special Member, shall have been given; and (c) such Person shall have
executed and acknowledged any other instruments which the Special Member shall
reasonably deem necessary or appropriate to affect the admission of such Person
as a substitute Managing Member. If the foregoing conditions are satisfied, this
Agreement shall be amended in accordance with the provisions of the Act, and all
other steps shall be taken which are reasonably necessary to effect the
Withdrawal of the Withdrawing Managing Member and the substitution of the
successor Managing Member. Nothing contained herein shall reduce the Investor
Member's Interest or the Special Member's Interest in the Company.
Section 13.6 Transfer of Interest. Except as otherwise provided herein,
the Managing Member may not Withdraw from the Company, or enter into any
agreement as the result of which any Person shall become interested in the
Company, without the Consent of the Special Member.
Section 13.7 No Goodwill Value. At no time during continuation of the
Company shall any value ever be placed on the Company name, or the right to its
use, or to the goodwill appertaining to the Company or its business, either as
among the Members or for the purpose of determining the value of any Interest,
nor shall the legal representatives of any Member have any right to claim any
such value. In the event of a termination and dissolution of the Company as
provided in this Agreement, neither the Company name, nor the right to its use,
nor the same goodwill, if any, shall be considered as an asset of the Company,
and no valuation shall be put thereon for the purpose of liquidation or
distribution, or for any other purpose whatsoever.
47
ARTICLE XIV
BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND BANKING
Section 14.1 Books and Accounts.
(a) The Managing Member shall cause the Company to keep and maintain at
its principal executive office full and complete books and records which shall
include each of the following:
(1) a current list of the full name and last known business or
residence address of each Member set forth in alphabetical order together with
the Capital Contribution and the share in profits and losses of each Member;
(2) a copy of the Articles of Organization of the Company and
all amendments thereto;
(3) copies of the Company's federal, state and local income
tax information returns and reports, if any, for the six most recent taxable
years;
(4) copies of the original of this Agreement and all
amendments thereto;
(5) financial statements of the Company for the six most
recent fiscal years; and
(6) the Company's books and records for at least the current
and past three fiscal years.
(b) Upon the request of the Special Member, the Managing Member shall
promptly deliver to the Special Member, at the expense of the Company, a copy of
the information set forth in Section 14.1(a)(1), (2) or (4) above. The Special
Member shall have the right upon reasonable request and during normal business
hours to inspect and copy any of the foregoing or any of the other books and
records of the Company or the Project at its own expense, and, upon reasonable
request, to obtain from the Managing Member copies of the Company's federal,
state and local income tax or information returns, promptly after such returns
become available.
Section 14.2 Accounting Reports.
(a) By March 1 of each calendar year the Managing Member shall provide
to each Person who was a Member at any time during the fiscal year ending during
that calendar year all tax information necessary for the preparation of his
federal and state income tax returns and other tax returns with regard to the
jurisdiction(s) in which the Company is formed and in which the Project is
located.
(b) By March 1 of each calendar year the Managing Member shall send to
each Person who was a Member at any time during such fiscal year: (i) a balance
48
sheet as of the end of such fiscal year and statements of income, Members,
equity and changes in financial position of such fiscal year prepared in
accordance with generally accepted accounting principles and accompanied by an
auditor's report containing an opinion of the Company's accountants; (ii) a
report (which need not be audited) of any Distributions made to Persons who were
Investor Members at any time during the fiscal year, separately identifying
Distributions from Net Operating Income for the fiscal year, Net Operating
Income for prior years, Sale or Refinancing Proceeds and reserves; (iii) a
report setting forth the amount of all fees and other compensation and
Distributions and reimbursed expenses paid by the Company for the fiscal year to
the Managing Member or Affiliates of the Managing Member and the services
performed in consideration therefor, which report shall be verified by the
Company's accountants, with the method of verification to include, at a minimum,
a review of the time records of individual employees, the costs of whose
services were reimbursed, and a review of the specific nature of the work
performed by each such employee, all in accordance with generally accepted
auditing standards and, accordingly, including such tests of the accounting
records and such other auditing procedures as the accountants consider
appropriate in the circumstances; (iv) a copy of the Project's rent roll for the
most recent calendar quarter; (v) a statement signed by the Managing Member
indicating the number of apartment units which are occupied by Qualified
Tenants; and (vi) a report of the significant activities of the Company during
the quarter.
(c) Within 60 days after the end of each fiscal quarter in which a Sale
or Refinancing of the Project occurs, the Managing Member shall send to each
Person who was a Member at the time of the Sale or Refinancing a report as to
the nature of the Sale or Refinancing and as to the profits and losses for tax
purposes and Sale or Refinancing Proceeds arising from the Sale or Refinancing.
Section 14.3 Other Reports. The Managing Member shall provide to the
Investor Member and to the Special Member:
(a) During the period of construction, a copy of the initial
construction schedule and any updates to the construction schedule, and by the
tenth day of each month a copy of the previous month's Construction Loan draw
request and the inspecting architect's application and certification of payment
(AIA Document G702, or similar form acceptable to the Investor Member);
(b) During the rent-up phase, and continuing until the end of the first
six-month period during which the Project has a sustained occupancy of 95% or
better, by the tenth day of each month within such period a copy of the previous
month's rent roll (through the last day of the month) and a tenant LIHTC
compliance worksheet similar to the monthly initial tenant certification
worksheet included in Exhibit "H" attached hereto and incorporated herein by
this reference;
(c) A quarterly tax credit compliance report similar to the worksheet
included in Exhibit "H" due on or before April 30 of each year for the first
quarter, July 31 of each year for the second quarter, October 31 of each year
for the third quarter and January 31 of each year for the fourth quarter. In
order to verify the reliability of the information being provided on the
compliance report the Investor Member may request a small sampling of tenant
files to be provided. The sampling will include, but not be limited to, copies
of tenant applications, certifications and third party verifications used to
qualify tenants. If any inaccuracies are found to exist on the tax credit
49
compliance report or any items of noncompliance are discovered then the sampling
will be expanded as determined by the Investor Member.
(d) By September 15 of each year, an estimate of LIHTC for that year;
(e) If the Project receives a reservation of LIHTC in one year but will
not complete the construction and rent-up until a later year, the Managing
Member will provide to the Investor Member by December 31 of the year during
which the reservation is received an audited cost certification together with
the accountant's work papers verifying that the Company has expended the
requisite 10% of the reasonably expected cost basis to meet the carryover test
provisions of Section 42 of the Code;
(f) During the Compliance Period, no later than the day any such
certification is filed, copies of any certifications which the Company must
furnish to federal or state governmental authorities administering any Tax
Credit program including, but not limited to, copies of all annual tenant
recertifications required under Section 42 of the Code;
(g) A quarterly report on operations, in the form attached hereto as
Exhibit "H", due on or before April 30 of each year for the first quarter of
operations, July 31 of each year for the second quarter of operations, October
31 of each year for the third quarter of operations and January 31 of each year
for the fourth quarter of operations which shall include, but is not limited to,
an unaudited income statement showing all activity in the reserve accounts
required to be maintained pursuant to Section VIII of this Agreement, statement
of income and expenses, balance sheet, rent roll as of the end of each calendar
quarter of each year, and third party verification of current utility allowance;
(h) By the annual renewal date of each and every year, an executed
original or certified copy of each and every Insurance policy or certificate
required by the terms of this Agreement;
(i) On or before March 15th of each calendar year, the Managing
Member's updated financial statement as of December 31 of the previous year;
(j) On or before November 1 of each calendar year, a copy of the
following year's proposed operating budget. Each such budget shall contain an
amount required for reserves in accordance with Article VIII and for the payment
of real estate taxes, insurance, debt service and other payments. Such budget
shall only be adopted with the Consent of the Special Member;
(k) If the Investor Member is required by the Securities and Exchange
Commission to file a post-effective amendment to its offering document, an
audited operating statement for the Project within 30 days of the request
therefor by the Investor Member, covering the Project's operating history from
the Completion of Construction to the date requested by the Investor Member and
in a form required by the Securities and Exchange Commission; and
(l) Notice of the occurrence, or of the likelihood of occurrence, of
any event which has had a material adverse effect upon the Project or the
Company, including, but not limited to, any breach of any of the representations
50
and warranties set forth in Section 9.11 of this Agreement, and any inability of
the Company to meet its cash obligations as they become payable, within ten days
after the occurrence of such event.
Section 14.4 Late Reports. If the Managing Member does not cause the
Company to fulfill its obligations under Sections 14.2 and 14.3 within the time
periods set forth therein, the Managing Member shall pay as damages the sum of
$100 per week (plus interest) to the Special Member until such obligations shall
have been fulfilled. Such damages shall be paid forthwith by the Managing
Member, and failure to so pay shall constitute a material default of the
Managing Member hereunder. In addition, if the Managing Member shall so fail to
pay, the Managing Member and its Affiliates shall forthwith cease to be entitled
to the annual Company Management Fee and to the payment of any Net Operating
Income to which the Managing Member may otherwise be entitled hereunder. Such
payments of the annual Company Management Fee and Net Operating Income shall be
restored only upon payment of such damages in full, and any amount of such
damages not so paid shall be deducted against payments of the annual Company
Management Fee and Net Operating Income otherwise due to the Managing Member or
its Affiliates.
Section 14.5 Annual Site Visits. On an annual basis a representative of
the Special Member, at the Special Member's expense, will conduct a site visit
which will include, in part, an examination of the grounds, a review of the
office and files and an interview with the property Managing Agent. The Special
Member may, in its sole discretion, cancel all or any part of the annual site
visit.
Section 14.6 Tax Returns. The Managing Member shall cause income tax
returns for the Company to be prepared and timely filed with the appropriate
federal, state and local taxing authorities. The Managing Member shall be the
tax matters member for purposes of Section 6231(a)(7) of the Code.
Section 14.7 Fiscal Year. The fiscal year of the Company shall be the
calendar year or such other period as may be approved by the Internal Revenue
Service for federal income tax purposes.
Section 14.8 Banking. All funds of the Company shall be deposited in a
separate bank account or accounts as shall be determined by the Managing Member.
All withdrawals therefrom shall be made upon checks signed by the Managing
Member or by any person authorized to do so by the Managing Member. The Managing
Member shall provide to any Member who requests same the name and address of the
financial institution, the account number and other relevant information
regarding any Company bank account.
Section 14.9 Certificates and Elections.
(a) The Managing Member shall file the First Year Certificate within 90
days following the close of the taxable year during which Completion of
Construction occurs and thereafter shall timely file any certificates which the
Company must furnish to federal or state governmental authorities administering
the Tax Credit programs under Section 42 of the Code.
51
(b) The Managing Member may, but is not required to, cause the Company
to make or revoke the election referred to in Section 754 of the Code, as
amended, or any similar provisions enacted in lieu thereof.
ARTICLE XV
DISSOLUTION, WINDING UP, TERMINATION
AND LIQUIDATION OF THE COMPANY
Section 15.1 Dissolution of Company. The Company shall be dissolved
upon the expiration of its term or the earlier occurrence of any of the
following events:
(a) Upon the happening of death, bankruptcy or any other event or
withdrawal (as defined in the Act) with respect to any Member, unless there is
at least one remaining Member and the business of the Company is continued by
the written consent of a Majority in Interest of the remaining Members within
ninety (90) days of the action by or affecting the withdrawing Member;
(b) The Sale of the Project and the receipt in cash of the full amount
of the proceeds of such Sale; or
(c) The Company becomes subject to an Event of Bankruptcy.
Notwithstanding the foregoing, however, in no event shall the Company
terminate prior to the expiration of its term if such termination would result
in a violation of the Mortgage Note or any other agreement with or rule or
regulation of the Mortgage lender, to which the Company is subject.
Section 15.2 Return of Capital Contribution upon Dissolution. Except as
provided in Sections 7.3 and 7.6 of this Agreement, which provide for a
reduction or refund of the Investor Member's Capital Contribution under certain
circumstances, and which shall represent the personal obligation of the Managing
Member, as well as the obligation of the Company, each holder of a Company
interest shall look solely to the assets of the Company for all Distributions
with respect to the Company (including the return of its Capital Contribution)
and shall have no recourse therefor (upon dissolution or otherwise) against the
Managing Member or any Investor Member. No Member shall have any right to demand
or receive property other than money upon dissolution and termination of the
Company.
Section 15.3 Distributions of Assets. Upon a dissolution of the
Company, the Managing Member (or, if there is no Managing Member then remaining,
such other Person(s) designated as the liquidator of the Company by the Investor
Member or by the court in a judicial dissolution) shall take full account of the
Company assets and liabilities and shall liquidate the assets as promptly as is
consistent with obtaining the fair value thereof.
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Company pursuant to Section
11.2(a) through and including 11.2(d), the remaining assets of the Company (or
the proceeds of sales or other dispositions in liquidation of the Company
52
assets, as may be determined by the Managing Member or other liquidator) shall
be distributed to the Members in accordance with the positive balances in their
Capital Accounts. In order to make a final determination of the Capital Account
of each Member:
(1)the allocations pursuant to Section 11.2(e),
Section 11.2(f) and Section 11.2(g) shall be made, but not distributed; and
(2) the Income and Losses of the Company upon Liquidation or
dissolution and winding up shall then be allocated among the Members as set
forth in Section 10.2.
(b) In the event that a Managing Member has a deficit balance in its
Capital Account following the Liquidation of the Company or its interest, as
determined after taking into account all Capital Account adjustments for the
Company taxable year in which such Liquidation occurs, such Managing Member
shall pay to the Company the amount necessary to restore such deficit balance to
zero in compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3). The
deficit reduction amount shall be paid by the Managing Member by the end of such
taxable year (or, if later, within 90 days after the date of Liquidation) and
shall, upon Liquidation of the Company, be paid to creditors of the Company or
distributed to other Members in accordance with their positive Capital Account
balances. Notwithstanding, if the Special Member has become successor Managing
Member, it shall not be responsible for any deficit balance in its Capital
Account which arose during the time the former Managing Member served as
Managing Member.
(c) With respect to assets distributed in kind to the Members in
Liquidation or otherwise:
(1) unrealized appreciation or unrealized depreciation in the
values of such assets shall be deemed to be Income and Losses realized by the
Company immediately prior to the Liquidation or other Distribution event; and
(2) such Income and Losses shall be allocated to the Members
in accordance with Section 10.2 hereof, and any property so distributed shall be
treated as a Distribution of an amount in cash equal to the excess of such Fair
Market Value over the outstanding principal balance of and accrued interest on
any debt by which the property is encumbered.
(d) For the purposes of Section 15.3(c), "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the Fair Market
Value of such assets, taking into account the Fair Market Value of the
associated financing but subject to Section 7701(g) of the Code, and the
Company's adjusted basis in such assets for book purposes. Section 15.3(c) is
merely intended to provide a rule for allocating unrealized Income and Losses
upon Liquidation or other Distribution event, and nothing contained in Section
15.3(c) or elsewhere in this Agreement is intended to treat or cause such
Distributions to be treated as sales for value. The Fair Market Value of such
assets shall be determined by an independent appraiser to be selected by the
Managing Member.
Section 15.4 Deferral of Liquidation. If at the time of Liquidation the
Managing Member or other liquidator shall determine that an immediate sale of
part or all of the Company assets could cause undue loss to the Members, the
liquidator may, in order to avoid loss, either defer Liquidation and retain all
53
or a portion of the assets or distribute all or a portion of the assets to the
Members in kind. In the event that the liquidator elects to distribute such
assets in kind, the assets shall first be assigned a value (by appraisal by an
independent appraiser) and the unrealized appreciation or depreciation in value
of the assets shall be allocated to the Members, Capital Accounts, as if such
assets had been sold, in the matter described in Section 10.2, and such assets
shall then be distributed to the Members as provided herein. In applying the
preceding sentence, the Project shall not be assigned a value less than the
unamortized principal balance of any loan secured thereby.
Section 15.5 Liquidation Statement. Each of the Members shall be
furnished with a statement prepared or caused to be prepared by the Managing
Member or other liquidator, which shall set forth the assets and liabilities of
the Company as of the date of complete Liquidation. Upon compliance with the
distribution plan as outlined in Sections 15.3 and 15.4, the Investor Member
shall cease to be such and the Managing Member shall execute, acknowledge and
cause to be filed those certificates referenced in Section 15.6.
Section 15.6 Articles of Dissolution. Upon the dissolution and
commencement of the winding up of the Company, the Members shall cause Articles
of Dissolution to be executed on behalf of the Company and filed with the
Corporation Commission of the State of Arizona, and the Members shall execute,
acknowledge and file any and all other instruments necessary or appropriate to
reflect the dissolution of the Company.
ARTICLE XVI
AMENDMENTS
This Agreement may be amended at any time by the Investor Member;
provided, however, that this Agreement may be amended to add a substitute Member
only as set forth in Article XII of this Agreement. Notwithstanding the
foregoing, no amendment shall change the Company to a corporation treated as a
corporation for tax purposes; extend the term of the Company beyond the date
provided for in this Agreement; modify the limited liability of the Investor
Member; allow the Member to take control of the Company's business within the
meaning of the Act; reduce or defer the realization of any Member's interest in
Income, Losses, Tax Credits, Distributions, or compensation hereunder, or
increase any Member's obligations hereunder, without the consent of the Member
so affected; or change the provisions of this Article XVI or violate the terms
and provisions of the Mortgage.
ARTICLE XVII
TREATMENT AS LIMITED LIABILITY COMPANY
The Members intended that the Company shall be operated in a manner
consistent with its treatment as a limited liability company for federal and
state income tax purposes. No Member shall take any action inconsistent with the
express intent of the partied hereto.
54
ARTICLE XVIII
NATURE OF MEMBERS' INTEREST
The interest of the Members in the Company shall be personal property
for all purposes. Legal title to all Company assets shall be held in the name of
the Company. Neither any Member, nor a successor, representative or assign of
such Member, shall have any right, title or interest in or to any Property owned
by the Company or the right to partition any Property owned by the Company.
ARTICLE XIX
MISCELLANEOUS
Section 19.1 Voting Rights.
(a) The Investor Member shall have no right to vote upon any matters
affecting the Company, except as provided in this Agreement. Notwithstanding the
foregoing, the Investor Member may, without the concurrence of the Managing
Member:
(1) Approve, but not initiate, the Sale or Refinancing of
the Project;
(2) Remove the Managing Member for cause and elect a
substitute Managing Member as provided in this Agreement;
(3) Approve or disapprove, but not initiate, the dissolution
of the Company; or
(4) Subject to the provisions of Article XVI hereof, amend
this Agreement.
(b) On any matter where the Investor Member has the right to vote,
votes may only be cast at a duly called meeting of the Company or through
written action without a meeting.
Section 19.2 Meeting of Company. Meetings of the Company may be called
either: at any time by the Managing Member; or upon the Managing Member's
receipt of a written request from the Investor Member setting forth the purpose
of such meeting. Within ten days after receipt of the Investor Member's written
request for a meeting, the Managing Member shall provide all Members with
written notice of the meeting (which shall be at the principal place of business
of the Company or such other location referenced in the notice) to be held not
less than 15 days nor more than 30 days after receipt of such written request
from the Investor Member, which notice shall specify the time and place of such
meeting and the purpose or purposes thereof. If the Managing Member fails to
provide the written notice of the meeting within ten days after receipt of the
Investor Member's request to hold a meeting, then the Investor Member may
provide the written notice of the meeting to all the Members, which notice shall
specify the time and place of such meeting and the purpose or purposes thereof.
All meetings and actions of the Investor Member shall be governed in all
respects, including matters relating to notice, quorum, adjournment, proxies,
record dates and actions without a meeting, by the applicable provisions of the
Act, as shall be amended from time to time.
55
Section 19.3 Notices. Any notice given pursuant to this Agreement may
be served personally on the Member to be notified, or may be mailed, first class
postage prepaid, to the following address, or to such other address as a party
may from time to time designate in writing:
To the Managing Member: Spring Valley Terrace, Inc.,
an Arizona nonprofit corporation
000 X. Xxxxxxx Xxxxxx
Xxxxx 00
Xxxxxxxx, XX 00000
To the Investor Member: WNC Housing Tax Credit Fund VI, L.P., Series 5
c/o WNC & Associates, Inc.
0000 Xxxxxxx Xxx., Xxxxx 000
Xxxxx Xxxx, XX 00000-0000
To the Special Member: WNC Housing, L.P.
0000 Xxxxxxx Xxx., Xxxxx 000
Xxxxx Xxxx, XX 00000-0000
Section 19.4 Successors and Assigns. All the terms and conditions of
this Agreement shall be binding upon the successors and assigns of the Members,
but shall not inure to the benefit of the successors or assigns of the Members
except as otherwise expressly provided in this Agreement.
Section 19.5 Recording of Articles of Organization of the Company. If
the Managing Member should deem it advisable to do so, the Company shall record
in the office of the County Recorder of the county in which the principal place
of business of the Company is located a certified copy of the Articles of
Organization of the Company, or any amendment thereto, after such Articles or
amendment has been filed with the Corporation Commission of the State.
Section 19.6 Amendment of Articles of Organization of the Company.
(a) The Managing Member shall cause to be filed, within 30 days after
the happening of any of the following events, an amendment to the Articles of
Organization of the Company reflecting the occurrence thereof:
(1) A change in the name of the Company.
(2) A change in the street address of the Company's principal
executive office.
(3) A change in the address, or the withdrawal, of a Managing
Member, or a change in the address of the agent for service of process, unless a
corporate agent is designated, or appointment of a new agent for service of
process.
(4) The admission of a Managing Member and that Member's
address.
56
(5) The discovery by the Managing Member of any false or
erroneous material statement contained in the Articles or any amendment thereto.
(b) The Articles of Organization of the Company may also be amended in
conformity with this Agreement at any time in any other respect that the
Managing Member determines.
(c) The Managing Member shall cause the Articles of Organization of the
Company to be amended, when required or permitted as aforesaid, by filing an
amendment thereto in the office of, and on a form prescribed by, the Corporation
Commission of the State. The amendment shall set forth the Company's name, the
Corporation Commission's file number for the Company and the text of the
amendment.
Section 19.7 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and said
counterparts shall constitute but one and the same instrument which may
sufficiently be evidenced by one counterpart.
Section 19.8 Captions. Captions to and headings of the Articles,
Sections and subsections of this Agreement are solely for the conveniences of
the parties, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
Section 19.9 Certain Provisions. If the operation of any provision of
this Agreement would contravene the provisions of applicable law, or would
result in the imposition of general liability on any Investor Member, such
provisions shall be void and ineffectual.
Section 19.10 Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Section 19.11 Number and Gender. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the Person or Persons may require.
Section 19.12 Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
all prior understandings and agreements between the parties, written or oral,
respecting this transaction are merged in this Agreement.
Section 19.13 Governing Law. This Agreement and its application
shall be governed by the laws of the State.
Section 19.14 Attorney's Fees. If a suit or action is instituted in
connection with an alleged breach of any provision of this Agreement, the
57
prevailing party shall be entitled to recover, in addition to costs, such sums
as the court may adjudge reasonable as attorney's fees, including fees on any
appeal.
Section 19.15 Receipt of Correspondence. By their signatures below, the
Members agree that the Mortgage lender and the Managing Member shall send to the
Investor Member a copy of any correspondence relative to the Project's
noncompliance with the Mortgage Note, relative to the acceleration of the
Mortgage Note and relative to the disposition of the Project.
Section 19.16 Security Interest and Right of Set-Off. As security for
the performance of the respective obligations to which it may be subject under
this Agreement, the Company shall have (and each Member hereby grants to the
Company) a security interest in all funds distributable to said Member to the
extent of the amount of such obligation.
Section 19.17 Tax Matters Partners. All the Members hereby agree that
the Special Member shall be the "Tax Matters Partner" pursuant to the Code and
in connection with any audit of the federal income tax returns of the Company;
provided, however, that if the Special Member shall withdraw from the Company or
become Bankrupt, the Managing Member shall thereafter be the "Tax Matters
Partner". If the Tax Matters Partner shall determine to litigate any
administrative determination relating to federal income tax matters, it shall
litigate such matter in such court as the Tax Matters Partner shall decide in
its sole discretion. In discharging its duties and responsibilities, the Tax
Matters Partner shall act as a fiduciary (i) to the Investor Member (to the
exclusion of the other Members) insofar as tax matters related to the Tax
Credits are concerned, and (ii) to all of the Members in other respects. The
Investor Member will make no claim against the Company in respect of any action
or omission by the Tax Matters Partner during such time as the Special Member
acts as the Tax Matters Partner.
IN WITNESS WHEREOF, this Amended and Restated Operating Agreement of
Spring Valley Terrace Apartments, L.L.C., an Arizona limited liability company,
is made and entered into as of the _____ day of _________________ 1997.
MANAGING MEMBER
SPRING VALLEY TERRACE, INC.
By: ______________________
Xxxxxx X. Xxxxxx,
President
WITHDRAWING MEMBER
HUMAN ACTION FOR CHANDLER, AN ARIZONA
NONPROFIT CORPORATION
By: ___________________________
Xxxxx Xxxxxxxxx
President
58
INVESTOR MEMBER
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
a California limited partnership
By: WNC & Associates, Inc.,
General Partner
By: _________________________
Xxxx X. Xxxxxx, Xx.,
President
Signatures continued on next page. . . .
59
SPECIAL MEMBER
WNC HOUSING, L.P.
By: WNC & ASSOCIATES, INC.
General Partner
By: __________________________
Xxxx X. Xxxxxx, Xx.,
President
60
EXHIBIT A TO OPERATING AGREEMENT
LEGAL DESCRIPTION
Parcel 1:
All that portion of Sections 9 and 16. Township 11 North, Range 2 East of the
Gila and Salt River Base and Meridian, Yavapai County, Arizona, described as
follows:
BEGINNING at the corner common to Lots 635,634,628 and 629 of SPRING VALLEY UNIT
II as recorded in Book 16 of Maps, Pages 72 through 74 inclusive, said point
being a 1/2 inch pipe, no cap or tag; thence North 79(Degree)27'15" West. 81.81
feet along the Northerly line of Xxxx 000-000 xx xxxx XXXXXX XXXXXX XXXX XX to a
1/2 inch rebar, no cap or tag; thence North 79(Degree)47'14" West, 77.55 feet
along said line to a 1/2 inch rebar, no cap or tag; thence North
79(Degree)21'01" West, 127.18 feet more or less along said line to the Northerly
corner common to Xxx 000 xx xxxx XXXXXX XXXXXX XXXX XX and Xxx 00 xx XXXXXX
XXXXXX XXXX X as recorded in Book 14 of Maps, Page 4, records of Yavapai County,
Arizona, said point being marked by a 1/2 inch rebar, no cap or tag; thence
North 79(Degree)32'48" West, 81.94 feet along the Northerly line of Lots 12 and
11 of said SPRING VALLEY UNIT I to a 1/2 inch rebar, no cap or tag; thence North
79(Degree)36'55" West, 22.59 feet along said line to a 1/2 inch rebar, capped
L.S. 24522; thence North 59(Degree)18'17" West, 114.51 feet along the Northerly
line of Xxxx 00-0 xx xxxx XXXXXX XXXXXX XXXX X to a 1/2 inch rebar capped L.S.
22776, to the TRUE POINT OF BEGINNING; thence North 59(Degree)18'17" West, 74.38
feet along said line to a 1/2 inch rebar, no cap or tag; thence North
59(Degree)21'25" West, 69.91 feet along said line to a 1/2 inch rebar, no cap or
tag; thence North 59(Degree)22'34" West, 70.02 feet along said line to a 1/2
inch rebar, no cap or tag; thence North 59(Degree)19'26" West, 70.13 feet along
said line to a 1/2 inch rebar, no cap or tag; thence North 59(Degree)15'13"
West, 7.55 feet along said line to a 1/2 inch rebar capped L.S. 24522; (said
point being the most Southerly corner of the Spring Valley Manor parcel as
described in Book 3490 of Official Records, Page 772, records of Yavapai County,
Arizona); thence North 30(Degree)42'10" East (Basis of Bearing), 231.48 feet
along the Easterly line of said Spring Valley Manor parcel and Parcel "A" as
recorded in Book 29 of Land Surveys, Page 97, records of Yavapai County,
Arizona, said point being marked by a 1/2 inch rebar capped L.S. 24522; thence
North 13(Degree)16'58" West, 130.62 feet along said line to a 1/2 inch rebar
capped L.S. 24522; thence North 37(Degree)00'03" East, 103.67 feet more or less
along said line to a point on the Southerly line of Lot 164 of said SPRING
VALLEY UNIT I, said point being marked by a 1/2 inch rebar capped L.S. 24522;
thence South 53(Degree)15'47" East 121.58 feet along the Southerly line of
Lots164-166 of said SPRING VALLEY UNIT I to a 1/2 inch rebar, no cap or tag;
thence South 53(Degree)17'22" East, 63.18 feet along said line to a 1/2 inch
rebar capped L.S. 24522; thence South 79(Degree)56'16" East, 25.00 feet along
the Southerly line of Xxxx 000 xxx 000 xx xxxx XXXXXX XXXXXX XXXX X to a 1/2
inch rebar, no cap or tag; thence South 80(Degree)22'42" East, 72.46 feet along
said line to a 1/2 inch rebar capped L.S. 22778; thence South 10(Degree)37'52"
A-1
West, 273.67 feet to a 1/2 inch rebar capped L.S.22776; thence South
29(Degree)53'24" West, 186.77 feet to the TRUE POINT OF BEGINNING.
EXCEPTING all gas, oil metal and mineral rights as reserved to the State of
Arizona in Patent to said land.
Reserving unto the Grantor, its heirs and assigns, an easement for ingress,
egress and utilities over the following described portion:
BEGINNING at the corner common to Lots 635, 634, 628 and 629 of SPRING VALLEY
UNIT II as recorded in Book 16 of Maps, Pages 72 through 74 inclusive, records
of Yavapai County, Arizona, said point being a 1/2 inch pipe, no cap or tag;
thence North 79(Degree)27'15" West, 81.81 feet along the Northerly line of
Lots629-632 of said SPRING VALLEY UNIT II to a 1/2 inch rebar, no cap or tag;
thence North 79(Degree)47'14" West, 77.55 feet along said line to a 1/2 inch
rebar, no cap or tag; thence North 79(Degree)21'01" West, 127.18 feet more or
less along said line to the Northerly corner common to Xxx 000 xx xxxx XXXXXX
XXXXXX XXXX XX and Xxx 00 xx XXXXXX XXXXXX XXXX X as recorded in Book 14 of
Maps, Page 4, records of Yavapai County, Arizona, said point being marked by a
1/2 inch rebar, no cap or tag; thence North 79(Degree)32'48" West, 81.94 feet
along the Northerly line of Lots 12 and 11 of said SPRING VALLEY UNIT I to a 1/2
inch rebar, no cap or tag; thence North 79(Degree)36'55" West, 22.59 feet along
said line to a 1/2 inch rebar capped L.S. 24522; thence North 59(Degree)18'17"
West, 114.51 feet along the Northerly line of Xxxx 00-0 xx xxxx XXXXXX XXXXXX
XXXX X to a 1/2 inch rebar capped L.S. 22776; thence North 29(Degree)53'24"
East, 111.09 feet to a point on a non tangent curve concave to the Southeast
having a radius of 132.00 feet and the TRUE POINT OF BEGINNING; thence
Southwesterly along the arc of said curve 16.00 feet, through a central angle of
06(Degree)56'46", having a chord bearing of South 76(Degree)05'38" West and a
chord distance of 15.99 feet; thence South 79(Degree)34'01" West, 102.44 feet to
the beginning of a tangent curve concave to the South having a radius of 132.00
feet; thence Westerly along the arc of said curve 94.59 feet through a central
angle of 41(Degree)03'24" to a point on the Northerly line of Xxx 0 xx xxxx
XXXXXX XXXXXX XXXX X; thence North 59(Degree)22'34" West, 37.54 feet along the
Northerly line of Xxxx 0-0 xx xxxx XXXXXX XXXXXX XXXX X TO A 1/2 inch rebar, no
cap or tag; thence North 59(Degree)19'26" West, 70.13 feet along said line to a
1/2 inch rebar, no cap or tag; thence North 59(Degree)15'13" West, 7.55 feet
along said line to a 1/2 inch rebar capped L.S. 24522, to a point on the
Easterly line of said SPRING VALLEY MANOR parcel; thence North 30(Degree)42'10"
East, 50.00 feet, along said Easterly line; thence South 59(Degree)15'13" East,
7.53 feet; thence South 59(Degree)13'26" East, 70.13 feet; thence South
59(Degree)22'34" East, 37.54 feet to the beginning of a tangent curve concave to
the South having a radius of 82.00 feet; thence Easterly along the arc of said
curve 58.76 feet through a central angle of 41(Degree)03'24"; thence North
79(Degree)34'01" East, 102.44 feet to the beginning of a tangent curve concave
to the Southeast having a radius of 82.00 feet; thence Northeasterly along the
arc of said curve 59.10 feet through a central angle of 41(Degree)17'35" to the
beginning of a curve concave to the Northwest having a radius of 125.00 feet;
thence Northeasterly along the arc of said curve 25.92 feet through a central
angle of 11(Degree)52'51" to a point on the Easterly line of the SPRING VALLEY
A-2
TERRACE parcel described herein; thence South 10(Degree)37'52" West, 28.61 feet,
along said Easterly line; thence South 29(Degree)53'24" West, 75.68 feet along
said Easterly line, to the TRUE POINT OF BEGINNING.
Parcel 2:
An easement for ingress and egress as created in Book 3490 of Official Records,
Page 772, records of Yavapai County, Arizona, over the Southerly 50.71 feet as
measured along the most Westerly line and over the following described parcel:
Lot "A" as recorded in Book 29 of Land Surveys, Page 97, records of Yavapai
County, Arizona, located in Sections 9 and 16, Township 11 North, Range 2 East,
Gila and Salt River Meridian, Yavapai County, Arizona, described as follows:
BEGINNING at the Northwest corner of said Section 16, a G.L.O. brass cap
monument; thence North 81(Degree)25'52" East, 689.86 feet to a found 1/2 inch
rebar capped L.S. 24522 and the TRUE POINT OF BEGINNING; thence North
78(Degree)58'54" East, 111.09 feet to a found 1/2 inch rebar capped L.S. 24522;
thence North 20(Degree)28'02" West, 42.67 feet to a found 1/2 inch rebar capped
L.S. 24522; thence North 50(Degree)33'20" West, 178.71 feet to a found 1/2 inch
rebar capped L.S. 24522; thence South 82(Degree)39'07" West, 49.35 feet to the
beginning of a non tangent curve concave to the West, having a radius of 305.90.
Said point being marked by a found 1/2 inch rebar capped L.S. 24522; thence
Northerly along the arc of said curve 78.92 feet, through a central angle of
14(Degree)46'54", having a chord bearing North 15(Degree)20'19" West and a chord
of 78.70 feet to a found 1/2 inch rebar, no cap or tag; thence North
67(Degree)52'53" East, 147.20 feet along the Southerly line of Xxxx 000 xxx 000,
Xxxxxx Xxxxxx, according to the plat of record in Book 14 of Maps, Page 4,
records of Yavapai County, Arizona, to a 1/2 inch rebar capped L.S. 22776;
thence South 53(Degree)15'06" East, 280.19 feet along the Southerly line of Lots
159 through 162 of said Spring Valley to a found 1/2 inch rebar, no cap or tag;
thence South 53(Degree)15'06" East, 69.73 feet along the Southerly line of Lot
163 of said Spring Valley to a found 1/2 inch rebar, no cap or tag; thence South
53(Degree)28'38" East, 30.31 feet along the Southerly line of Lot 164 of said
Spring Valley to a found 1/2 inch rebar capped L.S. 24522; thence South
37(Degree)00'03" West, 103.67 feet to a found 1/2 inch rebar capped L.S. 24522;
thence South 13(Degree)16'58" East, 130.62 feet to a found 1/2 inch rebar capped
L.S. 24522; thence South 30(Degree)42'10" West, 231.48 feet (basis of bearing)
to a poing on the Northerly line of Lot 5 of said Spring Valley to a found 1/2
inch rebar capped L.S. 24522; thence North 59(Degree)28'20" West, 62.66 feet
along said line to a found 1/2 inch rebar, no cap or tag; thence North
61(Degree)19'15" West, 17.86 feet along the Northerly line of Lot 4 of said
Spring Valley to the beginning of a nontangent curve concave to the Southwest
having a radius of 1146.20 and being marked by a found 1/2 inch rebar capped
L.S. 24522; thence Northwesterly along the arc of said curve 138.27 feet,
through a central angle of 06(Degree)54'42", having a chord bearing of North
62(Degree)46'41" West and a chord of 138.17 feet to the beginning of a
nontangent curve concave to the Southwest having a radius of 1146.20. Said point
being marked by a found 1/2 inch rebar, no cap or tag; thence Northwesterly
along the arc of said curve 76.91 feet, through a central angle of
03(Degree)50'40", having a chord bearing of North 67(Degree)43'27" West and a
A-3
chord of 76.89 feet to the beginning of a nontangent curve concave to the
Southwest, having a radius of 1146.20. Said point being marked by a found 1/2
inch rebar, no cap or tag; thence Northwesterly along the arc of said curve
78.62 feet, through a central angle of 03(Degree)55'48", having a chord bearing
of North 72(Degree)26'26" West and a chord of 78.60 feet to a point on the
Easterly right-of-way of Spring Lane, according to the plat of record as
recorded in Book 28, Page 23, records of Yavapai County, Arizona. Said point
being the beginning of a nontangent curve concave to the West, having a radius
of 186.30 and being marked by a found 1/2 inch rebar capped L.S. 24522; thence
Northerly along said right-of-way along the arc of said curve 50.68 feet through
a central angle of 15(Degree)35'12", having a chord bearing of North
05(Degree)54'22" East and a chord of 50.52 feet to the beginning of a nontangent
curve concave to the Southwest, having a radius of 1196.20. Said point being
marked by a found 1/2 inch rebar capped L.S. 24522; thence Southeasterly along
the arc of said curve 93.76 feet, through a central angle of 04(Degree)29'27",
having a chord bearing of South 72(Degree)06'24" East and a chord of 93.74 feet
to a found 1/2 inch rebar capped L.S.24522; thence North 22(Degree)59'36" East,
172.36 feet to the TRUE POINT OF BEGINNING.
A-4
EXHIBIT B TO OPERATING AGREEMENT
FORM OF LEGAL OPINION
WNC Housing Tax Credit Fund VI, L.P., Series 5
WNC & Associates, Inc.
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
RE: SPRING VALLEY TERRACE APARTMENTS, L.L.C.
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the investment by WNC Housing Tax Credit Fund VI, L.P., Series 5, a
California Investor Membership (the "Investor Member") in Spring Valley Terrace
Apartments, L.L.C. (the "Company"), an Arizona limited liability company formed
to own, develop, construct, finance and operate an apartment complex for
low-income persons (the "Apartment Complex") in Mayer, Arizona. The managing
member of the Company is Spring Valley Terrace, Inc., an Arizona nonprofit
corporation (the "Managing Member").
In rendering the opinions stated below, we have examined and relied upon the
following:
(i) [Articles of Organization of the Company]
(ii) [Amended and Restated Operating Agreement of
the Company] (the "Operating Agreement");
(iii) A preliminary reservation letter from [State
Allocating Agency] (the "State Agency") dated
_________, 199___ conditionally awarding
$_______________ in Federal tax credits annually for
each of ten years and $_______________ in California
tax credits annually for each of four years for the
Apartment Complex; and
(iv) Such other documents, records and instruments as
we have deemed necessary in order to enable us to
render the opinions referred to in this letter.
B-1
For purposes of rendering the opinions stated below we have assumed that, in
those cases in which we have not been involved directly in the preparation,
execution or the filing of a document, that (a) the document reviewed by us is
an original document, or a true and accurate copy of the original document, and
has not been subsequently amended, (b) the signatures on each original document
are genuine, and (c) each party who executed the document had proper authority
and capacity.
Based on the foregoing we are of the opinion that:
(a) ________________________, one of the Managing Members, is a
[corporate/partnership] duly formed and validly existing under the laws of the
State of _____________________ and has full power and authority to enter into
and perform its obligations under the Operating Agreement.
_____________________, one of the other Managing Members, is a
[corporation/partnership] duly formed and validly existing under the laws of the
State of __________________ and has full power and authority to enter into and
perform its obligations under the Operating Agreement.
(b) The Company is and after the [filing or execution] of the Amended
[Operating Agreement] [Articles of Organization] will continue to be a limited
liability company duly formed and validly existing under the laws of the State
of Arizona.
(c) The Company is and after the filing of the Amended [Operating
Agreement] [Article of Organization] will continue to be validly existing under
and subject to the laws of Arizona with full power and authority to own,
develop, [construct/rehabilitate], finance and operate the Apartment Complex and
to otherwise conduct business under the Operating Agreement.
(d) Execution of the Amended and Restated Operating Agreement by the
Managing Member(s) has been duly and validly authorized by or on behalf of the
Managing Member(s) and, having been executed and delivered in accordance with
its terms, the Amended and Restated Operating Agreement constitutes the valid
and binding agreement of the Managing Member(s), enforceable in accordance with
its terms.
(e) The execution and delivery of the Amended and Restated Operating
Agreement by the Managing Members does not conflict with and will not result in
a breach of any of the terms, provisions or conditions of any agreement or
instrument known to counsel to which any of the Managing Members or the Company
is a party or by which any of them may be bound, or any order, rule, or
regulation to be applicable to any of such parties of any court or governmental
body or administrative agency having jurisdiction over any of such parties or
over the property.
(f) To the best of counsel's knowledge, after due inquiry, there is no
litigation or governmental proceeding pending or threatened against, or
involving the Project, the Company or any Managing Member which would materially
B-2
adversely affect the condition (financial or otherwise) or business of the
Project, the Company or any of the Members of the Company prior to or following
execution and filing of the Operating Agreement, or the Investor Member.
(g) Upon the execution and delivery of the Amended and Restated
Operating Agreement providing for the admission of the Investor Member as
substitute Investor Member [and the filing] the Investor Member will be the
non-managing Members of the Company entitled to all of the rights of
non-managing members under the Operating Agreement. Except as described in the
Operating Agreement, no person is a member of or has any legal or equitable
interest in the Company, and all former members of record or known to counsel
have validly withdrawn from the Company and have released any claims against the
Company arising out of their participation as members therein.
(h) Liability of the Investor Member for obligations of the Company is
limited to the amount of the Investor Member's capital contributions required by
the Operating Agreement.
(i) Neither the Managing Member(s) of the Company nor the Investor
Member will have any liability for the Mortgage Note or the Mortgage Loan
represented thereby (as those terms are defined in the Operating Agreement), and
the lender of the Mortgage Loan will look only to its security in the Project
for repayment of the Mortgage Loan.
(j) The Company owns a fee simple interest in the Project.
(k) To the best of our actual knowledge and belief, after due inquiry,
the Company has obtained all consents, permissions, licenses, approvals, or
orders required by all applicable governmental or regulatory agencies for the
development, construction and operation of the Project, and the Project conforms
to all applicable Federal, state and local land use, zoning, health, building
and safety laws, ordinances, rules and regulations.
(l) The Project has obtained a preliminary reservation of low income
housing tax credits ("LIHTC") from the State Agency. The final allocation of the
LIHTC and ultimately eligibility of the Project for such final allocation are
subject to a series of requirements which must be met, performed or achieved at
various times prior to and after such final allocation. Assuming all such
requirements are met, performed or achieved at the time or times provided by
applicable laws and regulations, the Project will qualify for LIHTC.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
B-3
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance or regulation
governing or pertaining to environmental matters, hazardous wastes, toxic
substances or the like.
We express no opinion as to any matter except those set forth above. These
opinions are rendered for use by the Investor Member and its legal counsel. We
understand that WNC Housing Tax Credit Fund VI, L.P., Series 5's legal counsel
will rely on this opinion in connection with federal income tax opinions to be
rendered by that firm. This opinion may not be delivered to or relied upon by
any other person or entity without our express written consent.
Sincerely,
--------------------
B-4
EXHIBIT C TO OPERATING AGREEMENT
CERTIFICATION AND AGREEMENT
CERTIFICATION AND AGREEMENT made as of the date written below by Spring
Valley Terrace Apartments, L.L.C., an Arizona limited liability company (the
"Company"), Spring Valley Terrace, Inc., an Arizona nonprofit corporation (the
"Managing Member") for the benefit of WNC Housing Tax Credit Fund VI, L.P.,
Series 5, a California limited partnership (the "Investor Member"), and WNC &
Associates, Inc. ("WNC").
WHEREAS, the Company proposes to admit the Investor Member as a
Investor Member thereof pursuant to an Amended and Restated Operating Agreement
of the Company (the "Operating Agreement"), in accordance with which the
Investor Member will make substantial capital contributions to the Company; and
WHEREAS, the Investor Member and WNC have relied upon certain
information and representations described herein in evaluating the merits of
investment by the Investor Member in the Company;
NOW, THEREFORE, to induce the Company to enter into the Amended and
Restated Operating Agreement and become a Investor Member of the Company, and
for $1.00 and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Company and the Managing Member hereby agree
as follows for the benefit of the Investor Member and WNC.
1. Representations, Warranties and Covenants of the Company and the
Managing Member
The Company and the Managing Member jointly and severally represent,
warrant and certify to the Investor Member and WNC that, with respect to the
Company, as of the date hereof:
1.1 The Company is duly organized and in good standing as a
limited liability company pursuant to the laws of the state of its formation
with full power and authority to own its apartment complex (the "Apartment
Complex") and conduct its business; the Company and the Managing Member have the
power and authority to enter into and perform this Certification and Agreement;
the execution and delivery of this Certification and Agreement by the Company
and the Managing Member have been duly and validly authorized by all necessary
C-1
action; the execution and delivery of this Certification and Agreement, the
fulfillment of its terms and consummation of the transactions contemplated
hereunder do not and will not conflict with or result in a violation, breach or
termination of or constitute a default under (or would not result in such a
conflict, violation, breach, termination or default with the giving of notice or
passage of time or both) any other agreement, indenture or instrument by which
the Company or any Managing Member is bound or any law, regulation, judgment,
decree or order applicable to the Company or any Managing Member or any of their
respective properties; this Certification and Agreement constitutes the valid
and binding agreement of the Company and the Managing Member, enforceable
against each of them in accordance with its terms.
1.2 The Managing Member has delivered to the Investor Member,
WNC or their affiliates all documents and information which would be material to
a prudent investor in deciding whether to invest in the Company. All factual
information provided to the Investor Member, WNC or their affiliates either in
writing or orally, did not, at the time given, and does not, on the date hereof,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they are made.
1.3 Each of the representations and warranties contained in
the Company Agreement is true and correct as of the date hereof.
1.4 Each of the covenants and agreements of the Company and
the Managing Member contained in the Amended and Restated Operating Agreement
has been duly performed to the extent that performance of any covenant or
agreement is required on or prior to the date hereof.
1.5 All conditions to admission of the Investor Member as
member of the Company contained in the Amended and Restated Operating Agreement
have been satisfied.
1.6 No default has occurred and is continuing under the
Amended and Restated Operating Agreement or any of the Project Documents (as
such term is defined in the Operating Agreement) for the Company.
1.7 The Managing Member agrees to take all actions necessary
to claim the Projected Tax Credit, including, without limitation, the filing of
Form(s) 8609 with the Internal Revenue Service.
1.8 No person or entity other than the Company holds any
equity interest in the Apartment Complex.
C-2
1.9 The Company has the sole responsibility to pay all
maintenance and operating costs, including all taxes levied and all insurance
costs, attributable to the Apartment Complex.
1.10 The Company, except to the extent it is protected by
insurance and excluding any risk borne by lenders, bears the sole risk of loss
if the Apartment Complex is destroyed or condemned or there is a diminution in
the value of the Apartment Complex.
1.11 No person or entity except the Company has the right to
any proceeds, after payment of all indebtedness, from the sale, refinancing, or
leasing of the Apartment Complex.
1.12 No Managing Member is related in any manner to the
Investor Member, nor is any Managing Member acting as an agent of the Investor
Member.
2. Miscellaneous
2.1 This Certification and Agreement is made solely for the
benefit of the Company, the Managing Member, WNC, and the Investor Member and
their respective successors and assignees, and no other person shall acquire or
have any right under or by virtue of this Agreement.
2.2 This Certification and Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, all of
which together shall constitute one and the same instrument.
2.3 Capitalized terms used but not defined in this
Certification Agreement shall have the meanings given to them in the Operating
Agreement.
C-3
IN WITNESS WHEREOF, this Certificate and Agreement is made and entered
into as of the day of _____________________, 1997.
COMPANY
SPRING VALLEY TERRACE APARTMENTS, L.L.C.
MANAGING MEMBER
SPRING VALLEY TERRACE, INC.
By: ________________________
Xxxxxx X. Xxxxxx,
President
C-4
EXHIBIT D TO THE OPERATING AGREEMENT
MANAGING MEMBER CERTIFICATION
This Managing Member Certification is being issued to WNC Housing Tax
Credit Fund VI, L.P., Series 5, ("WNC") by Spring Valley Terrace, Inc., an
Arizona nonprofit corporation Managing Member of Spring Valley Terrace
Apartments, L.L.C. an Arizona limited liability company ("Company") in
accordance with Section 7.2 of the Amended and Restated Operating Agreement of
the Company.
WHEREAS, WNC is scheduled to make a Capital Contribution to the
Company, however, the Amended and Restated Operating Agreement requires the
Managing Member of the Company to issue this Certification prior to WNC's
payment; and
WHEREAS, WNC shall rely on this Certification in evaluating the
continued merits of its investment in the Company;
NOW, THEREFORE, to induce WNC to make its scheduled Capital
Contribution to the Company, the Managing Member represents and warrants to WNC
that the following are true and correct as of the date written below:
(a) The Company is a duly organized limited liability company validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of its
Members.
(b) This Amended and Restated Operating Agreement and the Project
Documents are in full force and effect and neither the Company nor the Managing
Member is in breach or violation of any provisions thereof.
(c) Improvements will be completed in a timely and workmanlike manner
in accordance with all applicable requirements of the Mortgage Loan, all
applicable requirements of all appropriate governmental entities and the plans
and specifications of the Project, and all applicable governmental entities, as
such plans and specifications may be changed from time to time with the approval
of Washington Mutual Bank and Human Action for Chandler, an Arizona non-profit
corporation, dba Coordinated Community Services of Arizona and any applicable
governmental entities, if such approval shall be required.
(d) The Project is being operated in accordance with standards and
procedures which are prudent and customary for the operation of properties
similar to the Project.
D-1
(e) Additional improvements on the Project, if any, shall be completed
substantially in conformity with the Project Documents and any other
requirements necessary to obtain Completion of Construction.
(f) There shall be no direct or indirect personal liability of the
Company or of any of the Members for the repayment of principal or interest of
the Mortgage.
(g) The Company is in compliance with all construction and use codes
applicable to the Project and is not in violation of any zoning, environmental
or similar regulations applicable to the Project.
(h) All appropriate public utilities, including water, gas and
electricity, are currently available and will be operating properly for all
units in the Project at the time of first occupancy and throughout the term of
the Company.
(i) The Project has obtained, or will obtain before Permanent Mortgage
Commencement, and will maintain throughout the term of this Company Insurance
written by an Insurance Company.
(j) The Company owns the fee simple interest in the Project.
(k) The Construction Contract has been entered into between the Company
and the Contractor; no other consideration or fee shall be paid to the
Contractor other than amounts set forth in the Construction Contract or change
orders approved by the Managing Member.
(l) A builder's risk insurance policy in favor of the Company will be
and is in full force and effect until Completion of Construction.
(m) To the best of the Managing Member's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Project and (2) no aboveground or underground
storage tanks are now or have ever been located on or under the Project. The
Managing Member will not install or allow to be installed any aboveground or
underground storage tanks on the Project. The Managing Member covenants that the
Project shall be kept free of Hazardous Materials and shall not be used to
generate, manufacture, refine, transport, treat, store, handle, dispose of,
transfer, produce or process Hazardous Materials, except in connection with the
normal maintenance and operation of any portion of the Project. The Managing
Member shall comply, or cause there to be compliance, with all applicable
Federal, state and local laws, ordinances, rules and regulations with respect to
Hazardous Materials and shall keep, or cause to be kept, the Project free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The Managing Member must promptly notify the Investor Member and
the Special Member in writing (3) if it knows, or suspects or believes there may
be any Hazardous Substance in or around any part of the Project, any
D-2
Improvements constructed on the Project, or the soil, groundwater or soil vapor,
(4) if the Managing Member or the Company may be subject to any threatened or
pending investigation by any governmental agency under any law, regulation or
ordinance pertaining to any Hazardous Substance, and (5) of any claim made or
threatened by any Person, other than a governmental agency, against the Company
or Managing Member arising out of or resulting from any Hazardous Substance
being present or released in, on or around any part of the Project.
(n) The Managing Member has not executed and will not execute any
agreements with provisions contradictory to, or in opposition to, the provisions
of this Agreement.
(o) The Company will allocate to the Investor Member the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(p) As of the date hereof, at funding of the Construction Loan and upon
Permanent Mortgage Commencements, Insurance will be maintained with Company as
named insured and Investor Member and Special Member as additional insured.
(q) No charges or encumbrances exist with respect to the Project other
than those which are created or permitted by the Project Documents or are noted
or excepted in the title policy for the Project.
(r) The buildings on the Project site shall constitute a "qualified
low-income housing project" as defined in Section 42(g) of the Code, and as
amplified by the Treasury Regulations thereunder. In this connection, not later
than December 31 of the first year in which the Members elect the LIHTC to
commence in accordance the Code, the Project will satisfy the Minimum Set-Aside
Test.
(s) No event or proceeding, including, but not limited to, any (A)
legal actions or proceedings before any court, commission, administrative body
or other governmental authority, and (B) acts of any governmental authority
having jurisdiction over the zoning or land use laws applicable to the Project,
has occurred the continuing effect of which has: (i) materially or adversely
affected the operation of the Company or the Project (except to the extent that
funds are available to the Company to correct or cure such event or proceeding);
(ii) materially or adversely affected the ability of the Managing Member to
perform its obligations hereunder or under any other agreement with respect to
the Project; or (iii) prevented the completion of construction of the
improvements in substantial conformity with the Project Documents, other than
legal proceedings which have been bonded against (or as to which other adequate
financial security has been issued) in a manner as to indemnify the Company
against loss; provided that the foregoing does not apply to matters of general
applicability which would adversely affect the Company, the Managing Member,
Affiliates of the Managing Member or the Project only insofar as they or any of
them are part of the general public.
(t) Neither the Company nor Spring Valley Terrace, Inc. have any
liabilities, contingent or otherwise, which have not been disclosed in
D-3
writing to the Investor Member and which in the aggregate do not affect the
ability of the Investor Member to obtain the anticipated benefits of its
investment in the Company.
(u) The Managing Member, and/or Human Action for Chandler, an Arizona
non-profit corporation, dba Coordinated Community Services of Arizona as the
guarantor, in the aggregate, has and shall maintain a net worth equal to at
least $1,000,000.
Capitalized terms used but not defined in this Managing Member
Certification shall have the meanings given to them in the Operating Agreement.
IN WITNESS WHEREOF, the undersigned have set their hands to this
Managing Member Certification this day of 1997.
SPRING VALLEY TERRACE, INC.
By: _________________________
Xxxxxx X. Xxxxxx,
President
D-4
EXHIBIT E TO PARTNERSHIP AGREEMENT
FORM OF COMPLETION CERTIFICATE
(to be used when construction [rehabilitation] completed)
COMPLETION CERTIFICATE
The undersigned, an architect duly licensed and registered in the State of
Arizona, has prepared final working plans and detailed specifications for Spring
Valley Terrace Apartments, LLC, a Arizona limited partnership (the
"Partnership"), between WNC Housing Tax Credit Fund VI, L.P., Series 5, a
California limited partnership ("Limited Partner") and the Partnership in
connection with the construction [rehabilitation] of improvements on certain
real property located in Mayer, Yavapai County, Arizona (the "Improvements").
The undersigned hereby certifies (i) that the Improvements have been completed
in accordance with the aforesaid plans and specifications, (ii) that a permanent
certificate of occupancy and all other permits required for the continued use
and occupancy of the Improvements have been issued with respect thereto by the
governmental agencies having jurisdiction thereof, (iii) that the Improvements
are in compliance with all requirements and restrictions of all governmental
authorities having jurisdiction over the Improvements, including, without
limitation, all applicable zoning, building, environmental, fire, and health
ordinances, rules and regulations and (iv) that all contractors, subcontractors
and workmen who worked on the Improvements have been paid in full except for
normal retainages and amounts in dispute.
-----------------------------------
Project Architect
Date: ____________________________
Confirmed by:
-----------------------------------
General Partner
Date: ____________________________
E-1
EXHIBIT F TO THE PARTNERSHIP
[ACCOUNTANT'S CERTIFICATE]
[Accountant's Letterhead]
_______________, 199____
WNC Housing Tax Credit Fund VI, L.P., Series 5
0000 Xxxxxxx Xxx., Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
RE: Partnership
Certification as to Amount
of Eligible Tax Credit Base
Gentlemen:
In connection with the acquisition by WNC Housing Tax Credit Fund VI, L.P.,
Series 5, a California limited partnership (the "Limited Partner") of a limited
partnership interest in Spring Valley Terrace Apartments, LLC, an Arizona
limited partnership (the "Partnership") which owns a certain parcel of land
located in Mayer, Yavapai County, Arizona, and improvements thereon (the
"Project"), the Limited Partner has requested our certification as to the amount
of low-income housing tax credits ("Tax Credits") available with respect to the
Project under Section 42 of the Internal Revenue Code of 1986, as amended (the
"Code"). Based upon our review of [the financial information provided by the
Partnership] of the Partnership, we are prepared to file the Federal information
tax return of the Partnership claiming annual Tax Credits in the amount of
$_______________, which amount is based on an eligible basis (as defined in
Section 42(d) of the Code) of the Project of $________________, a qualified
basis (as defined in Section 42(c) of the Code) of the Project of
$_________________ and an applicable percentage (as defined in Section 42(b) of
the Code) of _____%.
Sincerely,
-------------------------
F-1
EXHIBIT G TO THE PARTNERSHIP AGREEMENT
"Contractor Letterhead"
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"Date"
Spring Valley Terrace Apartments, LLC
c/o WNC & Associates, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Re: Spring Valley Terrace Apartments, LLC
Dear Ladies and Gentlemen:
The undersigned, Western Plains Development Corp., (hereinafter referred to as
"Contractor"), has furnished or has contracted to furnish labor, services and/or
materials (hereinafter collectively referred to as the "Work") in connection
with the improvement of certain real property known as Spring Valley Terrace,
located in Mayer, Yavapai County, Arizona (hereinafter known as the "Property").
Contractor makes the following representations and warranties regarding Work at
the Property.
Work on said Property has been performed and completed in accordance with
the plans and specifications for the property.
Contractor acknowledges that all amounts owed pursuant to the contract for
Work performed for the Property is paid in full.
Contractor acknowledges that Spring Valley Terrace Apartments, LLC is not
in violation with terms and conditions of the contractual documents
related to the property.
Contractor warrants that all parties who have supplied Work for
improvement of said property have been paid in full.
Contractor acknowledges the contract to be paid in full and releases any
lien or right to lien against the above property.
The undersigned has personal knowledge of the matters stated herein and is
authorized and fully qualified to execute this document on behalf of the
Contractor.
EXECUTED BY CONTRACTOR:
Western Plains Development Corp.
By:_________________________________________
Title:________________________________________
G-1
REPORT OF OPERATIONS
QUARTER ENDED:____________________________,199X
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LOCAL PARTNERSHIP:
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GENERAL PARTNER:
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FIRM NAME:
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ADDRESS:
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CITY, STATE, ZIP:
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PHONE:
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PROPERTY NAME:
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ADDRESS:
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CITY, STATE, ZIP:
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RESIDENT MANAGER:
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PHONE:
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ACCOUNTANT:
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FIRM:
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ADDRESS:
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CITY, STATE, ZIP:
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PHONE:
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MANAGEMENT COMPANY
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ADDRESS:
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CITY, STATE, ZIP:
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PHONE:
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CONTACT:
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OCCUPANCY INFORMATION
A. Number of Units_____ Number of RA Units_____ Number of Section 8 Tenants ____
B. Occupancy for the Quarter has: Increased ____ Decreased_____
Remained the Same _____
C. Number of: Move-Ins ______ Move-Outs __________ % of Occupancy ______
D. Average length of tenant residency: 1-6 months ______ 6-12 months ______
1-3 years ______ Over 4 years_____
E. Number of Basic rent qualified applicants on waiting list: ________
F. If the apartments are less than 90% occupied, please explain why and
describe what efforts are being made to lease-up remaining units.
___________________________________________________________________________
G. On site manager: Full Time__________ Part Time____________.
If part-time, the number of hours per week_____________.
H-1
OPERATIONAL INFORMATION
Rent Schedule and Increases from Previous Quarter
Number Monthly Rent Rent Increases Effective
of Units Basic / Market Amount Percent Date
1 Bedroom ________ ______________ _________________ ________
2 Bedroom ________ ______________ _________________ ________
3 Bedroom ________ ______________ _________________ ________
PROPOSED MAINTENANCE
Completed Funded by
Type Description or Operations or Amount
Planned Reserves
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Interior Painting
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Exterior Painting
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Siding
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Roofing
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Drainage
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Paving
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Landscaping
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Playground
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Community Room
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Laundry Room
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Common Areas
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Carpet
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Appliances
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Lighting
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Other
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Please describe in detail any major repairs:
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H-2
CONDITION OF PROPERTY
THE OVERALL APPEARANCE OF THE BUILDING(S) IS:
Excellent Good Fair Bad
THE OVERALL APPEARANCE OF THE GROUNDS IS:
Excellent Good Fair Bad
EXTERIOR CONDITION (Please Check Appropriate Box)
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Type of Condition Excellent Good Fair Problems/Comments
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Signage
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Parking Lots
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Office/Storage
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Equipment
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Community Building
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Laundry Room
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Benches/Playground
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Lawns, Plantings
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Drainage, Erosion
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Carports
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Fences
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Walks/Steps/Guardrails
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Lighting
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Painting
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Walls/Foundation
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Roof/Flashing/Vents
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Gutters/Splashblocks
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Balconies/Patios
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Doors Windows/Screens
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Elevators
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INTERIOR CONDITION
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Stairs
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Flooring
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Doors/Cabinets/Hardware
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Drapes/Blinds
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Interior Painting
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Refrig/Stoves/Sinks
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Bathroom/Tubs/Showers
Toilets
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H-3
FINANCIAL STATUS
A. Replacement Reserve is: Fully-funded Under-funded Amount
(complete attached schedule)
Tax/Insurance Escrow is: Fully-funded Under-funded Amount
(complete attached schedule)
Property is operating at a: Surplus Deficit Amount
If deficit, General Partner funding? Yes No Amount
Mortgage Payments are: On Schedule Delinquent Amount
Are the taxes current? Yes No
(please provide copy of paid tax xxxx)
Is the insurance current? Yes No Renewal Date
(please provide copy of yearly renewal)
B. Please note and explain any significant changes in the following:
Administrative Expense Increase Decrease Amount
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Repairs/Maintenance Expense Increase Decrease Amount
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Utility Expense Increase Decrease Amount
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Taxes/Insurance Expense Increase Decrease Amount
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C. Do you anticipate making a return to owner distribution? Yes No
Explanation:
------------------------------------------------------------------------
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D. Please explain in detail any change in the financial condition:
------------------------------------------------------------------------
------------------------------------------------------------------------
E. Any insurance claims files? Yes______ No______
If yes, please explain:
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H-4
SCHEDULE OF RESERVES
Replacement Tax & Insurance Other Total
Beginning Balance:
Deposits:
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
Total Deposits
----------- ---------- ------- -------
Authorized Disbursements:
Description:
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
Total Disbursements: ----------- ---------- -------- ------
Ending Balance: (1) ----------- ---------- -------- ------
Required Balance: ----------- ---------- -------- ------
Over/under funding: ----------- ---------- -------- ------
(1) Must agree with amount shown on the balance sheet.
Prepared By: Date:
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Firm: Telephone:
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Reminder: Please include the following documents:
1. Completed Report of Operations
2. Balance Sheet
3. Statement of Income & Expenses
4. Rent roll for quarter ending
5. Tax Credit Compliance Report
H-5
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
Fund: Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
Property Name: [ ] 20/50 or [ ] 40/60 Election
Address: Does the 51% average apply? [ ] Y [ ] N
Deeper Set-Aside __% @ 50% AMI
County:
Management Company
[ ] Multi-Family Contact Person:
[ ] Elderly
24 Number of Units Phone #
Number of Exempt
Units
LIHTC Project#
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Gross Move-In
Unit First Time Move-In No. of No. in Income Income
No. Tenant Name Date Bdrms Sq. Ft. Set-Aside Unit Move-In Limits
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BIN # Certificate of Occupancy Date:
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BIN # Certificate of Occupancy Date:
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BIN # Certificate of Occupancy Date:
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H-6 (a)
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
(CONTINUED)
Tenant Tenant
Income Income Asset Unit Rent Tenant Utility
Qualified Verification Verification Rent Subsidy Payment Allowance
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H-6(b)
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
(CONTINUED)
Tenant Tenant Overall
Gross Maximum Rent Tenant
Rent Rent Qualified Eligible
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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H-6(c)
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
Quarter Ending: Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
[ ] 20/50 or [ ] 40/60 Election
Does the 51% average apply? [ ] Y [ ] N
Deeper Set-Aside : ( List Details)
County: Allocation: Management Company:
Pre-1990 (Rent based on number of persons) Contact Person:
Elected to change No. Bedrm
Post-1989 (Based on number of Bedroom)
[ ] Multi-Family [ ] Elderly Phone No.
Number of Units
Number of Exempt Units Fax No.
Prepared by:
LIHTC Project#
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Gross Annual
Unit Tenant Move-In No. Of Inc. Set- No. In Annual Income
No. Name Date Bdrms Pct. Aside Unit Income Limits
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H-7 (a)
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
(CONTINUED)
Annual Tenant Less
Recert. Income Income Assets Unit Rent Tenant
Date Qualified Verified Verified Rent Subsidy Payment
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H-7(b)
Tenant Tenant Overall
Utility Gross Maximum Rent Tenat
Allow. Rent Rent Qualified Eligible
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H-7(c)
Tenant Tax Credit Compliance Audit
Document Transmittal Checklist
Unit Number Property Name Date
Tenant Name Completed By:
Initial _________ Annual________
Check Box for Type of Certification Management Company
This Section For WNC Use Only
Check Documents Being Sent
Received. Reviewed
___Internal Checklist or worksheet
___Initial - Rental Application/Rental Agreement
___Initial - Questionnaire of Income/Assets
___Recertification - Questionnaire of Income/Assets
___Recertification - Addendum to Lease
___Employment Verification
___Employment Termination Verification
___Military Verification
___Verification of Welfare Benefits
___Verification of Social Security Benefits
___Verification of Disability Benefits
___Unemployment Verification
___Verification of Unemployment Compensation
___Verification Worksmen Compensation
___Retirement/Annuities Verification
___Verification of Veterans Pension
___Verification of Child Support
___Verification of Alimony Support
___Disposed of Assets Last 2 yrs.
___Real Estate
___Investment
___Assets Verifications (savings, stocks etc.)
___Trusts/with Current Tax Return
___Lump Sum Settlements
___Notarized Affidavit of Support
___Certification of Handicap
___Notarized Self-Employed-Tax Return
___Notarized statement of no income
___Tenant Certification
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This Section For WNC Use Only
YES NO
Are all required forms completed?
Are all required forms dated?
Did the Manager and Tenant sign all documents?
Third party verification of income completed?
Third party verification of assets completed?
Are verifications completed for all members 18 yrs. and
over?
Did all the members of the household 18 yrs. and
over sign all documents?
Is lease completed with a minimum of six months/ SRO
monthly?
Addendum completed?
Tenant Certification completed?
Are all members of the household full-time students?
Is utility allowance correct?
Is correct income limit being used?
Is correct rent limit being used?
For tenants with no income
Was notarized statement of no income obtained with tax
return?
or Were all sources verified (AFDC, Unemployment,
Soc. Sec., Disability)?
H-8
TAX CREDIT COMPLIANCE MONITORING:
ANNUAL CERTIFICATION
As General Partner of Spring Valley Terrace Apartments, LLC, I hereby
certify as to the following:
1. Spring Valley Terrace Apartments, LLC owns a h8 unit project ("Project")
in p16.
2. An annual income certification (including supporting documentation) has
been received from each tenant. The income certification reflects that the
tenant's income meets the income limitation applicable to the Project pursuant
to Section 42(g)(1) of the Internal Revenue Code ("Code").
3. The Project satisfies the requirements of the applicable minimum set
aside test as defined in Section 42(g)(1) of the Code.
4. Each unit within the Project is rent restricted as defined in Section
42(g)(2)of the Code.
5. Each unit in the Project is available for use by the general public and
not for use on a transient basis.
6. Each building in the Project is suitable for occupancy in accordance
with local health, safety, and building codes.
7. During the preceding calendar year, there had been no change in the
eligible basis, as defined in Section 42(d)of the Code, of any building within
the Project.
8. All common area facilities included in the eligible basis of the
Apartment Complex are provided to the tenants on a comparable basis without a
separate fee to any tenant in the Project.
9. During the preceding calendar year when a unit in the Project became
vacant reasonable attempts were made to rent that unit to tenants whose incomes
met the income limitation applicable to the Project pursuant to Section 42(g)(1)
of the Code and while that unit was vacant no units of comparable or smaller
size were rented to tenants whose income did not meet the income limitation
applicable to the Project pursuant to Section 42(g)(1) of the Code.
10. If the income of a tenant in a unit increased above the limit allowed
in Section 42 (g)(2)(D)(ii), then the next available unit of comparable or
smaller size was rented to tenants whose incomes met the income limitation
applicable to the Project pursuant to Section 42(g)(1) of the Code.
IN VERIFICATION OF THE FOREGOING ENCLOSED HEREWITH IS A COPY OF THE ANNUAL
INCOME CERTIFICATION RECEIVED FROM EACH TENANT IN THE PROJECT. UPON REQUEST I
WILL PROVIDE COPIES OF ALL DOCUMENTATION RECEIVED FROM THE TENANT TO SUPPORT
THAT CERTIFICATION.
I declare under penalty of perjury under the law of the State of
Arizona that the foregoing is true and correct.
Executed this day of at , .
------------------------------------
H-9
Calculation of Debt Service Coverage
Month 1 Month 2 Month 3
------------ ------------ ------------
INCOME
Gross Potential Rent
Other Income
Vacancy Loss
------------ ------------ ------------
Adjusted Gross Income
------------ ------------ ------------
OPERATING EXPENSES
Utilities
Maintenance
Management Fee
Administration
Insurance
Real Estate Taxes
Other Expenses
------------ ------------ ------------
Total Operating Expenses
------------ ------------ ------------
Net Operating Income (1)
Accrual adjustments for:
R/E Taxes
Insurance
Tax/ Accounting
Other
Replacement Reserves
============ ============ ============
Income for DSC Calculation
============ ============ ============
------------ ------------ ------------
Stabilized Debt Service
------------ ------------ ------------
------------ ------------ ------------
Debt Service Coverage (2)
------------ ------------ ------------
Please submit this form along with the following supporting
documentation:
Monthly Financial Reports (income statement, balance sheet, general ledger
and rent rolls) Operating Budget Copies of bank statements.
(1) This number should reconcile easily with the monthly financial
statements
(2) The ratio between the Income for DSC calculation and Stabilized Debt
Service. As example, a 1.15 DSC means that for every $1.00 of Stabilized Debt
Service required to be paid there must be $1.15 of Net Operating Income
available.
H-10
