As of July 31, 1999
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Re: Modification of an existing $70,000,000.00 guidance line from Guaranty
Federal Bank, F.S.B. ("Lender") to Legacy/Monterey Homes L.P., an
Arizona corporation ("Borrower"); such loan and other indebtedness
being guaranteed by Meritage Corporation, a Maryland corporation,
MTH-Texas GP, Inc., an Arizona corporation and MTH-Texas LP, Inc., an
Arizona corporation (collectively referred to as "Guarantor")
Gentlemen:
Reference is made to that certain Master Loan Agreement dated as of January
31, 1993 (and all amendments thereto, if any) (the "Loan Agreement") between
Lender and Borrower governing a $70,000,000.00 loan (as increased) (the "Loan")
for the acquisition and/or refinancing of residential lots located in certain
counties in the State of Texas as described therein, and the construction of
single-family residences thereon. Unless otherwise expressly defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Loan Agreement. As used in this letter agreement, the
term "Loan Instruments" shall mean and include (i) the "Loan instruments" as
defined in the Loan Agreement, (ii) the Fourth Modification Agreement dated as
of even date herewith, executed by and between the parties hereto, and (iii)
this letter agreement and all other documents executed in conjunction herewith
(and all amendments thereto, if any).
Borrower and Lender desire to increase the Loan Amount to the stated
principal amount of $80,000,000.00 and to amend and modify certain terms and
provisions of the Loan and the Loan Instruments as follows:
1. The Loan Amount is hereby increased from $70,000,000.00 to
$80,000,000.00. All references in the Loan Instruments to the amount of
$70,000,000.00 are hereby increased to $80,000,000.00.
2. The stated maturity date of the Note is hereby extended to and including
July 31, 2000, when the entire unpaid principal balance of the Note, together
with all accrued and unpaid interest shall be due and payable; provided,
however, such date may be extended as set forth in Paragraph 9 of the Loan
Agreement (as amended hereby).
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 2
3. Exhibit A to the Loan Agreement is hereby modified by deleting such
exhibit in its entirety and replacing it with Exhibit A attached hereto.
4. All Loan Instruments hereby are amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as modified hereby, all the terms, provisions and conditions of the Loan
Instruments shall remain in full force and effect.
5. This letter agreement constitutes the "Letter Agreement" referred to in
the Fourth Modification Agreement of even date herewith executed by and between
the parties hereto.
6. The terms and provisions of this letter agreement may not be modified,
amended, altered or otherwise affected except by instrument in writing executed
by Lender and Borrower.
7. Each Guarantor by its execution hereof agree to the amendments and
modifications to the Loan Instruments set forth herein and in the prior
amendments and modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive, release or in any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.
(The balance of this page is intentionally left blank.)
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 3
If this letter agreement correctly sets forth our understanding of the
subject matter contained herein, please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed copy to
the undersigned.
Very truly yours,
BORROWER:
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
-------------------------------
Name: Rick Morgan
Title: Vice President
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 4
GUARANTOR:
MERITAGE CORPORATION,
a Maryland corporation
By: /s/ John London
------------------------------------
Name: John London
Title: Co-CEO
MTH-TEXAS GP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
MTH-TEXAS LP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 5
ACCEPTED AND AGREED TO:
LENDER:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ Sam A. Meade
------------------------------------
Name: Sam A. Meade
Title: Senior Vice President
EXHIBIT A
TO LOAN AGREEMENT
1. Introductory Paragraph. RESIDENCE AND INVENTORY LOT LIMITATIONS. At any
given time, Residences and Inventory Lots financed under the Loan shall be
limited to the following numbers, unless modified by Lender in writing:
Total Residences: Seven Hundred Seventy-five (775).
Specs: One Hundred Twelve (112).
Models: Sixty-three (63).
Inventory Lots: Six Hundred Twenty-Five (625).
Borrower may increase the number of Specs allowed above by the same number
by which Borrower is short of Models allowed above. Borrower covenants and
agrees not to allow, and is prohibited from allowing, any more than ten
(10) Specs, three (3) Models or one hundred fifty (150) Inventory Lots to
exist in any Approved Subdivision (as hereinafter defined).
The outstanding aggregate amount of the Loan Allocations for all Specs and
Models at any time shall never exceed $16,800,000.00.
The outstanding aggregate amount of the Loan Allocations for all Inventory
Lots at any time shall never exceed $10,000,000.00.
The term "SPECS" means a Residence which is not a Model and is not Under
Contract. The term "MODEL" means a Residence specifically utilized for the
purposes of marketing other residential products. The term "UNDER CONTRACT"
shall mean Residences under written contract to sell to bona fide third
parties unrelated to Borrower, having no contingency or any other
conditions not reasonably susceptible to being satisfied, providing for
earnest money deposits of at least $2,000.00, and for which Lender has
received preliminary loan approval from a bona fide residential permanent
lender.
The term "INVENTORY RESIDENCE" means any Residence which is not a Model.
2. Introductory Paragraph. APPROVED SUBDIVISIONS. The following subdivisions
and any additional subdivisions approved in writing by Lender (the
"APPROVED SUBDIVISIONS") are approved by Lender for the Residences and
Inventory Lots:
Subdivision County
----------- ------
Stone Canyon (Fern Bluff) Williamson
Oakmont Forest Williamson
Settlers Ridge/Creekside Travis
Round Rock Ranch Williamson
The Meadows (Thunderbird Est.) Collin
Brighton Estates - Arlington Tarrant
Bristol Park (Fountain Creek) Collin
Chase-Oaks Collin
Cottonwood Bend Collin
Country Club Park Dallas
Creekwood Estates Denton
Crestwood Collin
Cross Creek West Collin
Eden Road Estates Tarrant
El Dorado Heights Collin
Heritage Park - Allen Collin
Highland Parkway Collin
Hillcrest Estates Collin
EXHIBIT A, - Page 1
Hunters Glen Collin
Independence Hill Collin
Meadow Glen PH IIB Denton
Oakwood Glen Collin
Orchard Valley Estates Denton
Parkdale - Plano Collin
Shadow Lakes Collin
Shadow Lakes North Collin
Lakes of Valley Ranch Dallas
Vista Ridge Estates Denton
Windhaven Farms (Carelle Custom) Collin
Ravenglass Estates Collin
Frankford Meadows Dallas
Hunter Trail Tarrant
Fossil Beach Tarrant
3. Introductory Paragraph. APPROVED PRICE RANGE. The Residences shall be in
the $70,000.00 to $350,000.00 price range.
4. Paragraph 1(c). GUARANTOR. Guarantor of the Loan shall be: Meritage
Corporation, a, Maryland corporation (formerly known as "Monterey Homes
Corporation"); MTH-Texas G.P., Inc., an Arizona corporation; and MTH-Texas
L.P., Inc., an Arizona corporation.
5. Paragraph 2(h). LOAN FINANCE CHARGE. None.
6. Paragraph 2(k) and 6(g). INSPECTION FEE. An inspection fee of $30.00 per
Residence shall be paid to Lender on the day the Mortgage pertaining to
such Residence is recorded in the Real Property Records.
7. Paragraph 4(c). LOAN RATIOS. The Loan Allocation shall not exceed the
lesser of (1) one hundred percent (100%) of the direct costs of a Property,
as determined by Lender or, (2) seventy percent (70%) of the lowest of the
values as provided in Paragraph 4(c)(i),(ii) and (iii) of this Loan
Agreement.
8. Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
other indebtedness now or hereafter owed by the following entities to
Lender: None.
9. Paragraph 6(s). REQUIRED RELEASES. Borrower shall cause: (a) Inventory
Residences to be released from a Mortgage nine (9) months from the day such
Mortgage is recorded in the Real Property Records, (b) Models to be
released from a Mortgage twenty-four (24) months from the day such Mortgage
is recorded in the Real Property Records, and (c) Inventory Lots to be
released from a Mortgage twelve (12) months from the day such Mortgage is
recorded in the Real Property Records; provided, however, if no default
then exists under any Loan Instruments, Lender may, at its option, extend
the Required Release Date for periods of three (3) months (the "EXTENDED
RELEASE DATE"); provided, such Extended Release Date shall in no event go
beyond the Stated Maturity Date (as hereinafter defined) or the Extended
Maturity Date (as hereinafter defined), if applicable.
10. Paragraph 7. REQUIRED PRINCIPAL REDUCTIONS. Prior to the date that Lender
gives Borrower the notice described in Paragraph 4(f) above, the following
shall apply: in the event a Property has been granted an Extended Release
Date (as provided in Paragraph 9 of this Exhibit A) and a Mortgage remains
covering such Property beyond the following periods from the date such
Mortgage is recorded, then Borrower shall make a principal payment of the
Note in an amount equal to ten percent (10%) of the Loan Allocation with
respect to such Property (and the Loan Allocation for such Property shall
be reduced by the same amount), as determined by Lender:
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (l2) months.
EXHIBIT A, - Page 2
From and after the date that Lender gives Borrower the notice described in
Paragraph 4(f) of the Loan Agreement, the following shall apply: in the
event a Property has been granted an Extended Release Date, as provided in
Paragraph 9 of this Exhibit A, Borrower shall make a principal payment on
the Note of ten percent (10%) of that portion of the Loan advanced by
Lender for such Property, within the following periods from the date a
Mortgage covering such Property is recorded in the Real Property Records:
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
11. Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
the later of the maturity date as provided in the Note (July 31, 2000) (the
"STATED MATURITY DATE"), or nine (9) months after the recording in the Real
Property Records of the last Mortgage (the "EXTENDED MATURITY DATE")
approved by Lender and recorded prior to the expiration of the Stated
Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
be recorded.
12. Paragraph 10. ADDITIONAL DEFAULTS. In addition to the events of default
stipulated in the Loan Instruments, it shall be a default under this Loan
Agreement if Borrower fails to comply with any of the following: None.
13. Paragraph 11. ADDITIONAL LOAN COVENANTS. Borrower shall fully perform and
satisfy the following "ADDITIONAL LOAN COVENANTS":
(a) The aggregate net worth of Borrower (determined in accordance with
generally accepted accounting principles, consistently applied) shall
not fall below $15,000,000.00.
(b) The ratio of total liabilities to equity (as determined by Lender)
shall not exceed 4.0 to 1.0.
(c) John Landon shall at all times retain management control of Borrower.
(d) In no event shall Monterey Homes Corporation, a Maryland corporation,
be in default under any secured indebtedness.
If Borrower or Guarantor (if applicable to Guarantor) breaches any of the
Additional Loan Covenants then, at Lender's election, no additional
Mortgages shall be recorded in the Real Property Records; provided,
however, that a breach of any Additional Loan Covenants shall not be
considered a default under the Loan Instruments.
14. Paragraph 16(d). RELEASE PRICE. The partial release price shall be a cash
amount equal to the Loan Allocation for the Property multiplied by the
Stage (expressed as a percentage) of the Property, all as determined by
Lender; provided, however, if Lender shall have given Borrower the notice
described in Paragraph 4(f) of the Loan Agreement, then the partial release
price shall be an amount in cash equal to one hundred and one hundred
percent (100%) of the outstanding balance of the Loan advanced by Lender
for the Property.
15. Paragraph 16(e). EXTENSION FEE. If Lender extends the Required Release
Date, as provided in Paragraph 9 of this Exhibit A, Borrower shall pay to
Lender an extension fee of one percent (1%) of that portion of the Loan
advanced by Lender for each such Property times a fraction, the numerator
of which is the number of days the Required Release Date is extended and
the denominator of which is 365.
EXHIBIT A, - Page 3
FOURTH MODIFICATION AGREEMENT
This FOURTH MODIFICATION AGREEMENT (this "AGREEMENT") is made and entered
into as of July 31, 1999, by and between LEGACY/MONTEREY HOMES L.P., an Arizona
limited partnership ("BORROWER"), and GUARANTY FEDERAL BANK, F.S.B., a federal
savings bank organized and existing under the laws of the United States
("LENDER").
WITNESSETH:
WHEREAS, pursuant to a certain Master Loan Agreement (the "LOAN AGREEMENT")
dated as of January 31, 1993, between Lender and Borrower, Lender made a loan
(the "LOAN") to Borrower, evidenced by a certain Revolving Promissory Note (the
"NOTE") dated as of January 31, 1993, payable to Lender in the stated principal
amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) (as increased), with
interest and principal payable as set forth therein; and
WHEREAS, to secure the Note and Loan, Master Form Deed(s) of Trust (With
Security Agreement and Assignment of Rents and Leases) (hereinafter collectively
referred to as the "MASTER DEEDS OF TRUST," whether one or more), which Master
Deeds of Trust have been recorded in certain counties in the State of Texas as
more particularly described on Exhibit A attached hereto; and which Master Deeds
of Trust are incorporated by reference pursuant to the terms and provisions of
certain Deeds of Trust Incorporating by Reference a Master Form Deed of Trust
(With Security Agreement and Assignment of Rents and Leases) (hereafter
collectively referred to as the "SUPPLEMENTAL DEEDS OF TRUST," whether one or
more) recorded in such counties and encumbering certain real and other property
(the "PROPERTY") described in such Supplemental Deeds of Trust (such Master
Deeds of Trust and Supplemental Deeds of Trust hereafter collectively referred
to as the "DEEDS OF TRUST," whether one or more); and
WHEREAS, the Deeds of Trust were modified pursuant to a Modification
Agreement (the "FIRST MODIFICATION") dated ____________, 1997, and recorded in
various counties in Texas, which First Modification modified certain terms and
provisions of the Loan as set forth therein; and
WHEREAS, the Deeds of Trust were further pursuant to a Second Modification
Agreement (the "SECOND MODIFICATION") dated as of May 19, 1998, and recorded in
various counties in Texas, which Second Modification modified certain terms and
provisions of the Loan as set forth therein; and
WHEREAS, the Deeds of Trust were further pursuant to a Third Modification
Agreement (the "THIRD MODIFICATION") dated as of March ______, 1999, and
recorded in various counties in Texas, which Third Modification modified certain
terms and provisions of the Loan as set forth therein; and
WHEREAS, the Note and the Loan are guaranteed pursuant to that certain
Guaranty Agreement dated as of June 30, 1997 (the "GUARANTY"), executed by
MTH-Texas GP, Inc., an Arizona corporation, MTH-Texas LP, Inc., an Arizona
corporation, and Meritage Corporation, a Maryland corporation (formerly known as
"MONTEREY HOMES CORPORATION") ("GUARANTOR," whether one or more); and
WHEREAS, the Loan Agreement, the Note, the First Modification, the Second
Modification, the Third Modification Agreement, the Deeds of Trust and all other
documents evidencing and/or securing the Loan are hereinafter collectively
called the "LOAN INSTRUMENTS"; and
FOURTH MODIFICATION AGREEMENT - Page 1
WHEREAS, Lender, the owner and holder of the Note and the Deeds of Trust
and all rights and titles evidenced thereby, and Borrower, the record owner of
the Property and being liable for the payment of the Note and Loan, desire to
modify the Loan Instruments as herein provided.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. The stated maturity date of the Note is hereby extended to and including
July 31, 2000, when the entire unpaid principal balance of the Note, together
with all accrued and unpaid interest shall be due and payable; provided,
however, such date may be extended as set forth in the Loan Agreement.
2. The Loan is hereby increased from $70,000,000.00 to $80,000,000.00. All
references in the Loan Instruments to the amount of $70,000,000.00 are hereby
increased to $80,000,000.00.
3. Borrower shall execute and deliver to Lender a letter agreement (in form
and substance satisfactory to Lender in its sole discretion) (the "LETTER
AGREEMENT") dated as of the date hereof amending certain other terms and
provisions of the Loan Instruments. (Hereafter, this Agreement and the Letter
Agreement shall be included in the defined term "LOAN INSTRUMENTS.")
4. Borrower acknowledges and agrees, that as an accommodation to Borrower,
Exhibit A hereto (which exhibit describes the recording information of the
Master Deeds of Trust) shall be attached to this Agreement (and to any and all
other documents which may require the attachment of a description of the
recording information of the Master Deeds of Trust) after Borrower's execution
of same. Accordingly, Borrower hereby authorizes and directs Lender to attach
such Exhibit A to this Agreement.
5. Notwithstanding anything to the contrary contained in the Deeds of Trust
or other Loan Instruments, with respect to any amendment to the Master Deeds of
Trust, the following terms and provisions shall apply:
With respect to any amendment or modification of the Master Deeds of Trust
now or hereafter executed by Borrower (or any future owner of the Property
if different from Borrower) and duly recorded in the appropriate official
public records, Borrower acknowledges and agrees that such amendment or
modification of the Master Deeds of Trust shall constitute an amendment or
modification to the terms and provisions of any such Supplemental Deeds of
Trust (and shall be incorporated into any such Supplemental Deeds of Trust
and made a part thereof for all purposes, as though such amendment or
modification of the Master Deeds of Trust specifically referred to such
Supplemental Deeds of Trust) without the necessity of any specific
reference in such amendment or modification to any such Supplemental Deeds
of Trust; and no such amendment or modification of the Master Deeds of
Trust shall impair the obligations of Borrower under any such Supplemental
Deeds of Trust or any other of the Loan Instruments.
6. Borrower hereby expressly promises to pay to the order of Lender, the
principal amount of the Note (as modified and increased) and all accrued and
unpaid interest now or hereafter to become due and payable under the Note, and
Borrower hereby expressly promises to perform all of the obligations of Borrower
under the Loan Instruments (as modified and increased).
7. The liens of the Deeds of Trust are hereby acknowledged by Borrower to
be good, valid and subsisting liens, and such liens are hereby renewed and
extended so as to secure the payment of the Note and Loan (as modified and
increased).
8. Borrower hereby represents and warrants to Lender that (a) Borrower is
the sole legal and beneficial owner of the Property; (b) Borrower has the full
power and authority to make the agreements contained in this Agreement without
joinder or consent of any other party; (c) the
FOURTH MODIFICATION AGREEMENT - Page 2
execution, delivery and performance of this Agreement will not contravene or
constitute an event which itself or which with the passing of time or giving of
notice or both would constitute a default under any deed of trust, loan
agreement, indenture or other agreement to which Borrower or Guarantor is a
party or by which Borrower or any of its property is bound; and (d) there exists
no default under the Loan Instruments (as modified). BORROWER HEREBY AGREES TO
INDEMNIFY AND HOLD LENDER HARMLESS AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR
EXPENSE (INCLUDING WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED AS A RESULT OF
ANY REPRESENTATION OR WARRANTY MADE BY BORROWER HEREIN PROVING TO BE UNTRUE IN
ANY MATERIAL RESPECT.
9. The terms and conditions hereof may not be modified, amended, altered or
otherwise affected except by instrument in writing executed by Lender and
Borrower.
10. All Loan Instruments are hereby amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as expressly modified hereby, the terms and conditions of the Loan
Instruments are and shall remain in full force and effect.
11. Borrower agrees to pay to Lender, contemporaneously with the execution
and delivery hereof, all costs and expenses incurred in connection with this
transaction, title insurance endorsement premiums, reasonable fees of Lender's
counsel and recording fees.
12. Borrower hereby agrees to execute and deliver to Lender such further
documents and instruments evidencing or pertaining to the Loan, as modified and
increased hereby, as may be reasonably requested by Lender from time to time so
as to evidence the terms and conditions hereof.
[The balance of this page is intentionally left blank.]
FOURTH MODIFICATION AGREEMENT -Page 3
EXECUTED on the date(s) set forth in the acknowledgment(s) below to be
EFFECTIVE as of the date first above written.
BORROWER:
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC., an
Arizona corporation,
General Partner
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
LENDER:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ Sam A. Meade
------------------------------------
Name: Sam A. Meade
Title: Senior Vice President
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on July 26, 1999, by Rick
Morgan, Vice President of MTH-TEXAS GP, INC., an Arizona corporation, as General
Partner of LEGACY/MONTEREY HOMES L.P., an Arizona limited partnership, on behalf
of said limited partnership.
[SEAL] /s/ Ana Patterson
------------------------------------
Notary Public
My Commission Expires:
------------------------------------
Printed Name of Notary Public
FOURTH MODIFICATION AGREEMENT - Page 4
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
This instrument w s acknowledged before me on the 29th day of July, 1999,
by Sam A. Meade, Senior Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said federal savings bank.
/s/ Leslie Ruth Reynolds
------------------------------------
Notary Public in and for the
[SEAL] Above country and state
My Commission Expires:
02/04/2001 Leslie Ruth Reynolds
- ---------------------- ------------------------------------
Printed Name of Notary
FOURTH MODIFICATION AGREEMENT -Page 5
CONSENT OF GUARANTOR
Each of the undersigned, as a guarantor ("Guarantor," whether one or more)
of the loan (the "Loan"), evidenced by the Note and secured by the Deeds of
Trust described in the foregoing Fourth Modification Agreement (the "Agreement")
to which this Consent is attached, hereby acknowledge and consent (jointly and
severally) to the terms of the Agreement and agree (jointly and severally) that
the execution and delivery of the Agreement will in no way change or modify
Guarantor's respective obligations under their respective Guaranty (as defined
in the Agreement); and each Guarantor acknowledges and agrees (jointly and
severally) that the Indebtedness (as defined in the respective instruments
comprising the Guaranty) includes the Loan (as increased and set forth in the
Agreement), together with any and all other Indebtedness now or at any time
hereafter owing by Guarantor to Lender; and each Guarantor (jointly and
severally) hereby unconditionally and absolutely guarantees to Lender the
payment when due of such Indebtedness, and hereby acknowledge and agree that
their respective Guaranty is in full force and effect, and that there are no
claims, counterclaims, offsets or defenses to their respective Guaranty; and
each Guarantor acknowledges and consents (jointly and severally) to the terms of
any and all prior modifications to the terms of the Loan (including, without
limitation, any and all extensions of the term thereof and increases in the
principal thereof prior to the date hereof, if any).
EXECUTED on the date(s) set forth in the acknowledgment(s) below to be
EFFECTIVE as, of the 31st day of July, 1999.
GUARANTOR:
MERITAGE CORPORATION,
a Maryland co oration
By: /s/ John R. Landon
------------------------------------
Name: John R. Landon
Title: Co-CEO
MTH-TEXAS GP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
MTH-TEXAS LP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
FOURTH MODIFICATION AGREEMENT -Page 6
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on July 27, 1999, by John R
Landon, Co-CEO of MERITAGE CORPORATION, a Maryland corporation, on behalf of
said corporation.
[SEAL] /s/ Ana Patterson
------------------------------------
Notary Public
My Commission Expires:
- ---------------------- ------------------------------------
Printed Name of Notary Public
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on July 26, 1999, by Rick
Morgan, Vice President of MTH-TEXAS GP, 1NC., an Arizona corporation, on behalf
of said corporation.
[SEAL] /s/ Ana Patterson
------------------------------------
Notary Public
My Commission Expires:
- ---------------------- ------------------------------------
Printed Name of Notary Public
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on July 26, 1999, by Rick
Morgan, Vice President of MTH-TEXAS LP, IN , an Arizona corporation, on behalf
of said corporation.
[SEAL]
/s/ Ana Patterson
------------------------------------
Notary Public
My Commission Expires:
- ---------------------- ------------------------------------
Printed Name of Notary Public
FOURTH MODIFICATION AGREEMENT - Page 7
EXHIBIT A
Description of the Deed(s) of Trust
LEGACY/MONTEREY, L.P.
COLLIN COUNTY Recorded September 4, 1996, Clerk File 96-0075977
DALLAS Recorded September 5, 1996, Volume 96175 Page 00192
DENTON Recorded September 5, 1996, Clerk File 96-80061921
HARRIS Recorded August 6, 1997, Clerk File No. S579911
ROCKWALL Recorded August 19, 1997, Clerk File No. 176219
TARRANT Recorded September 5, 1996, Clerk File D196175179
TRAVIS Recorded September 6, 1996,Volume 12766, Page 1157
WILLIAMSON Recorded September 9, 1996, Clerk File 9648096
Fort Bend sent to Legacy for sig. Today (1-26-99)
EXHIBIT A, Description of the Deeds of Trust - Page 1
CERTIFICATE OF RESOLUTIONS
OF
MERITAGE CORPORATION
I, Rick Morgan, Assistant Secretary of MERITAGE CORPORATION, a Maryland
corporation (the "Company"), do hereby certify as follows:
(i) that I am the duly elected and qualified Assistant Secretary of the
Company and the custodian of the Company's records;
(ii) that a meeting of the Board of Directors of the Company was duly
called and held on July 27, 1999, and at such meeting a quorum of the
Directors was present and acting throughout;
(iii) that set forth below is a true and correct restatement of certain
resolutions adopted by the Directors of the Company at such meeting
held on July 27, 1999;
RESOLVED, that the President or any Vice President of the Company be and is
hereby authorized and directed to do any and all things deemed necessary or
advisable and in the best interest of the Company, at his sole discretion, in
connection with the obtainment by LEGACY/MONTEREY HOMES L.P., an Arizona limited
partnership (the "Partnership") of a loan in the amount of $80,000,000.00 (the
"Loan"), to be obtained from GUARANTY FEDERAL BANK, F.S.B. ("Lender") for the
purpose of the Partnership acquiring, developing and/or constructing various
residential subdivisions (herein collectively and singularly called the
"Project"), to be located in certain counties in Texas; to execute and deliver
appropriate loan instruments in the name of and on behalf of the Company, and
all documents, certificates and agreements in this connection required by Lender
including, without limitation, guaranties which guarantee the Loan, the Loan
being reasonably expected to benefit, directly or indirectly, the Company;
FURTHER RESOLVED, that the seal of the Company and the attestation of the
signature of the President or any Vice President by the Secretary or an
Assistant Secretary of the Company will not be necessary, but if the seal or
such attestation is required by any party in connection with the transaction
contemplated by these resolutions, the Secretary or an Assistant Secretary of
the Company is hereby authorized to attest, for and on behalf of the Company,
the signature of the President or any Vice President upon any instrument,
document or other writing executed on behalf of the Company by the President or
any Vice President thereof and to affix the seal of the Company thereto;
FURTHER RESOLVED, that the officers of the Company are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accept, file and record any and all instruments and documents, and (b) take, or
cause to be taken, any and all such action in the name and on behalf of the
Company or otherwise, as in any such officer's judgment is necessary, desirable
CERTIFICATE OF RESOLUTIONS, Page 1
or appropriate in order to consummate the transactions contemplated by or
otherwise to effect the purposes of the foregoing resolutions;
FURTHER RESOLVED, that all actions heretofore taken by the incorporators or
the directors or the officers of the Company, and all things done by their
authority, with respect to the organization of the Company and in connection
with the acquisition of lands for and the financing and construction of the
Project as aforesaid, be and the same are hereby ratified, approved and adopted
as the acts of the Company;
FURTHER RESOLVED, that said officers are authorized and empowered to
perform all acts and execute and. deliver all instruments, documents and
agreements required by Lender to carry out the purposes of this resolution.
(i) that none of the resolutions set forth above have been amended,
modified, revoked or rescinded; and each such resolution is in full
force and effect on the date hereof; and
(ii) that the following are the duly elected, qualified and serving
officers of the Company, that their addresses are as stated in
connection with each, and that the signature set out opposite the
name of each officer is the genuine signature of such person, to wit:
NAME AND ADDRESS SIGNATURE
- ---------------- ---------
President:
/s/ John R. Landon
- ------------------------------------
Vice President:
/s/ Rick Morgan
- ------------------------------------
Secretary:
- ------------------------------------
CERTIFICATE OF RESOLUTIONS, Page 2
Assistant Secretary:
/s/ Rick Morgan
- ------------------------------------
(iii) that (a) all franchise and other taxes required to maintain the
Company's corporate existence have been paid when due and that no
such taxes are delinquent; (b) no proceedings are pending for the
forfeiture of the Company's Certificate of Incorporation or the
Company's dissolution, voluntary or involuntary; (c) the Company is
duly qualified to do business in the State of Texas and any other
states in which it is doing business, and is in good standing in such
states; (d) there is no provision of the Articles of Incorporation or
Bylaws of the Company limiting the power of the Board of Directors to
pass the Resolutions set out above, and that such Resolutions are in
conformity with the provisions of said Articles of Incorporation and
Bylaws.
(The balance of this page is intentionally left blank.)
CERTIFICATE OF RESOLUTIONS, Page 3
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company
this 27th day of July 1999.
/s/ Rick Morgan
------------------------------------
Rick Morgan, Assistant Secretary
(Corporate Seal)
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
SWORN TO AND SUBSCRIBED BEFORE ME, this 26 day of July, 1999, to certify
which witness my hand and seal of office.
/s/ Ana Patterson
------------------------------------
Notary Public in and for
__________ County, ___________
My Commission Expires:
- ---------------------- ------------------------------------
(Printed Name of Notary)
CERTIFICATE OF RESOLUTIONS, Page 4
CERTIFICATE OF RESOLUTIONS
OF
MTH-TEXAS LP, INC.
I, Rick Morgan, Assistant Secretary of MTH-TEXAS LP, INC., an Arizona
corporation (the "Company"), do hereby certify as follows:
(i) that I am the duly elected and qualified Assistant Secretary of the
Company and the custodian of the Company's records;
(ii) that a meeting of the Board of Directors of the Company was duly
called and held on July 27, 1999, and at such meeting a quorum of the
Directors was present d acting throughout;
(iii) that set forth below is a true and correct restatement of certain
resolutions adopted by he Directors of the Company at such meeting
held on July 27, 1999;
RESOLVED, that the President or any Vice President of the Company be and is
hereby authorized and directed to do any and all things deemed necessary or
advisable and in the best interest of the Company, at his sole discretion, in
connection with the obtainment by LEGACY/MONTEREY HOMES, L.P., an Arizona
limited partnership (the "Partnership") of a loan in the amount of
$80,000,000.00 (the "Loan"), to be obtained from GUARANTY FEDERAL BANK, F.S.B.
("Lender") for the purpose of the Partnership acquiring, developing and/or
constructing various residential subdivisions (herein collectively and
singularly called the "Proiect"), to be located in certain counties in Texas; to
execute and deliver appropriate loan instruments in the name of and on behalf of
the Company, and all documents, certificates and agreements in this connection
required by Lender including, without limitation, guaranties which guarantee the
Loan, the Loan being reasonably expected to benefit, directly or indirectly, the
Company;
FURTHER RESOLVED, that the seal of the Company and the attestation of the
signature of the President or any Vice President by the Secretary or an
Assistant Secretary of the Company will not be necessary, but if the seal or
such attestation is required by any party in connection with the transaction
contemplated by these resolutions, the Secretary or an Assistant Secretary of
the Company is hereby authorized to attest, for and on behalf of the Company,
the signature of the President or any Vice President upon any instrument,
document or other writing executed on behalf of the Company by the President or
any Vice President thereof and to affix the seal of the Company thereto;
FURTHER RESOLVED, that the officers of the Company are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accept, file and record any and all instruments and documents, and (b) take, or
cause to be taken, any and all such action in the name
CERTIFICATE OF RESOLUTIONS, Page 1
and on behalf of the Company or otherwise, as in any such officer's judgment is
necessary, desirable or appropriate in order to consummate the transactions
contemplated by or otherwise to effect the purposes of the foregoing
resolutions;
FURTHER RESOLVED, that all actions heretofore taken by the incorporators or
the directors or the officers of the Company, and all things done by their
authority, with respect to the organization of the Company and in connection
with the acquisition of lands for and the financing and construction of the
Project as aforesaid, be and the same are hereby ratified, approved and adopted
as the acts of the Company;
FURTHER RESOLVED, that said officers are authorized and empowered to
perform all acts and execute and deliver all instruments, documents and
agreements required by Lender to carry out the purposes of this resolution.
(i) that none of the resolutions set forth above have been amended,
modified, revoked or rescinded; and each such resolution is in full
force and effect on the date hereof; and
(ii) that the following are the duly elected, qualified and serving
officers of the Company, that their addresses are as stated in
connection with each, and that the signature set out opposite the
name of each officer is the genuine signature of such person, to wit:
NAME AND ADDRESS SIGNATURE
- ---------------- ---------
President
/s/ John R. Landon
- ------------------------------------
Vice President:
/s/ RICK MORGAN
- ------------------------------------
Secretary:
- ------------------------------------
CERTIFICATE OF RESOLUTIONS, Page 2
Assistant Secretary:
/s/ Rick Morgan
- ------------------------------------
(iii) that (a) all franchise and other taxes required to maintain the
Company's corporate existence have been paid when due and that no
such taxes are delinquent; (b) no proceedings are pending for the
forfeiture of the Company's Certificate of Incorporation or the
Company's dissolution, voluntary or involuntary; (c) the Company is
duly qualified to do business in the State of Texas and any other
states in which it is doing business, and is in good standing in such
states; (d) there is no provision of the Articles of Incorporation or
Bylaws of the Company limiting the power of the Board of Directors to
pass the Resolutions set out above, and that such Resolutions are in
conformity with the provisions of said Articles of Incorporation and
Bylaws.
(The balance of this page is intentionally left blank.)
CERTIFICATE OF RESOLUTIONS, Page 3
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company
this 27th day of July 1999.
/s/ Rick Morgan
------------------------------------
Rick Morgan, Assistant Secretary
(Corporate Seal)
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
SWORN TO AND SUBSCRIBED BEFORE ME, this 26th day of July, 1999, to certify
which witness my hand and seal of office.
/s/ Ana Patterson
------------------------------------
Notary Public in and for
Collin County, Texas
My Commission Expires:
8-28-99
- ---------------------- ------------------------------------
(Printed Name of Notary)
CERTIFICATE OF RESOLUTIONS, Page 4
CERTIFICATE OF RESOLUTIONS
OF
MTH-TEXAS GP, INC.
I, Rick Morgan, Assistant Secretary of MTH-TEXAS GP, INC., an Arizona
corporation (the "Company"), do hereby certify as follows:
(i) that I am the duly elected and qualified Assistant Secretary of the
Company and the custodian of the Company's records;
(ii) that a meeting of the Board of Directors of the Company was duly
called and held on July 27, 1999, and at such meeting a quorum of the
Directors was present and acting throughout;
(iii) that set forth below is a true and correct restatement of certain
resolutions adopted by the Directors of the Company at such meeting
held on July 27, 1999;
RESOLVED, that the President or any Vice President of the Company be and is
hereby authorized and directed to do any and all things deemed necessary or
advisable and in the best interest of the Company, at his sole discretion, in
connection with (a) the formation of LEGACY/MONTEREY HOMES L.P., an Arizona
limited partnership (the "Partnership"); (b) the acquisition by the Company of a
general partnership interest in the Partnership; and (c) the obtainment by the
Partnership of a loan in the amount of $80,000,000.00 (the "Loan"), to be
obtained from GUARANTY FEDERAL BANK, F.S.B. ("Lender") for the purpose of the
Partnership acquiring, developing and/or constructing various single family lots
and\or residential subdivisions (herein collectively and singularly called the
"Project"), to be located in certain counties in Texas; to execute and deliver
appropriate loan instruments in the name of end on behalf of the Company, and
all documents, certificates and agreements in this connection required by Lender
including, without limitation, guaranties which guarantee the Loan, the Loan
being reasonably expected to benefit, directly or indirectly, the Company;
FURTHER RESOLVED, that the seal of the Company and the attestation of the
signature of the President or any Vice President by the Secretary or an
Assistant Secretary of the Company will not be necessary, but if the seal or
such attestation is required by any party in connection with the transaction
contemplated by these resolutions, the Secretary or an Assistant Secretary of
the Company is hereby authorized to attest, for and on behalf of the Company,
the signature of the President or any Vice President upon any instrument,
document or other writing executed on behalf of the Company by the President or
any Vice President thereof and to affix the seal of the Company thereto;
FURTHER RESOLVED, that the officers of the Company are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accept, file and record any and all instruments and documents, and (b) take, or
cause to be taken, any and all such action in the name and on behalf of the
CERTIFICATE OF RESOLUTIONS, Page 1
Company or otherwise, as in any such officer's judgment is necessary, desirable
or appropriate in order to consummate the transactions contemplated by or
otherwise to effect the purposes of the foregoing resolutions;
FURTHER RESOLVED, that all actions heretofore taken by the incorporators or
the directors or the officers of the Company, and all things done by their
authority, with respect to the organization of the Company and in connection
with the acquisition of lands for and the financing and construction of the
Project as aforesaid, be and the same are hereby ratified, approved and adopted
as the acts of the Company;
FURTHER RESOLVED, that said officers are authorized and empowered to
perform all acts and execute and deliver all instruments, documents and
agreements required by Lender to carry out the purposes of this resolution.
(i) that none of the resolutions set forth above have been amended,
modified, revoked or rescinded; and each such resolution is in full
force and effect on the date hereof; and
(ii) that the following are the duly elected, qualified and serving
officers of the Company, that their addresses are as stated in
connection with each, and that the signature set out opposite the
name of each officer is the genuine signature of such person, to wit:
NAME AND ADDRESS SIGNATURE
- ---------------- ---------
President
/s/ John R. Landon
- ------------------------------------
Vice President:
/s/ Rick Morgan
- ------------------------------------
Secretary:
- ------------------------------------
CERTIFICATE OF RESOLUTIONS, Page 2
Assistant Secretary:
/s/ Rick Morgan
- ------------------------------------
(iii) that (a) all franchise and other taxes required to maintain the
Company's corporate existence have been paid when due and that no
such taxes are delinquent; (b) no proceedings are pending for the
forfeiture of the Company's Certificate of Incorporation or the
Company's dissolution, voluntary or involuntary; (c) the Company is
duly qualified to do business in the State of Texas and any other
states in which it is doing business, and is in good standing in such
states; (d) there is no provision of the Articles of Incorporation or
Bylaws of the Company limiting the power of the Board of Directors to
pass the Resolutions set out above, and that such Resolutions are in
conformity with the provisions of said Articles of Incorporation and
Bylaws.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company
this 27th day of July, 1999.
/s/ Rick Morgan
------------------------------------
Rick Morgan, Assistant Secretary
(Corporate Seal)
STATE OF TEXAS ss.
ss.
COUNTY OF COLLINS ss.
SWORN TO AND SUBSCRIBED BEFORE ME, this 26 day of July, 1999, to certify
which witness my hand and seal of office.
/s/ Ana Patterson
------------------------------------
Notary Public in and for
_________ County, __________
My Commission Expires:
- ---------------------- ------------------------------------
(Printed Name of Notary)
CERTIFICATE OF RESOLUTIONS, Page 3
CONSENT OF PARTNERS
The undersigned, being all the general and limited partners of
MONTEREY/LEGACY HOMES L.P., an Arizona limited partnership (the "Partnership"),
to induce GUARANTY FEDERAL BANK, F.S.B., a federal savings bank ("Lender"), to
make a loan or loans to the Partner ship in the original principal amount of
$80,000,000.00 (the "Loan"), do hereby, jointly and severally, certify to and
agree with Lender as follows:
(i) That the undersigned constitute all of the general and limited
partners of the Partnership;
(ii) That the undersigned are the custodians of the Partnership
records and have full and complete knowledge of the matters set forth
herein;
(iii) That the Partnership is evidenced and constituted by that
certain Limited Partnership Agreement, dated as of June - 1997, a photocopy
of which is attached hereto as Exhibit A, and that such document (the
"Partnership Agreement") is the only document constituting the Partnership
Agreement;
(iv) That the President, Vice President or CFO of MTH-TEXAS GP, INC.,
an Arizona cdrporation is authorized and directed to do any and all things
deemed necessary or advisable and in the best interest of the Partnership,
in his sole discretion, in connection with the Loan, to execute and deliver
in the name of the Partnership instruments of mortgage and deed of trust
and all instruments, documents, certificates and
agreements required by Lender in connection with the Loan; and to do
and perform all acts and things that may be deemed necessary or proper, in
the sole discretion of the President, Vice President or CFO of MTH-TEXAS
GP, INC., an Arizona corporation, regarding the negotiation and
consummation of the Loan;
(v) That the provisions of the Partnership Agreement have not been
amended, modified or rescinded; the Partnership has been neither terminated
nor dissolved; both the Partnership and the Partnership Agreement are in
full force and effect and in existence on the date hereof; there exist no
restrictions or limitations on the authority of any one or more of the
undersigned partners of the Partnership to consummate the financing
contemplated by this Consent; and that such financing will be in conformity
with the terms, provisions and requirements of the Partnership Agreement;
and
(vi) Further, to induce Lender to extend the financing contemplated by
this Consent, the undersigned agree that in the event any dispute
whatsoever arises among any or all of the undersigned, the undersigned
jointly and severally will indemnify Lender and any corporation
controlling, controlled by or under common control with Lender and any
officer, director or employee of Lender of any such corporation, and will
hold Lender and such corporation and any such officer, director or employee
harmless from and against all expenses, including (but not limited to)
legal fees, damages and other liabilities of any type whatsoever
(including, but not limited to, any liabilities arising out of demands by
any of the undersigned for undisbursed loan funds) suffered or incurred as
a result of or in connection with any such dispute. The foregoing indemnity
agreement shall be governed by and construed according to the laws of the
State of Texas unless any such indemnity obligation shall be invalid or
unenforceable under such laws, in which event the laws of that state whose
laws can apply to and validate the obligation hereunder shall apply.
(vii) This Consent may be executed in a number of identical
counterparts, each of which for all purposes is deemed an original, and all
of which constitute collectively one (1) Consent; but, in making proof of
this Consent, it shall not be necessary to produce or account for more than
one (1) such counterpart.
IN WITNESS WHEREOF, the undersigned general and limited partners of the
Partnership executed this Consent as of the 27th day of July, 1999.
GENERAL PARTNER:
MTH-TEXAS GP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
LIMITED PARTNER:
MTH-TEXAS LP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
EXHIBIT A
(A copy of the Partnership Agreement follows this cover page.)
LIMITED PARTNERSHIP AGREEMENT OF
LEGACY/MONTEREY HOMES L.P.
This Agreement is effective as of June 13, 1997, is entered into by and
among MTH-TEXAS GP, Inc., an Arizona corporation, as the General Partner, and
MTH-TEXAS LP, Inc., an Arizona corporation as the Limited Partner.
In consideration of the mutual covenants hereinafter set forth, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the meanings
set forth below:
"ACQUISITION AGREEMENT" means as defined in Section 2.3.
"ACT" means Chapter 3 of Title 29 of the Arizona Revised Statutes, as
amended.
"ADJUSTED CAPITAL ACCOUNT BALANCE" means as defined in Section A.1 of
Appendix A.
"AGREEMENT" means this Agreement of Limited Partnership of
Legacy/Monterey Homes L.P., as amended from time to time, if
applicable.
"AVAILABLE CASH FLOW" means, for any period, the Partnership's gross
cash receipts derived from any source whatsoever (excluding the
receipts associated with a sale or other disposition of all or
substantially all of the Partnership's assets) less the portion
thereof used to pay or establish reasonable reserves for all
Partnership expenses, debt, payments, asset acquisitions, capital
improvements, expansions, repairs, replacements, contingencies, and
any other proper cash expenditure of the Partnership, whether
contingent or absolute, as determined from time to tune by the General
Partner.
"CAPIAL ACCOUNT" means as defined in Section A. I of Appendix A.
"CAPITAL CONTRIBUTIONS" means the contributions required pursuant to
Section 3.1.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of succeeding law).
"FISCAL YEAR" means the Partnership's fiscal year, which shall be a
calendar year except as otherwise required by law.
"GENERAL PARTNER" means MTH-TEXAS GP, Inc., an Arizona corporation, or
any other Person that becomes a General Partner in accordance with the
terms of this Agreement, until such time as such Person ceases to be a
General Partner pursuant to the terms of this Agreement.
"LIMITED PARTNER" means MTH-TEXAS LP, Inc., an Arizona corporation.
"LOSSES" means as defined in Section A.1 of Appendix A.
"PARTNER" means any Person who is a General Partner or Limited
Partner.
"PARTNERSHIP" means Legacy/Monterey Homes L.P.
"PERCENTAGE INTERESTS" means the percentage interests of the Partners
from time to time and shall be determined with respect to a particular
Partner at any particular time by dividing the number of Units owned
by such Partner by the aggregate number of outstanding Units.
"PERSON" means any individual, trust, partnership, corporation,
association, or other legal entity.
"REGULATIONS" means the regulations issued by the Treasury Department
under the Code.
"TRANSFER" means when used as a noun, any voluntary or involuntary
sale, assignment, gift, transfer, or other disposition and when used
as a verb, voluntarily or involuntarily to sell, assign, gift,
transfer, or otherwise dispose of.
"UNIT" means an interest in the capital, Profits, and Losses of the
Partnership originally issued to the Partners in exchange for Capital
Contributions.
"WITHDRAWAL EVENT" means, with respect to the General Partner, the
occurrence of any of those events and circumstances listed in Section
29-323 of the Act, including, without limitation, the General
Partner's withdrawal from the Partnership, dissolution, or bankruptcy.
-2-
ARTICLE 2
FORMATION, PURPOSES AND TERM
2.1 FORMATION. The parties hereto hereby form the Partnership as a limited
partnership pursuant to the Act and in accordance with the provisions of this
Agreement.
2.2 NAME AND OFFICE. The name of the Partnership shall be Legacy/Monterey
Homes L.P. The principal office of the Partnership (and the office required to
be maintained for keeping Partnership records under Arizona law) shall be
located at 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona, 85250, or
such other place in the State of Arizona as the General Partner may from time to
time determine with written notice to the other Partners.
2.3. PURPOSES. The purposes of the Partnership shall be (a) to acquire
certain home building and related assets currently owned by Legacy Homes, Ltd.,
a Texas limited partnership, pursuant to the terms of that certain Agreement of
Purchase and Sale of Assets dated May 29, 1997, by and among Monterey Homes
Corporation, a Maryland corporation, Legacy Homes, Ltd., Legacy Enterprises,
Inc., a Texas corporation, and John Landon and Eleanor Landon (the "Acquisition
Agreement"), (b) to own a home building business in the State of Texas, (c) to
engage in such other businesses (related to the home building business specified
in clause (b) or otherwise) and purposes in such place or places, if any, as the
General Partner shall determine, and (d) to engage in any and all activities
necessary, convenient, or incidental, in the sole discretion of the General
Partner, to accomplish any of the foregoing purposes.
2.4 TERM. The term of the Partnership shall begin upon the filing of a
certificate of limited partnership for the Partnership in accordance with the
Act, and shall continue, unless earlier dissolved in accordance with Article IX
until December 31, 2099.
2.5 AGENT FOR SERVICE OF PROCESS. The initial statutory agent for the
Partnership and the address of such agent shall be CT Corporation System, 3225
N. Central Ave., Phoenix, Arizona 85012. The General Partner may change the
Partnership's statutory agent from time to time in accordance with Arizona law.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS. Not later than June 30, 1997,
the Limited Partner shall contribute to the capital of the Partnership all of
the assets acquired by the Limited Partner pursuant to the terms of the
Acquisition Agreement and the General Partner shall contribute to the capital of
the Partnership cash and/or in kind assets the aggregate value of which shall
equal 1.01 % of the aggregate value of the assets contributed by the Limited
Partner pursuant to the preceding provisions of this sentence. In exchange
therefor, the General Partner shall be issued 10 Units and the Limited Partner
shall be issued 990 Units. Except as set forth in this Section 3.1, the Partners
shall be under no obligation to make contributions to the capital of the
Partnership.
-3-
3.2 RETURN OF CAPITAL. Except as otherwise provided in this Agreement, no
Partner shall be entitled to the return of the Partner's Capital Contributions
to the Partnership. Further, it is expressly provided that the General Partner
shall have no personal liability for the repayment of the Capital Contributions
made by any Partner, it being agreed that any return of capital or Profits made
pursuant to this Agreement shall be made solely from the assets of the
Partnership.
ARTICLE 4
MANAGEMENT
4.1 GENERAL PARTNER. The General Partner shall have the sole and exclusive
right to manage the business of the Partnership and to accomplish the purposes
of the Partnership set forth in Section 2.3 with all powers necessary,
incidental, or convenient to the exercise of such management rights, including
all of the rights and powers that may be possessed by general partners under the
Act. The General Partner shall be authorized to delegate all or a portion of its
management authority to any Person.
4.2 RELIANCE UPON ACTIONS BY GENERAL PARTNER. Any Person dealing with the
Partnership may rely upon any action taken by the General Partner on behalf of
the Partnership and, accordingly, any and all contracts or instruments executed
by the General Partner on behalf of the Partnership shall be binding upon the
Partnership. All of the Partners agree that a copy of this Agreement may be
shown to the appropriate parties in order to confirm the same. Without limiting
the generality of the foregoing, any person dealing with the Partnership may
rely upon a certificate or written statement signed by the General Partner as
to:
(a) The identity of the General Partner or any Limited Partner;
(b) The existence or nonexistence of any fact or facts that constitute
a condition precedent to acts by the General Partner or that are in any other
manner germane to the affairs of the Partnership;
(c) The Persons who are authorized to execute and deliver any
instrument or documents of the Partnership; or
(d) Any act or failure to act by the Partnership on any other matter
whatsoever involving the Partnership, to the extent applicable.
4.3 DEVOTION OF TIME TO PARTNERSHIP ACTIVITIES. The General Partner shall
devote so much of its time to activities on behalf of the Partnership as the
General Partner determines to be necessary for the business and affairs of the
Partnership.
-4-
4.4 REIMBURSEMENT OF EXPENSES OF GENERAL PARTNER. The Partnership shall pay
or reimburse the General Partner (or any Person providing services on behalf of
the General Partner) for all expenses reasonably incurred in connection with the
business and purposes of the Partnership.
ARTICLE 5
PRE-LIQUIDATION DISTRIBUTIONS
5.1 INTERIM DISTRIBUTIONS OF AVAILABLE CASH FLOW. The General Partner shall
have the sole discretion to determine the time, amount, and manner of
distributions of Available Cash Flow to the Partners prior to the liquidation of
the Partnership; provided, however, that any distributions of Available Cash
Flow to the Partners shall be made pro rata to all Partners of record on the
date of distribution in accordance with the Partners' Percentage Interests.
5.2 DISTRIBUTIONS OF CASH FLOW DURING LIQUIDATION. Following the
dissolution of the Partnership and the commencement of the winding up of its
business and affairs, the Available Cash Flow and remaining assets of the
Partnership shall be distributed in accordance with Section 9.2 hereof.
5.3 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any
provision of any state or local tax law with respect to any distribution by the
Partnership to the Partners or any allocation of income shall be treated as
amounts distributed to the Partners pursuant to this Article V for all purposes
under this Agreement.
ARTICLE 6
ALLOCATION OF PROFITS AND LOSSES
6.1 PROFIT ALLOCATIONS. After making any special allocations required under
Appendix A, Profits for each Fiscal Year (and each item of income, gain, loss
and deduction entering into the computation thereof) shall be allocated among
the Partners (and credited to their respective Capital Accounts) in the
following order and priority:
(a) First, to the General Partner until the cumulative Profits
allocated pursuant to this Section 6.1(a) are equal to the cumulative Losses, if
any, previously allocated to the General Partner pursuant to Section 6.2(c) for
all prior periods;
(b) Second, to the Partners until the cumulative Profits allocated
pursuant to this Section 6.1 (b) are equal to the cumulative Losses, if any,
previously allocated to the Partners pursuant to Section 6.2(b) for all prior
periods in proportion to the Partners' respective shares of the Losses being
offset; and
(c) Third, to the Partners in accordance with their Percentage
Interests.
-5-
6.2 LOSS ALLOCATIONS. After making any special allocations required under
Appendix A, Losses for each Fiscal Year (and each item of income, gain, loss and
deduction entering into the computation thereof) shall be allocated among the
Partners (and charged to their respective Capital Accounts) in the following
order and priority:
(a) First, to the extent that Profits have previously been allocated
to the Partners for prior, periods pursuant to Section 6.1 (c) hereof, Losses
shall be allocated to the Partners to offset such Profits in proportion to the
Partners' respective shares of the Profits being offset; provided, however, that
in no event shall any allocation pursuant to this Section 6.2(a) create or
increase a Partner's deficit in such Partner's Capital Account.
(b) Second, to the Partners in proportion to their respective Capital
Account balances until the Adjusted Capital Account balance of each Partner has
been reduced to zero; and
(c) Third, the balance, if any, to the General Partner.
6.3 TAX ALLOCATIONS.
(a) Except as otherwise provided in Section A.2(a) of Appendix A, for
income tax purposes, all items of income, gain, loss, deduction and credit of
the Partnership for any tax period shall be allocated among the Partners in
accordance with the allocations of Profit and Loss prescribed in this Article VI
and in Appendix A.
(b) The Partners are aware of the income tax consequences of the
allocations trade by this Article VI and Appendix A and hereby agree to be bound
by the provisions of this Article VI and Appendix A in reporting their
distributive shares of Partnership taxable income and loss for income tax
purposes.
6.4 MODIFICATION IN ALLOCATIONS. The General Partner shall be authorized to
modify the method of allocating Profits and Losses to the Partner upon receipt
of advice from counsel that such change is required by applicable law.
ARTICLE 7
RESTRICTIONS ON TRANSFERS
OF PARTNERSHIP INTERESTS
7.1 GENERAL. No Partner shall be authorized to Transfer all or a portion of
such Person's Units. Any purported Transfer of Units shall be null and void and
of no force and effect whatsoever.
7.2 LEGENDS. Each Partner agrees that the restrictions on Transfer set
forth in Section 7.1 may be placed upon any counterpart of this Agreement or any
other instrument or document evidencing ownership of Units.
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ARTICLE 8
BOOKS AND RECORDS
TAX MATTERS
8.1 BOOKS AND RECORDS. The General Partner, at the expense of the
Partnership, shall maintain the records of the Partnership required to be
maintained pursuant to A.R.S. 29-305. Any Partner or its designated
representative shall have the right, at any reasonable time, to have access to
and may inspect and copy the contents of such books o: records.
8.2 TAX INFORMATION. The General Partner shall instruct the Partnership's
accountants to prepare and deliver all necessary tax returns and information to
each Partner within a reasonable period following the end of each Fiscal Year.
The General Partner shall have sole authority relating to matters pertaining to
the preparation of tax returns and the administration of the tax affairs
relating to the Partnership and, in connection therewith, shall be authorized:
(a) To make any and all elections for federal, state and local tax
purposes, including, without limitation, any election, if permitted by
applicable law, to adjust the basis of Partnership property pursuant to Code
Sections 754, 734(b) and 743(b), or comparable provisions of state or local law,
in connection with the transfers or liquidations of Partnership interests;
(b) To act as the "tax matters partner" of the Partnership (within the
meaning of Section 6231 of the Code) and in any similar capacity with respect to
the Partnership under state or local law;
(c) To extend the statute of limitations for assessment of tax
deficiencies against Partners with respect to adjustments to the Partnership's
federal, state or local tax returns;
(d) To represent the Partnership and the Partners before taxing
authorities or courts of competent jurisdiction in tax matters affecting the
Partnership and the Partners in their capacity as Partners, and to execute any
agreements or other documents relating to or affecting such tax matters,
including agreements or other documents that bind the Partners with respect to
such tax matters.
ARTICLE 9
DISSOLUTION AND WINDING UP
9.1 DISSOLUTION. The Partnership shall dissolve upon the first to occur of
any of the following events:
(a) The unanimous written agreement of all of the Partners;
(b) The expiration of the term set forth in Section 2.4;
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(c) The entry of a decree of dissolution under Section 8.02 of the
Act;
(d) The sale or other disposition of all or substantially all of the
assets of the Partnership; or
(e) The failure of the Limited Partner, within ninety (90) days after
a Withdrawal Event with respect to the sole remaining General Partner, to
unanimously elect a new General Partner and to continue the Partnership without
dissolution pursuant to Section 10.3.
9.2 WINDING UP. Upon a dissolution of the Partnership, the General Partner
(or, if there is no General Partner, the Limited Partner or a Person designated
by the Limited Partner) shall take full account of the Partnership's liabilities
and assets, and the Partnership's assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. The proceeds of liquidation,
to the extent sufficient therefor, shall be applied and distributed in the
following order:
(a) First, to the payment and discharge of all of the Partnership's
debts and liabilities owed or owing to creditors other than the Partners,
including the establishment of any necessary reserves;
(b) Second, to the payment and discharge of all of the Partnership's
debts and liabilities owed to the Partners;
(c) Third, to the Partners in accordance with the positive balance of
each Partner's Capital Account as determined after taking into account all
Capital Account adjustments for the Partnership's taxable year during which the
liquidation occurs. Any such distributions to the Partners in respect of their
Capital Accounts shall be made within the time requirements of Section
1.704-1(b)(3)(ii)(b)(2) of the Regulations.
9.3. COMPLIANCE WITH REGULATIONS.
(a) Distributions required by Section 9.2 may be distributed to a
trust established for the benefit of the Partners for the purposes of
liquidating Partnership property, collecting amounts owed to the Partnership,
and paying any contingent or unforeseen liabilities or obligations of the
Partnership or of the General Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the Partners
from time to time, in the discretion of the General Partner, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the Partners pursuant to this Agreement.
(b) If any General Partner whose interest in the Partnership is
liquidated within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g) has a negative balance in the General Partner's Capital
Account after such liquidation, such General Partner shall pay to the
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Partnership an amount equal to such negative Capital Account balance no later
than the end of the Partnership taxable year in which such liquidation occurs
(or, if later, within ninety (90) days after the date of such liquidation);
provided, however, that if such Person is and remains obligated after the
liquidation to contribute additional funds to the Partnership in the manner
described in Regulation Section 1.704-1(b)(2)(ii)(c), such Partner shall be
required to pay to the Partnership, within the time period set forth above, only
the amount, if any, by which the Partner's negative Capital Account balance
exceeds the amount of funds the Partner is so obligated to contribute. If any
Limited Partner has a negative balance in such Partner's Capital Account after
such liquidation, such Limited Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or to any
other Person for any purpose whatsoever.
9.4 CERTIFICATE OF CANCELLATION. When all of the remaining property and
assets have been applied and distributed in accordance with Section 9.2, the
General Partner (or, if there is no General Partner, the Limited Partners or a
Person designated by the Limited Partners) shall cause to be executed and filed
a certificate of cancellation in accordance with the Act.
9.5 In Kind Distributions. A Partner shall have no right to demand and
receive any distribution from the Partnership in any form other than cash.
However, a Partner may be compelled to accept a distribution of an asset in kind
if the Partnership is unable to dispose of all of its assets for cash.
ARTICLE 10
EVENTS AFFECTING GENERAL PARTNER
10.1 CESSATION. A Person shall cease to be a General Partner upon the
occurrence of a Withdrawal Event affecting such Person. Except as otherwise
provided herein, upon the occurrence of any Withdrawal Event affecting the
General Partner, such Person or its transferee shall maintain the right to
receive distributions and allocations with respect to Units held by the General
Partner prior to the occurrence of the Withdrawal but shall not be authorized to
exercise any additional management rights.
10.2 RIGHT OF REMAINING GENERAL PARTNER. Following any Withdrawal Event
affecting a General Partner under Section 10.1 hereof, a remaining General
Partner (if any) may elect to continue the Partnership's business without
dissolution in conformity with the provisions of this Agreement.
10.3 ELECTION OF NEW GENERAL PARTNER. If no General Partner remains
following a Withdrawal Event affecting a General Partner under Section 10.1
hereof or the Act, any Limited Partner may nominate one or more Persons for
election as General Partner(s) to continue the Partnership business without
dissolution. No Person so nominated shall become a General Partner unless
elected by all of the Limited Partners within ninety (90) days after the
Withdrawal Event affecting the sole General Partner.
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ARTICLE 11
MISCELLANEOUS
11.1 BINDING EFFECT. Except as otherwise provided in this Agreement and by
applicable law, every covenant, term, and provision of this Agreement shall be
binding upon and inure to the benefit of the Partners and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.
11.2 CREDITORS AND OTHER THIRD PARTIES. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditors of the
Partnership or by other third parties.
11.3 SECTION AND OTHER REFERENCES. Except as otherwise provided, any
reference herein to the term "Section," "Article," or "Appendix" shall refer to
the corresponding section, article, or appendix of this Agreement.
11.4 HEADINGS. Section and other headings contained in this Agreement are
for reference purposes only and are not intended to describe, interpret, define,
or limit the scope, extent or interest of this Agreement or any provision
hereof.
11.5 SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
11.6 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the General
Partner, agrees to perform all further acts and to execute, acknowledge, and
deliver any documents that may be reasonably necessary, appropriate, or
desirable-to carry out the provisions of this Agreement.
11.7 GOVERNING LAW. The laws of the State of Texas shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the Partners.
11.8 WAIVER OF ACTION FOR PARTITION. Each of the Partners irrevocably
waives any right that it tray have to maintain any action for partition with
respect to any of the Partnership's assets and properties.
11.9 SOLE AND ABSOLUTE DISCRETION. Except as otherwise provided in this
Agreement, all actions that the General Partner may take and all determinations
that the General Partner may make pursuant to this Agreement may be taken and
trade at the sole and absolute discretion of the General Partner.
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11.10 INVESTMENT REPRESENTATIONS. By execution of this Agreement below,
each Limited Partner represents and covenants as follows:
(a) The Partner has full legal right, power, and authority to enter
into this Agreement and to perform the obligations under this Agreement,
including the obligation to make the Capital Contributions set forth in Article
III;
(b) The Agreement constitutes the legal, valid, and binding obligation
of the Partner enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy and other laws of general
application relating to creditors' rights or general principles of equity;
(c) The Agreement does not violate, conflict with, result in a breach
of the terms, conditions or provisions of, or constitute a default or an event
of default under any other agreement of which the Partner is a party; and
(d) The acquisition of Units in the Partnership is made for the
Partner's own account for investment purposes only and not with a view to the
resale or distribution of such Units.
11.11 NOTICES. All notices under this Agreement shall be in writing and
shall be effective upon personal delivery, or, if sent by registered or
certified mail, postage repaid, addressed to the party at the address set forth
with respect to such party as reflected in the records of the Partnership n the
deposit of such notice in the United States mail.
11.12 COUNTERPART EXECUTION. This Agreement may be executed in any number
of counterparts with the same effect as if all of the Partners had signed the
same document. All counterparts shall be construed together and shall constitute
one agreement.
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APPENDIX A
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
day first above set forth.
MTH-TEXAS GP, Inc.,
an Arizona corporation
By: /s/ William W. Cleverly
------------------------------------
Name: William W. Cleverly
Its: Chairman and Co-Chief Executive
Officer
and
By: /s/ Steven J. Hilton
------------------------------------
Name: Steven J. Hilton
Its: President and Co-Chief
Executive Officer
MTH-TEXAS LP, Inc.,
an Arizona corporation
By: /s/ William W. Cleverly
------------------------------------
Name: William W. Cleverly
Its: Chairman and Co-Chief Executive
Officer
and
By: /s/ Steven J. Hilton
------------------------------------
Name: Steven J. Hilton
Its: President and Co-Chief
Executive Officer
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Appendix A
SPECIAL TAX AND ACCOUNTING PROVISIONS
A.1 ACCOUNTING DEFINITIONS. The following terms, which are used
predominantly in this Appendix A, shall have the meanings set forth below for
all purposes under this Agreement:
"ADJUSTED CAPITAL ACCOUNT BALANCE" means, with respect to any Partner,
the balance of such Partner'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 Partner is
obligated to restore pursuant to this Agreement or as determined pursuant to
Regulations Section 1.704-1(b)(2)(ii)(Q), or is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in clauses (4),
(5) and (6) of Section 1.704-1(b)(2)(ii)(d) of the Regulations.
The foregoing definition of Adjusted Capital Account Balance is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"BOOK VALUE" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Book Value for any asset (other than money)
contributed by a Partner to the Partnership shall be the value as set forth in
this Agreement or, if not set forth in this Agreement, as reasonably determined
by the General Partner;
(b) The Book Value of all Partnership assets shall be adjusted to
equal their respective gross fair market values, as reasonably determined by the
General Partner as of the following times: (i) the acquisition of additional
Units in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (ii) the distribution by the Partnership
to a Partner of more than a de minimis amount of cash or property as
consideration for Units in the Partnership, if (m any such event) such
adjustment is necessary or appropriate, in the reasonable judgment of the
General Partner, to reflect the relative economic interests of the Partners in
the Partnership; or (iii) the liquidation of the Partnership for federal income
tax purposes pursuant to Regulations Section 1.704-1(b)(2)(ii)(g);
(c) The Book Value of any Partnership asset distributed to any Partner
shall be adjusted to equal its gross fair market value on the date of
distribution, as reasonably determined by the General Partner;
(d) The Book Values of the Partnership's 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 Regulation Section 1.704-1(b)(2)(iv)(m) and Section A.2(g) hereof;
provided, however, that Book Values shall not be adjusted pursuant to this
subsection (d) to the extent that an adjustment pursuant to subsection (b) of
this definition is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this subsection (d);
and
(e) If the Book Value of an asset has been determined or adjusted
pursuant to subsection (a), (b) or (d) above, such Book Value shall thereafter
be adjusted by the Depreciation taken into account from time to time with
respect to such asset for purposes of computing Profits and Losses.
"CAPITAL ACCOUNT" means, with respect to any Partner or other owner of
Units in the Partnership, the Capital Account maintained for such Person in
accordance with the following provisions:
(a) To each such Person's Capital Account, there shall be credited the
amount of cash contributed to the capital of the Partnership and the initial
Book Value of any noncash assets contributed to the capital of the Partnership
by such Person, such Person's distributive share of Profits and any items in the
nature of income or gain that are specially allocated pursuant to Sections A.2
and A.3 hereof, and the amount of any Partnership liabilities assumed by such
person (excluding assumed liabilities that have been taken into account in
computing the Book Value of any Partnership property distributed to such
Person);
(b) To each such Person's Capital Account there shall be debited the
amount of cash and the Book Value of any Partnership property distributed to
such Person pursuant to any provision of this Agreement, such person's
distributive share of Losses, and any items in the nature of expenses or losses
that are specially allocated pursuant to Sections A.2 and A.3 hereof, and the
amount of any liabilities of such Person assumed by the Partnership;
(c) In the event any Units in the Partnership are transferred 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;
(d) Section 752(c) of the Code shall be applied in determining the
amount of any liabilities taken into account for purposes of this definition of
"Capital Account"; and
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(e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to COMPLY
with Sections 1.704-1(b) and 1.704-2 of the Regulations and shall be interpreted
and applied in a manner consistent with such Regulations. The General Partner
may modify the manner of computing the Capital Accounts or any debits or credits
thereto (including debits or credits relating to liabilities that are secured by
contributed or distributed property or that are assumed by the Partnership or
any Partner) in order to comply with such Regulations, provided that any such
modification is not likely to have a material effect on the amounts
distributable to any Partner upon the dissolution of the Partnership. Without
limiting the generality of the preceding sentence, the General Partner shall
make any adjustments that are necessary or appropriate to maintain equality
between the aggregate sum of the Capital Accounts and the amount of capital
reflected on the balance sheet of the Partnership, as determined for book
purposes in accordance with Section 1.704-1(b)(2)(iv)(g) of the Regulations. The
General Partner shall also make any appropriate modifications if unanticipated
events (for example, the availability of investment tax credits) might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).
"PARTNERSHIP MINIMUM GAIN" has the same meaning as the term
"partnership minimum gain" under Regulations Section 1.704-2(d) of the
Regulations.
"DEPRECIATION" means, for each Fiscal Year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Book 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 that bears the same ratio to such beginning Book 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, that if such depreciation, amortization or other cost
recovery deductions with respect to any such asset for federal income tax
purposes is zero for any Fiscal Year, Depreciation shall be determined with
reference to the asset's BOOK Value at the beginning of such year using any
reasonable method selected by the General Partner.
"PARTNER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" under Section 1.704-2(b)(4) of the Regulations.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the same meaning as the
term "partner nonrecourse debt minimum gain" under Section 1.704-2(i)(2) of the
Regulations and shall be determined in accordance with Section 1.704-2(i)(3) of
the Regulations.
"PARTNER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"partner nonrecourse deductions" under Regulations Section 1.704-2(i)(1). The
amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse
Debt for each Fiscal Year of the Partnership equals the excess (if any) of the
net increase (if any) in the amount of Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt during such Fiscal Year over the
aggregate amount of any distributions during such Fiscal Year to the Partner
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that bears the economic risk of loss for such Partner Nonrecourse Debt to the
extent that such distributions are from the proceeds of such Partner Nonrecourse
Debt which are allocable to an increase in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(2) of the Regulations.
"NONRECOURSE DEBT" or "NONRECOURSE LIABILITY" has the same meaning as
the term "nonrecourse liability" under Section 1.704-2(b)(3) of the Regulations.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations. The amount of Nonrecourse Deductions for a
Partnership Fiscal Year equals the excess (if any) of the net increase (if any)
in the amount of Partnership Minimum Gain during that Fiscal Year over the
aggregate amount of any distributions during that Fiscal Year of proceeds of a
Nonrecourse Debt that are allocable to an increase in Partnership Minimum Gain,
determined according to the provisions of Section 1.704-2(c) of the Regulations.
"PROFITS" or "LOSSES" means, for each Fiscal Year or other period, the
taxable income or taxable loss of the Partnership as determined under Code
Section 703(x) (including in such taxable income or taxable loss all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code) with the following adjustments:
(a) All items of gain or loss resulting from any disposition of the
Partnership's property shall be determined upon the basis of the Book Value of
such property rather than the adjusted tax basis thereof;
(b) Any income of the Partnership that is exempt from federal income
tax shall be added to such taxable income or loss;
(c) Any expenditures of the Partnership that are described in Code
Section 705(a)(2)(B), or treated as such pursuant to Regulations Section
1.704-1(b)(2)(iv)(j), and that are not otherwise taken into account in the
computation of taxable income or loss of the Partnership, shall be deducted in
the determination of Profits or Losses;
(d) If the Book Value of any Partnership asset is adjusted pursuant to
subsection (b) or (c) of the definition of "Book Value"- set forth in this
Appendix A, the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Profits or
Losses unless such gain or loss is specially allocated pursuant to Section A.2
hereof;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in determining such taxable income or loss, there
shall be deducted Depreciation, computed in accordance with the definition of
such term in this Appendix A; and
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(f) Notwithstanding any of the foregoing provisions, any items that
are specially allocated pursuant to Section A.2 or A.3 hereof shall not be taken
into account in computing Profits or Losses.
A.2 SPECIAL ALLOCATIONS. The allocation of Profits and Losses for each
Fiscal Year shall be subject to the following special allocations in the order
set forth below:
(a) Section 704(c) In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to any
in-kind property contributed to the capital of the Partnership, shall, solely
for tax purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Book Value. In the event the Book
Value of any Partnership asset is adjusted pursuant to subsection (b) of the
definition of "Book Value" in Section A.1 of Appendix A to this Agreement,
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 Book Value in the same manner as
under Code Section 704(c) and the Regulations thereunder. Any elections or other
decisions relating to such allocations shall be made by the General Partner. in
any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 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 Profits, Losses or other
items or distributions pursuant to any provision of this Agreement.
(b) Partner Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain for any Fiscal Year, each Partner shall be specially
allocated items of income and gain for such year (and, if necessary, for
subsequent years) in an amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain during such year, determined in accordance with
Regulations Section 1.704-2(g)(2). Allocations pursuant to the preceding
sentence shall be made among the Partners in proportion to the respective
amounts required to be allocated to each of them pursuant to such Regulation.
The items to be so allocated shall be determined in accordance with Regulations
Section 1.704-2(f)(6). Any special allocation of items of Partnership income and
gain pursuant to this Section A.2(a) shall be made before any other allocation
of items under this Appendix A. This Section A.2(a) is intended to comply with
the "minimum gain chargeback" requirement in Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(c) Partner Nonrecourse Debt. Minimum Gain Chargeback. If there is a
net decrease during a Fiscal Year in the Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt, then each Partner with a share of
the Partner Nonrecourse Debt Minimum Gain attributable to such debt, determined
in accordance with Regulations Section 1.704-2(i)(5), shall be specially
allocated items of income and gain for such year (and, if necessary, subsequent
years) an amount equal to such Partner's share of the net decrease in the
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
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Allocations pursuant to the preceding sentence shall be made among the Partners
in proportion to the respective amounts to be allocated to each of them pursuant
to such Regulation. Any special allocation of items of income and gain pursuant
to this Section A.2(b) for a Fiscal Year shall be made before any other
allocation of Partnership items under this Appendix A, except only for special
allocations required under Section A.2(a) hereof. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(i)(4). This
Section A.2(b) is intended to comply with the provisions of Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
(d) QUALIFIED INCOME OFFSET. If any Partner other than the General
Partner receives any adjustments, allocations, or distributions described in
clauses (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d), items of
income and gain shall be specially allocated to each such Partner in an amount
and manner sufficient to eliminate as quickly as possible, to the extent
required by such Regulation, any deficit in such Partner's Adjusted Capital
Account Balance, such balance to be determined after all other allocations
provided for under this Appendix A have been tentatively made as if this Section
A.2(d) were not in this Agreement.
(e) GROSS INCOME ALLOCATION. In the event any Partner other' than a
General Partner has a deficit Capital Account at the end of any Fiscal Year
which is in excess of the sum of (i) the amount (if any) such Partner is
obligated to restore pursuant to any provision of this Agreement, and (ii) the
amount such Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations, each such Partner shall be specially allocated items of income and
gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section A.2(e) shall be made only if and to the
extent that such Partner would have a deficit Capital Account in excess of such
sum after all other allocations provided for in this Appendix A have been made
as if Section A.2(d) hereof and this Section A.2(e) were not in this Agreement.
(t) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Fiscal Year
or other period shall be specially allocated to the Partners in proportion to
their Percentage Units.
(g) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions for
any Fiscal Year or other period shall be specially allocated, in accordance with
Regulations Section 1.704-2(i)(1), to the Partner or Partners who bear the
economic risk of loss for the Partner Nonrecourse Debt to which such deductions
are attributable.
(h) CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any.Partnership asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m), 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 Partners in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such section of the Regulations.
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A.3 CURATIVE ALLOCATIONS. The allocations set forth in subsections (b)
through (h) of Section A.2 hereof ("Regulatory Allocations") are intended to
comply with certain requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding any other provisions of this Appendix A (other than the
Regulatory Allocations and the next two following sentences), the Regulatory
Allocations shall be taken into account in allocating other Profits, Losses and
items of income, gain, loss and deduction among the Partners so that, to the
extent possible, the net amount of such allocations of other Profits, Losses and
other items and the Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the Regulatory
Allocations had not occurred. For purposes of applying the preceding sentence,
Regulatory Allocations of Nonrecourse Deductions and Partner Nonrecourse
Deductions shall be offset by subsequent allocations of items of income and gain
pursuant to this Section A.3 only if (and to the extent) that: (a) the General
Partner reasonably determines that such Regulatory Allocations are not likely to
be offset by subsequent allocations under Section A.2(a) or Section A.2(b)
hereof, and (b) there has been a net decrease in Partnership Minimum Gain (in
the case of allocations to offset prior Nonrecourse Deductions) or a net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt (in the case of allocations to offset prior Partner Nonrecourse
Deductions). The General Partner shall apply the provisions of this Section A.3,
and shall divide the allocations hereunder among the Partners, in such manner as
will minimize the economic distortions upon the distributions to the Partners
that might otherwise result from the Regulatory Allocations.
A.4 GENERAL ALLOCATION RULES.
(a) Generally, all Profits and Losses allocated to the Partners shall
be allocated among them in proportion to their Percentage Interests, except as
otherwise specifically provided under the terms of this Agreement In the event
Partners are admitted to the Partnership on different dates during any Fiscal
Year, additional Units are issued during a Fiscal Year, or Units are
re-allocated during a Fiscal Year, the Profits (or Losses) allocated to the
Partners for each such Fiscal Year shall be allocated among the Partners in
proportion to the Percentage Interests that each Partner holds from time to time
during such Fiscal Year in accordance with Code Section 706, using any
convention permitted by law and selected by the General Partner.
(b) For purposes of determining the Profits, Losses or any other items
allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the General
Partner using any method permissible under Code Section 706 and the Regulations
thereunder.
(c) For purposes of determining the Partners' proportionate shares of
the "excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), their respective interests in Partner profits
shall be in the same proportions as their Percentage Interests.
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