Exhibit 10.1

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

LIMITED LIABILITY COMPANY AGREEMENT
OF
TNHC RUSSELL RANCH LLC,
a Delaware limited liability company

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TABLE OF CONTENTS

Page
Article I ORGANIZATION
1
 
 
 
1.01
Formation; Admission of Members
1
1.02
Name and Principal Place of Business
1
1.03
Term
2
1.04
Registered Agent and Registered Office
2
1.05
Project and Business Plan
2
 
 
 
Article II CAPITAL AND LOANS
5
 
 
 
2.01
Company Accounts
5
2.02
Capital Contributions
6
2.03
Company Financing
9
 
 
 
Article III CASH MANAGEMENT AND DISTRIBUTIONS
9
 
 
 
3.01
Bank Accounts
9
3.02
Distributions of Cash Flow
11
 
 
 
Article IV MANAGEMENT
12
 
 
 
4.01
Authority; Major Decisions
12
4.02
Representatives of Members
13
4.03
Day-to-Day Operations
14
4.04
Miscellaneous Covenants
17
4.05
Emergency Authority
18
4.06
Fees and Reimbursements
18
 
 
 
Article V REPLACEMENT OF MANAGING MEMBER
20
 
 
 
5.01
Agreement of Members
20
5.02
Replacement Event
20
5.03
Replacement of Managing Member; Loss of Participation in Management
21
 
 
 
Article VI DEFAULTS AND REMEDIES
22
 
 
 
6.01
Event of Default
22
6.02
Effect of Event of Default
23
6.03
Failure to Fund
23
6.04
Cross-Default
24
 
 
 
Article VII CALL AND BUY/SELL AGREEMENT
24
 
 
 
7.01
Rights Arising From a Call Event
24

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7.02
Determination of Appraised Value
25
7.03
Buy/Sell
26
7.04
Determination of the Purchase Price
27
7.05
Other Disclosures
29
7.06
Closing of Purchase and Sale
29
7.07
Release and Indemnity
30
7.08
Bonds and Guaranties
30
7.09
Activities Prior to Closing
30
 
 
 
Article VIII DISSOLUTION OF THE COMPANY
31
 
 
 
8.01
Events of Dissolution
31
8.02
Effect of Dissolution
31
8.03
Liquidation of Assets
32
8.04
Distributions Upon Liquidation
32
8.05
Completion of Winding-Up
33
8.06
No Capital Account Restoration; Economic Shortfall and Loss Sharing
33
 
 
 
Article IX INDEMNIFICATION
34
 
 
 
9.01
Limitation on Liability
34
9.02
Indemnification by Members
34
9.03
Indemnification of Members and Others by the Company
35
9.04
Survival
36
 
 
 
Article X ACCOUNTING
36
 
 
 
10.01
Books and Records
36
10.02
Location and Availability of Records
36
10.03
Reports
36
10.04
Consolidation Reporting
39
 
 
 
Article XI TRANSFER OF MEMBERSHIP INTERESTS AND PARTITION
39
 
 
 
11.01
Restriction on Transfer
39
11.02
Partition
40
11.03
Admission of Substituted Member
40
11.04
Compliance
40
11.05
Permitted Transfers
41
11.06
Transferor Remains Liable
41
11.07
Restrictions on Assignees
41
11.08
IHP Transfers
41
 
 
 
Article XII MISCELLANEOUS
42
 
 
 
12.01
Integration/Amendment
42
12.02
Attorneys’ Fees
42

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12.03
Notices
42
12.04
Execution of Other Documents
43
12.05
Brokers
43
12.06
Waiver
43
12.07
Equitable Remedies
43
12.08
Captions, Gender
43
12.09
Benefits and Obligations
44
12.10
Severability
44
12.11
Applicable Law
44
12.12
No Third Party Beneficiary
44
12.13
Exhibits
44
12.14
Estoppels
44
12.15
References to this Agreement
45
12.16
Counterparts
45
12.17
Time
45
12.18
Investment Representations
45
12.19
Nondiscrimination
45
12.20
Exculpation and Waiver
46
12.21
Responsible Contractor Policy and Guidelines
46
12.22
Hazardous Material
46
12.23
Confidentiality
49
12.24
Standard for Consent
50

Exhibit “A”
Legal Description of Property
 
Exhibit “B”
Approved Project Budget
 
Exhibit “C”
Tax Provisions
 
Exhibit “D”
Funding Requirements
 
Exhibit “E”
Permitted Exceptions
 
Exhibit “F”
List of Assets
 
Exhibit “G”
Representations and Warranties
 
Exhibit “H”
Reserved
 
Exhibit “I”
Insurance Requirements
 
Exhibit “J”
Reserved
 
Exhibit “K”
Reserved
 
Exhibit “L”
Assumed Liabilities
 
Exhibit “M”
Form of Reports
 
Exhibit “N”
Reserved
 
Exhibit “O”
Pending and Historical Litigation
 
Exhibit “P”
Responsible Contractor Policy and Guidelines
 

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GLOSSARY OF DEFINED TERMS
 
Section
Act
1.01
Additional Capital
2.02(e)
Affiliate
4.04(b)
Agreement
Introduction
Appraised Value
7.02
Approved Business Plan
1.05(d)
Approved Environmental Parameters
12.22(d)
Approved Phase Budget
1.05(e)
Approved Project Budget
1.05(d)(i)
Assigned Property
2.02(d)(ii)
Base Capital Preferred Return
2.01(c)(ii)
Base Capital Preferred Return Rate
2.01(c)(ii)
Buy/Sell Event
7.03(a)
Buy/Sell Notice
7.03(b)(i)
Buy/Sell Value
7.03(b)(i)
Call Event
7.01(a)
Capital Account
2.01(a)
Capital Proceeds
3.01(b)
Cash Deficit
6.03
Cash Flow
3.02
Certificate of Formation
1.01
City
1.05(b)
Close-Out Period
8.04(b)(i)
Closing
7.06
Code
EXHIBIT “C”, 1(a)
Collection Account
3.01(a)
Company
Introduction
Company Assets
5.03(b)
Company Financing
2.03
Company Minimum Gain
EXHIBIT “C”, 1(b)
Confidential Information
12.23(a)
Constituent Member Transfers
11.05(a)
Contributing Member
6.03
DA Amendment
1.05(b)(i)
Damages
12.22(f)
Due Care
4.01(b)
Economic Shortfall
8.06
Electing Member
7.01(b)
Election Notice
7.01(b)
Entitlements
1.05(b)
Environmental Remediation
12.22(c)
Environmental Requirements
12.22(b)

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Event of Bankruptcy
6.01(c)
Event of Default
6.01
Excess Additional Capital
2.02(e)(iii)
Executive Committee
4.02(a)
Fiscal Year
10.01
Force Majeure
5.02(c)
Funding Date
2.02(e)(ii)
General Contractor
4.03(h)
Gross Asset Value
EXHIBIT “C”, 1(c)
Guarantor
2.02(d)(iii)
Guaranty
2.02(d)(iii)
Hazardous Material
12.22(a)
Hazardous Materials
12.22(b)(i)
Holdback Amount
7.04(b)
IHP
Introduction
IHP Indemnitees
9.02(a)
IHP Project Commitment Fee
4.06(b)
IHP’s Maximum Capital Commitment
2.02(a)
Indemnified Party
9.03
Laws
4.03(b)
Liabilities
9.02(a)
Liquidating Trustee
8.03
Loss of Control Event
7.03(a)
Lot
1.05(b)
Lots
1.05(b)
Major Decision
4.01(c)
Major Decisions
4.01(c)
Managing Member
1.01
Member
1.01
Member Minimum Gain
EXHIBIT “C”, 1(d)
Member Nonrecourse Debt
EXHIBIT “C”, 1(e)
Member Nonrecourse Deductions
EXHIBIT “C”, 1(f)
Member’s Share of Loss
8.06
Members
1.01
Membership Interest
1.01
Membership Interests
11.01
Net Losses
EXHIBIT “C”, 1(g)
Net Proceeds
3.01(a)
Net Profits
4.06(a)
Net Revenues
4.06(a)
New Home
11.05(a)
Non-Contributing Member
6.03
Non-Electing Member
7.01(b)
Nonrecourse Deductions
EXHIBIT “C”, 1(i)
Offeree Member
7.03(a)
Offeree’s Notice
7.03(b)(ii)

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Offeror Member
7.03(a)
Original Budget
1.05(d)(i)
Other Entities
6.04
Other Entity
6.04
Parties
12.23(a)
Percentage Interest
7.02
Permitted Exceptions
2.02(d)(i)
Permitted Transfer
11.05
Permitted Transferee
11.05(c)
Person
4.04(b)
Phase
1.05(e)
Phases
1.05(e)
Preferred Return
2.01(c)(iii)
Prime Rate
2.01(c)(iii)
Project
1.05(a)
Project Cost Account
3.01(b)
Project Costs
1.05(d)(i)
Project Proforma
1.05(d)(ii)
Property
1.05(a)
Purchase Agreement
2.02(d)(i)
Purchase Price
7.04(c)
Purchase Price Notice
7.04(c)
Regulatory Allocations
EXHIBIT “C”, 1(j)
Replacement Event
5.02
Replacement Events
5.02
Replacement Manager
5.01
Request for Funds
2.02
Seller
2.02(d)(i)
Seller Purchase Money Loan
2.03
Senior Capital Preferred Return
2.01(c)(i)
Senior Capital Preferred Return Rate
2.01(c)(i)
SIR Amount
3.01(d)
SPA
1.05(b)(i)
Statement of Liabilities
7.04(a)(i)
Substitute Statement of Liabilities
7.04(a)(iii)
System
4.01(d)
TNHC
Introduction
TNHC Management Fee
4.06(a)
TNHC Partners
11.05(a)
TNHC Reorganization
11.01
TNHC’s Liabilities Reps and Warranties
7.04(a)(v)
TNHC’s Maximum Capital Commitment
2.02(b)
Treasury Regulation
EXHIBIT “C”, 1(k)
Unfunded SIR Amount
3.01(d)
Unrecovered Capital Account
2.01(b)
Working Capital Reserve
3.01(c)

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LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC RUSSELL RANCH LLC,
a Delaware limited liability company
THIS LIMITED LIABILITY COMPANY AGREEMENT (the “Agreement”) of TNHC RUSSELL RANCH
LLC, a Delaware limited liability company (the “Company”), is made as of May 22,
2013, by and between TNHC LAND COMPANY LLC, a Delaware limited liability company
(“TNHC”), and IHP CAPITAL PARTNERS VI, LLC, a Delaware limited liability company
(“IHP”).

ARTICLE I
ORGANIZATION

1.01    Formation; Admission of Members. IHP and TNHC (herein individually, a
“Member” and collectively, the “Members”) hereby form the Company as a limited
liability company under the Delaware Limited Liability Company Act, Delaware
Code Annotated Title 6, Chapter 18, Sections 18-101 through 18-1109, as amended
(the “Act”), upon the terms and subject to the conditions set forth in this
Agreement. TNHC shall act as the managing member of the Company (the “Managing
Member”) unless and until replaced as hereinafter provided. Prior to the date
hereof, a certificate of formation was filed in accordance with the Act (the
“Certificate of Formation”). The Managing Member is hereby authorized and
directed to file and record any amendments to the Certificate of Formation and
such other document’s as may be required or appropriate under the Act or the
laws of any other jurisdiction in which the Company may conduct business or own
property. TNHC and IHP are each hereby admitted as a Member of the Company and
shall be shown as such on the books and records of the Company. For purposes of
this Agreement, a “Membership Interest” means a Member’ s entire right, title
and interest in and to the Company including the Net Profits, Net Losses and
Cash Flow of the Company, the capital thereof and any other interest therein.
Except as expressly permitted by this Agreement, no other Person shall be
admitted as a Member of the Company, and no additional Membership Interests
shall be issued. No Member shall have the authority to bind any other Member in
any capacity other than as a Member of the Company and nothing in this Agreement
shall create a relationship between the Members other than for the purposes set
forth in this Agreement.

1.02    Name and Principal Place of Business.
(a)    The Company shall conduct its business under the name “TNHC Russell Ranch
LLC.” The Members may change the name of the Company and may adopt one or more
fictitious names for use by the Company. All business of the Company shall be
conducted under such name and title to all Company assets shall be held in such
name.
(b)    The Company shall maintain an office in the State of California which
shall be initially located at the offices of the Managing Member at 95
Enterprise, Suite 325, Aliso

    

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Viejo, California 92656. The Company may have such other places of business or
offices as are approved by the Members from time to time.

1.03    Term. The term of the Company shall commence on the date hereof and
shall continue perpetually from the date hereof unless sooner terminated
pursuant to the provisions of this Agreement.

1.04    Registered Agent and Registered Office. The name of the Company’s
registered agent for service of process in Delaware shall be Corporation Service
Company and the address of the Company’s registered agent and the address of the
Company’s registered office in the State of Delaware shall be 2711 Centerville
Road, #400, Wilmington, Delaware 19808. Such agent and such office may be
changed from time to time by the Members. The Company’s agent for service of
process in the State of California shall be Corporation Service Company which
will do business in California as CSC-Lawyers Incorporating Service, whose
address is 2710 Gateway Oaks Drive, Suite 150N, Sacramento, CA. Such agent and
address may be changed from time to time by the Members.

1.05    Project and Business Plan.
(a)    Description of Project. The express, limited and only purposes of this
Company are to (i) acquire the real property described in Exhibit “A” attached
hereto (the “Property”), (ii) achieve the Entitlements for the Property, (iii)
develop on-site and off-site improvements described in the Approved Business
Plan, which are contemplated to include mass grading of the Property to create
blue top lots, and (iv) sell the Property in bulk and/or in multiple phases to
homebuilders (collectively, the “Project”). The Company shall not engage in any
other business without the prior written consent of the Members, which consent
may be withheld in their discretion.
(b)    Entitlements. As used in this Agreement, “Entitlements” means the mapping
of the Property to secure all development rights and approvals from the City of
Folsom (“City”) and/or other governmental agencies (as applicable) to construct
approximately eight hundred seventy (870) residential lots (individually, a
“Lot” and collectively, the “Lots”), a school and park site and a three (3) acre
recreation facility. The following summarizes the critical elements of the
Entitlements:
(i)    Completion and City Council Approval of the Folsom Plan Area Specific
Plan (“SPA”) Tier 2 or Amended Development Agreement (“DA Amendment”). Critical
components of the DA Amendment include: School Financing Plan; Affordable
Housing; and Specific Plan Infrastructure Fee Program.
(ii)    Project specific Entitlements include but are not limited to:
(A)    Specific Plan amendment;
(B)    Satisfaction of CEQA as required by City;
(C)    Preliminary Planned Development – Land Use Plan;
(D)    Affordable housing plan;
(E)    Design guidelines and development standards;

2

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(F)    Large lot tentative map of the Property;
(G)    Final large lot map, subdivision agreements, civil construction documents
and City required bonding;
(H)    Small lot tentative map(s);
(I)    Final small lot maps, subdivision agreements, civil construction
documents to be prepared by TNHC and assigned to lot purchasers who will execute
subdivision agreement(s) and post required bonds; and
(J)    Development agreement.
(c)    Approved Environmental Parameters. Managing Member agrees to cause the
Project to satisfy the Approved Environmental Parameters.
(d)    Approved Business Plan. The Members agree that the initial business plan
for the Company is to acquire the Property and seek the Entitlements inclusive
of the following items described in (i)-(iv) below, attached hereto as Exhibit
“B” (collectively, the “Approved Business Plan”).
(i)    All costs and liabilities (“Project Costs”) to be paid or assumed by the
Company in connection with the Project (the “Original Budget”), which is hereby
approved by the Members (the “Approved Project Budget”). No changes or
departures from the Approved Project Budget shall be made without the prior
consent of IHP, which consent may be withheld in its discretion.
(ii)    The projected cash flow for the Project (“Project Proforma”).
(iii)    The anticipated revenues and Project Costs of the Company for the
balance of the first calendar year of the Company.
(iv)    Critical Dates Schedule.
(e)    Approved Phase Budgets. The Members agree that the Project shall be
developed in multiple phases (individually, a “Phase” and collectively, the
“Phases”). No later than thirty (30) days prior to commencement of each
subsequent Phase in the Project, the Managing Member shall prepare or cause to
be prepared and submitted to IHP for its written approval a proposed budget for
such Phase detailing each line item of Project Costs from the Approved Project
Budget applicable to that Phase. The Company shall not proceed with any Phase of
the Project until the budget for such Phase has been approved by the Members (an
“Approved Phase Budget”). The Managing Member shall not incur any Project Costs
other than those specified in an Approved Phase Budget. The Members agree to
proceed with the first Phase to consist of the acquisition and Entitlement of
the Property, and agree that the budget for such Phase as set forth within the
Approved Project Budget is an Approved Phase Budget. Concurrent with each
submission of a proposed Phase budget to IHP, the Managing Member shall also
provide (i) to the extent applicable, a projection of Lot sale revenues and
timing of sales for such Phase and, (ii) a detailed description of such other
information, plans, maps, contracts, agreements or other matters necessary, as
may be requested by IHP, in order to inform IHP of all matters relevant to the
development and operation of the Project and to enable MP to make an informed
decision with respect to its approval of such Phase budget.

3

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(f)    Updated Annual Business Plan.
(i)    No later than October 15th of each calendar year, Managing Member shall
prepare and submit to each Member for its written approval, in its discretion, a
proposed updated business plan for the upcoming calendar year and the remaining
life of the Project. Such proposed business plan shall set forth in reasonable
detail the assumptions associated with the expected revenues and expenses of the
Project over the next calendar year. Such proposal shall also include: (A)
detailed Project Costs as defined in the Approved Project Budget; (B) an updated
Project Proforma; and (C) an updated Critical Dates Schedule. No proposed
revision to the Approved Business Plan shall be implemented unless and until it
has been approved in writing by the Members, and upon such approval, any such
updated business plan shall constitute the then Approved Business Plan. The
Company shall not incur any Project Costs other than those specified in the then
applicable Approved Business Plan. Concurrently with each submission of a
proposed updated business plan, Managing Member shall also provide (I) a revised
and updated projection of Project cash flows through the anticipated sell out of
the Project, and (ii) a detailed description of such other information, plans,
maps, contracts, agreements or other matters necessary, as may be reasonably
requested by either Member, in order to inform the Members of all matters
relevant to the Entitlements, development and marketing of the Project and to
enable the Members to make an informed decision with respect to each Member’s
approval of such updated business plan.
(ii)    In addition to the required annual updates to the Approved Business Plan
as forth in Section 1.05(f)(i) above, prior to the commencement of any
construction activities on the Project, Managing Member shall prepare and submit
to each Member for its written approval in its discretion a proposed updated
Project Proforma, which upon approval by the Members in their discretion shall
replace the existing Project Proforma in the then applicable Approved Business
Plan. Neither Member shall be obligated to increase its capital contributions
obligations upon the approval of such updated Project Proforma.
(g)    […***…]

.

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

4

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ARTICLE II
CAPITAL AND LOANS

2.01    Company Accounts. The Company shall maintain for accounting purposes the
following memorandum accounts for each Member:
(a)    Capital Accounts. A separate capital account (“Capital Account”) shall be
maintained for each Member in accordance with the provisions of Exhibit “C”
attached hereto. Except as otherwise set forth herein, all amounts funded as
capital contributions by a Member to the Company under this Agreement shall be
credited to such Member’s Capital Account as of the date of the contribution.
Net Profits and Net Losses of the Company shall be allocated and charged to each
Member’s Capital Account in accordance with the requirements of Exhibit “C”
attached hereto.
(b)    Unrecovered Capital Accounts. A separate unrecovered capital account
(“Unrecovered Capital Account”) shall be maintained for each Member. TNHC’s
Unrecovered Capital Account shall be credited with amounts funded by it towards
TNHC’s Maximum Capital Commitment in accordance with Section 2.02(b) below as
well as any Additional Capital and Senior Capital funded by it as herein
provided. IHP’s Unrecovered Capital Account shall be credited with amounts
funded by it towards ITP’s Maximum Capital Commitment in accordance with Section
2.02(a) below, as well as any Additional Capital and Senior Capital funded by it
as herein provided. Except as otherwise set forth herein, all amounts funded as
capital contributions by a Member to the Company shall be credited to such
Member’s Unrecovered Capital Account as of the date of contribution. Each
Member’s Unrecovered Capital Account shall be decreased by distributions of Cash
Flow in reduction of its Unrecovered Capital Account and/or the agreed fair
market value of any property (in excess of any indebtedness encumbering such
property) distributed to such Member as a reduction of its Unrecovered Capital
Account.
(c)    Preferred Return. The Company’s books and records shall be maintained to
reflect the following preferred return accounts:
(i)    A preferred return (“Senior Capital Preferred Return”) account shall be
maintained for each Member calculated at […***…] per annum, compounded monthly
(the “Senior Capital Preferred Return Rate”), on the portion of such Member’s
Unrecovered Capital Account attributable to such Member’s Senior Capital
contributions outstanding from time to time.

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separate
with the Securities and Exchange Commission.

5

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(ii)    A preferred return (“Base Capital Preferred Return”) account shall be
maintained for each Member calculated at the greater of […***…] per annum or
four (4) percentage points in excess of the Prime Rate (as it may be adjusted
from time to time), compounded monthly (the “Base Capital Preferred Return
Rate”), on the balance of such Member’s Unrecovered Capital Account (which is
not Senior Capital) outstanding from time to time; provided, however, from and
after the occurrence of a monetary Event of Default, the Base Preferred Return
Rate with respect to the non-defaulting Member shall be increased to […***…] per
annum, compounded monthly.
(iii)    For purposes of this Agreement, unless otherwise specified, the term
“Preferred Return” shall include the Senior Capital Preferred Return and the
Base Capital Preferred Return. Each Preferred Return account shall be decreased
to the extent that such Member has received distributions from the Company in
reduction of such Preferred Return account as set forth in this Agreement. For
purposes of calculating Preferred Return and to account for the compounding
aspect of same, a Member’s Unrecovered Capital Account shall be deemed to have
increased by the Preferred Return accrued and unpaid from the prior month and
such increase shall occur on the first (1st) of each calendar month; it being
understood and agreed that accrued and unpaid Preferred Return is not added to a
Member’s Unrecovered Capital Account for any reason other than to compute the
compounding aspect of Preferred Return. The Preferred Return account shall be
decreased to the extent that such Member has received distributions from the
Company in reduction of its Preferred Return as set forth in this Agreement. For
purposes of this Agreement, “Prime Rate” means the prime or reference rate of
interest charged by Bank of America, NT & SA, a national banking institution, on
loans making reference to such rate as set forth on the first business day of
each month. If Bank of America ceases to publish its prime or reference rate of
interest, the Members shall select an alternate published rate that most closely
approximates the prime or reference rate previously utilized.

2.02    Capital Contributions. Except as otherwise expressly provided in this
Agreement or as may otherwise be agreed to in writing by the Members (1) no part
of the capital contributions of any Member to the Company may be withdrawn by
such Member, (2) no Member shall be entitled to receive interest on its capital
contributions to the Company, (3) no Member shall have the right to demand or
receive property other than cash in return for its contributions to the Company,
and (4) no capital contributions or loans made by any Member to the Company
shall increase its Percentage Interest. For purposes of this Agreement,
“Percentage Interest” means fifty (50%) with respect to TNHC and fifty percent
(50%) with respect to IHP, subject to adjustment as provided in this Agreement.
Capital contributions by the Members shall be made based upon a written request
(a “Request for Funds”) submitted to each Member by the Managing Member in
accordance with the requirements contained in Exhibit “D” attached hereto.
(a)    IHP’s Maximum Capital Commitment. So long as no Replacement Event has
occurred with respect to TNHC, IHP shall contribute sixty-five percent (65%) of
the capital required by the Company as needed from time to time to pay Project
Costs specified in
The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

6

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the then applicable Approved Business Plan; provided, however, at no time shall
IHP be required to contribute capital, except to the extent of any of its
contributions of Additional Capital or Senior Capital, that would cause its
Unrecovered Capital Account less any previously distributed Preferred Return to
IHP to exceed […***…] (“IHP’s Maximum Capital Commitment”). The Members agree
that IHP’s Maximum Capital Commitment shall decrease to an amount reasonably
determined by the Members as an updated Approved Business Plan is approved by
the Members, taking into consideration the sale of any portion of the Property.
(b)    TNHC’s Maximum Capital Commitment. So long as no Event of Default with
respect to IHP has occurred and is continuing, TNHC shall contribute thirty-five
percent (35%) of the capital required by the Company, as needed from time to
time to pay Project Costs specified in the then applicable Approved Business
Plan; provided, however, at no time shall TNHC be required to contribute
capital, except to the extent of any of its contributions of Additional Capital
or Senior Capital, that would cause its Unrecovered Capital Account less any
previously distributed Preferred Return to TNHC to exceed […***…] (“TNHC’s
Maximum Capital Commitment”). Upon a decrease in MP’s Maximum Capital Commitment
pursuant to Section 2.02(a) above, TNHC’s Maximum Capital Commitment shall
decrease by a proportionate amount.
(c)    Preserving Or Protecting Investment. Each Member shall have the right to
make capital contributions by advancing funds to or on behalf of the Company
notwithstanding any objection by the other Member if, in such contributing
Member’s reasonable discretion, said amounts are required to preserve and/or
protect its investment in the Company or the Company’s interest in the Project,
and any such advances shall be credited to such contributing Member’s Capital
Account and Unrecovered Capital Account when funded. The contributing Member
shall notify the other Member in writing of amounts, if any, such contributing
Member elects to fund pursuant to the previous sentence and the reasons for such
funding, and the non-contributing Member shall have the right, but not the
obligation, to fund its Percentage Interest share of any such amounts within ten
(10) business days following the receipt of any such written notice.
(d)    Additional Obligations of TNHC.
(i)    Upon the closing of the transaction contemplated under the Purchase
Agreement to acquire the Property, TNHC shall cause to be conveyed to the
Company the Property together with all applicable rights, easements,
entitlements, hereditaments and appurtenances and shall cause Stewart Title
Guaranty Company or another title company approved by the Members, to issue to
the Company and IHP an ALTA extended coverage Owner’s Policy of Title Insurance
(adopted 6-17-06 with no further revisions) insuring fee simple title to the
Property in the Company subject only to the exceptions to title (the “Permitted
Exceptions”) identified in Exhibit “E” attached hereto and containing such
endorsements as the Members may require. As used in this Agreement, “Purchase
Agreement” means, collectively, that certain Agreement of Purchase and Sale
between Russell-Promontory,

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

7

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L.L.C., an Illinois limited liability company (“Seller”), and TNHC, as buyer,
dated March 1, 2013, as amended by that certain First Amendment to Agreement of
Purchase and Sale dated March 8, 2013 and by that certain Second Amendment to
Agreement of Purchase and Sale dated May, 2013, which Purchase Agreement shall
be assigned to the Company pursuant to an assignment and assumption agreement
reasonably acceptable to the Members.
(ii)    TNHC hereby assigns, transfers and conveys to the Company (and TNHC
shall cause its Affiliates to assign, transfer and convey) all contractual
rights, personal property (including tangible and intangible property), permits,
warranties, guarantees, plans, specifications, deposits, rights to reimbursement
and any and all other assets necessary, useful, attributable or owned in
connection with the Property (collectively, the “Assigned Property”), including,
without limitation, the assets set forth on Exhibit “F” attached hereto;
provided, however, to the extent such rights or assets are not assignable, TNHC
or its Affiliate shall hold such rights or assets in trust for the benefit of
the Company. The aforementioned assignment shall constitute a continuing
assignment with respect to any of the aforementioned items acquired by TNHC
and/or its Affiliates prior to or after the date of this Agreement. TNHC hereby
represents and warrants, on behalf of itself and all of its applicable
Affiliates, that TNHC and such Affiliate(s) have (A) the right, power, and
authority to make such assignment, and no consents or waivers of or by any third
party are necessary to permit TNHC and/or any of such Affiliates to make such
assignments, and (B) all the ownership rights to each and all of the Assigned
Property, free and clear of any claims, encumbrances or security interests. TNHC
shall not receive any credit to its Capital Account or Unrecovered Capital
Account for such assignment or transfer.
(iii)    As a material inducement of IHP to become a Member in the Company, TNHC
hereby makes the representations and warranties set forth in Exhibit “G.” In
addition, as a material inducement of IHP to become a Member in the Company, (A)
The New Home Company LLC, a Delaware limited liability company (“Guarantor”)
shall execute and deliver to IHP that certain Guaranty, of even date herewith
(“Guaranty”), for the benefit of IHP; (B) TNHC and Guarantor shall deliver to
IHP entity resolutions authorizing their respective entities to enter into the
transactions contemplated in this Agreement and the Guaranty, as the case may
be; and (C) TNHC and Guarantor shall deliver to IHP an opinion letter from
TNHC’s and the Guarantor’s counsel, as appropriate, opining as to the due
authorization, execution and delivery of this Agreement and the Guaranty, as
well as the enforceability of the Guaranty.
(e)    Additional Capital. The Members acknowledge and agree that except as
hereinafter provided, any additional funds needed by the Company shall be
contributed as additional capital (“Additional Capital”) to pay Project Costs in
excess of (i) those required to be contributed by the Members pursuant to
Section 2.02(a) and (b) above, or (ii) the line item amounts set forth in the
Original Budget. The Members agree that the amount of Additional Capital
required shall be determined after taking into account any reallocations of
contingencies set forth in the Original Budget in accordance with Exhibit “D”
and after taking into account the savings, if any, in any line item of Project
Cost in the Original Budget (excluding line items for SIR warranty, if
applicable).
(i)    If either Member determines that Additional Capital is or will be needed,
such Member may give written notice of such projected cash deficit to the
Members

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which shall summarize, with reasonable particularity, the Company’s actual and
projected obligations to be funded.
(ii)    Within ten (10) business days following the receipt of any such notice
(“Funding Date”), the Members may, in their discretion, but with no obligation
to do so, fund to the Company the required Additional Capital in accordance with
their Percentage Interests.
(iii)    If any Member elects not to contribute all or any portion of its
Percentage Interest share of any such Additional Capital request by the Funding
Date, the other Member may, in its discretion, contribute all or any portion of
the shortfall, which contributed shortfall amount shall constitute “Excess
Additional Capital.”
(iv)    To the extent a Member contributes Excess Additional Capital, upon such
contribution the Percentage Interests of the Members shall be adjusted as
follows: the Percentage Interest of the contributing Member shall be increased
by one (1) percentage point (stated to, the nearest one-thousandth 1/1,000th)
for each […***…] of Excess Additional Capital so contributed with a
corresponding decrease in the Percentage Interest of the Member not contributing
Excess Additional Capital.

2.03    Company Financing. Except as otherwise provided in this Agreement,
neither Member may cause the Company to obtain any financing for the Company or
the Project (“Company Financing”), whether secured or unsecured, or to pledge,
hypothecate or encumber any of the Company’s assets, or to cause or permit the
Company to extend credit or make any loans or become a surety, guarantor,
endorser or accommodation endorser without the prior written consent of the
other Member. Concurrently with the Company’s acquisition of the Property, the
Members shall cause the Company to enter into Company Financing with the Seller,
evidenced by a purchase money loan provided by the Seller, pursuant to the forms
of loan documents attached to the Purchase Agreement, which loan shall be
secured by the Property (the “Seller Purchase Money Loan”). In the event the
Members cause the Company to accept additional Company Financing and/or to
replace any existing Company Financing from any third party procured by the
Members, such Company Financing shall be non-recourse to the Members unless a
Member consents, in its discretion, to recourse liability.

ARTICLE III
CASH MANAGEMENT AND DISTRIBUTIONS

3.01    Bank Accounts.

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

9

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(a)    Collection Account. Except for Capital Proceeds and amounts to be
deposited into the SIR/Warranty Account, if applicable, any and all revenues,
payments, refunds, rebates, reimbursements and the like, of any kind or nature,
received by the Company with respect to any of its assets (collectively, “Net
Proceeds”) shall be deposited directly into an account established by IHP (the
“Collection Account”). Disbursements from the Collection Account shall be made
on the signatures of persons authorized by IHP.
(b)    Project Cost Account. All proceeds of capital contributions, as well as
all funds drawn under any Company Financing (collectively, “Capital Proceeds”)
shall be deposited directly into an account in the name of the Company
established or approved by IHP (the “Project Cost Account”). Disbursements from
the Project Cost Account shall be made by signatures of either the Managing
Member or IHP, without further approval of the other if the expenditures are for
Project Costs described in an Approved Business Plan. Notwithstanding the
foregoing, upon written notice from IHP following the occurrence of a
Replacement Event, all disbursements from the Project Cost Account and/or draw
requests under any Company Financing shall be made solely by the signature of
IHP or the Replacement Manager. All expenditures for Project Costs shall be paid
directly from the Project Cost Account; Managing Member shall not deposit any
funds from the Project Cost Account into any other bank account and shall not
co-mingle any Company funds with any other funds of Managing Member and/or any
of its Affiliates.
(c)    Working Capital Reserve. Upon formation of the Company or a subsequent
date agreed upon by the Members, a portion of the capital contributed by the
Members in the amount of Fifty Thousand Dollars ($50,000) shall be deposited in
the Project Cost Account for purposes of funding short-term cash needs of the
Company to pay Project Costs set forth in an Approved Phase Budget (the “Working
Capital Reserve”). IHP shall have the right, in its reasonable discretion, to
increase or decrease the amount of the Working Capital Reserve from time to
time. Each Request for Funds may request a replenishment of the Working Capital
Reserve, and shall detail all expenditures paid from the Working Capital Reserve
for the time period since the last Request for Funds. If and to the extent any
expenditure or allocation of Working Capital Reserve is disapproved by IHP
pursuant to the provisions of this Agreement, Managing Member shall be solely
liable for correcting such misallocation or improper distribution and IHP may,
in addition to any other rights and remedies it has under this Agreement, deduct
all such disapproved amounts from future disbursements to the Managing Member.
(d)    Self-Insured Retention Amount. To the extent the Project insurance
includes a self-insured retention amount (“SIR Amount”) approved by IHP, the
Members shall establish a reserve to fund the balance of such SIR Amount from
the closing of the sale of the last Lots in the Project equal to the Unfunded
SIR Amount. Such reserves shall be deposited by IHP into a Company account
established by IHP, and disbursements from such Company account shall be made on
the signatures of persons authorized by IHP. Promptly following the closing of
the sale of the last Lots in the Project, in the event that such sales proceeds
are insufficient to fund the Unfunded SIR Amount, then the Members shall fund to
the Company, in the inverse order in which distributions were last received by
the Members in accordance with Section 3.01(e) below, an amount equal to such
shortfall, which funds shall be deposited directly into such Company account
established by IHP. As used in this Agreement, (the “Unfunded SIR

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Amount”) means an amount equal to the SIR Amount minus any credits applicable
thereto and minus any amounts previously paid towards the SIR Amount under such
Project insurance policy. At the expiration of ten (10) years following the
closing of the sale of the last Lot in the Project, or such earlier date as the
Members may agree, the balance of the Unfunded SIR Amount, if any, shall be
distributed to the Members as Cash Flow in accordance with this Agreement.
(e)    Company Bank Account Authorizations. Notwithstanding the language in any
bank signature card for the Company’s bank accounts, including, without
limitation, the Project Cost Account (but excluding the Collection Account and
the account holding the Unfunded SIR Amount, if applicable, which accounts shall
be within the exclusive control of IHP), Managing Member agrees that a signature
of any one (1) of the IHP Parties and a signature of any one (1) of the Managing
Member Parties shall be required to (i) open or close such bank accounts, (ii)
change the authorized signers for such bank accounts, and/or (iii) otherwise
modify the bank documents for such bank account. The names of the individuals
constituting the IHP Parties and the Managing Member Parties shall be provided
by IHP and Managing Member, respectively, to the other Member from time to time.
Any of the Managing Member Parties who fail to comply with the above shall be
personally liable to the Company and to IHP for any damages resulting from such
non-compliance.

3.02    Distributions of Cash Flow. Except as provided elsewhere in this
Agreement, cash held in the Collection Account from time to time in excess of
(1) reserves withheld to fund the Unfunded SIR Amount, if applicable, and (2)
such reserves as are established from time to time by the Members for
anticipated cash disbursements that will have to be made before anticipated
additional cash receipts will provide the funds therefore (the “Cash Flow”)
shall be distributed to the Members as soon as it becomes available for
distribution, but in no event less often than monthly by the 25th day of each
calendar month, in the following order of priority:
(a)    Preferred Return on Senior Capital. First, to the Members in the ratio
that the accrued and unpaid Preferred Return on Senior Capital contributed by
each Member bears to the aggregate of the accrued and unpaid Preferred Return on
Senior Capital contributed by both Members, until and to the extent required to
reduce each Member’s accrued and unpaid Preferred Return on all such Senior
Capital to zero (0).
(b)    Senior Capital. Next, to each Member as a reduction of its Unrecovered
Capital Account in the ratio that the Senior Capital contributed by each Member
bears to the aggregate of the Senior Capital contributed by both Members, until
and to the extent required to reduce each Member’s Senior Capital to zero (0).
(c)    Base Capital Preferred Return. Next, to the Members in the ratio that the
balance of the accrued and unpaid Base Capital Preferred Return of each Member
bears to the aggregate of the balance of accrued and unpaid Base Capital
Preferred Return of both Members, until and to the extent required to reduce
each Member’s accrued and unpaid Preferred Return to zero (0).
(d)    Capital. Next, to each Member as a reduction of its Unrecovered Capital
Account in the ratio that the capital contributed (excluding Senior Capital) by
each Member bears to the aggregate of the capital contributed (excluding Senior
Capital) by both Members,

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until and to the extent required to reduce each Member’s Unrecovered Capital
Account to zero (0).
(e)    Profits. Thereafter, to the Members in accordance with their Percentage
Interests.

ARTICLE IV
MANAGEMENT

4.01    Authority; Major Decisions.
(a)    In General. The business and affairs of the Company shall be vested in
and controlled jointly by the Members. TNHC, in its capacity as the Managing
Member, acknowledges it is a fiduciary to the Company and its Members, and as a
fiduciary TNHC agrees to devote so much of its time, efforts, personnel and
resources to the business and affairs of the Company as may be reasonably
required for the conduct thereof in accordance with the provisions of this
Agreement and to discharge each of its duties, obligations and liabilities and
exercise each of its powers and authority, including without limitation TNHC’s
duties, obligations, liabilities, power and authority as Managing Member, with
Due Care. Managing Member shall be responsible for implementing the decisions of
the Members and overseeing the day-to-day operations of the Company and its
achievement of the Approved Business Plan subject to the restrictions and
limitations of this Agreement. Managing Member may not assign its rights or
delegate its duties or obligations hereunder without the prior written consent
of IHP. All decisions with respect to the management and control of the Company
approved by the Members shall be binding on the Company and all Members.
(b)    Standard of Care. Notwithstanding that the standard of Due Care is
sometimes expressly referenced in this Agreement, TNHC acknowledges and agrees
that TNHC shall be obligated to act with Due Care with respect to any and all
duties, obligations, liabilities, powers and authority of TNHC under this
Agreement, including without limitation, TNHC’s duties, obligations,
liabilities, power and authority as Managing Member. For purposes of this
Agreement, “Due Care” means to act in good faith, in the best interests of the
Company, for the exclusive benefit of the Company, in compliance with the terms
of this Agreement, with the care, skill, prudence and diligence (including
diligent inquiry) under the circumstances then prevailing that a prudent real
estate professional experienced in such matters would use in the conduct of an
enterprise of like character with like aims.
(c)    Major Decisions. Except as otherwise expressly provided in this
Agreement, the Managing Member shall not have the power or authority to
authorize or approve actions to be taken by the Company, decisions to be made by
the Company, and/or consents or approvals to be given by the Company that would
have a material impact, either positively or negatively, upon the business or
affairs of the Company or the Project, including, without limitation, any of the
following (individually, a “Major Decision” and collectively, the “Major
Decisions”) without the prior written consent of IHP, which consent may be
withheld in its discretion:
(i)    Commencement of any development work on the Property inclusive of any on
or off-site improvements.

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(ii)    Changing the Lot yield, Lot sizes or Lot mix contemplated in the
Approved Business Plan.
(iii)    Releasing any portions of the Property for sale.
(iv)    Acquiring any interests in real property.
(v)    Selling, exchanging, granting options or rights of first refusal, ground
leasing or otherwise conveying any portion of the Property, or the Company’s
interest therein other than the sales of Lots contemplated in the Approved
Business Plan.
(vi)    Arranging or amending any Company Financing, or causing the Company to
make loans to any third parties, whether secured or unsecured, or guarantying
the debts of any third parties.
(vii)    Applying for or agreeing to any material Entitlements.
(viii)    Approving any material easements, restrictions or other encumbrances
affecting any portion of the Property.
(ix)    (A) Filing with any governmental authority any tentative or final parcel
map, tentative or final tract map or any other map or any material amendment or
modification thereto; (B) consenting to any rezoning or other material change to
the legal description or zoning classification of the Project; or (C) approving,
submitting for approval by any governmental body, or amending, modifying,
changing or revising, in any material fashion, any approved improvement plans
for the improvements to be constructed by the Company.
(x)    Forming an assessment district or any other financing mechanism for the
infrastructure for the Project.
(xi)    Seeking relief under federal or state bankruptcy law, instituting
proceedings to have the Company adjudicated a bankrupt or insolvent, consenting
to the institution of bankruptcy or insolvency proceedings against the Company,
filing a petition or a consent to a petition seeking reorganization or relief
under any applicable federal or state bankruptcy law, consenting to the
appointment of a receiver, liquidator, trustee or similar official, making any
assignment for the benefit of the Company’s creditors or admitting in writing
the Company’s inability to pay its debts generally as they become due.
(d)    Use of System’s Name. In no event may the Company use the name of the
California State Teachers’ Retirement System, a public entity (the “System”), an
investor in IHP, or identify the System as having any involvement of any kind in
the Company or the Project including in advertising, press releases or
responding to inquiries without the prior written consent of IHP, which consent
may be withheld in its discretion, or except as may be required by the
Responsible Contractor Policy and Guidelines attached hereto as Exhibit “P”.

4.02    Representatives of Members.
(a)    Executive Committee. There shall be an executive committee (“Executive
Committee”) created by the Members with each Member appointing two (2)
representatives to represent its interest and act on its behalf and with each
Member entitled to a single vote. IHP hereby designates Donald S. Grant and
Renee McDonnell as its Executive Committee representatives hereunder. TNHC
hereby designates Joseph Davis and Kevin Carson

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as its Executive Committee representatives hereunder. Each Executive Committee
representative appointed by a Member shall act as agent for and under the sole
and exclusive direction and control of such Member and may act alone as such
agent of such Member. Each Member may, by written notice to the other, appoint
and/or remove any Executive Committee representative appointed by such Member
and appoint a substitute therefor; provided, however, that any new
representative appointed by any Member must either (i) be an officer, director,
partner, member, manager, principal or employee of such Member, or of an
Affiliate of such Member; or (ii) be approved by the other Member.
(b)    Meetings. There shall be no regularly scheduled meetings of the Members;
however, the Executive Committee shall meet periodically, but as often as
necessary or desirable to carry out the business of the Company. Meetings shall
be held at the principal offices of the Company unless otherwise agreed. The
Managing Member shall prepare an agenda for each such meeting and shall
distribute same to the Executive Committee at least two (2) days in advance of
any such meeting. Any Member may convene a meeting upon at least three (3)
business days prior notice to the other Member specifying the date, time and
place of meeting and the agenda for the meeting. The Members and/or the
Executive Committee may also hold meetings by telephone and may make decisions
without a meeting by unanimous written consent.
(c)    Notice of Potential Transactions. Each Member shall promptly advise and
inform the other Member concerning any transaction, notice, event or proposal
relating to the affairs of the Company or the Project which does or could have a
significant impact, either adversely or favorably, on the affairs of the Company
or the Project. In particular, the Managing Member shall promptly notify each of
the Members of any inquiries, proposals or offers received, whether written or
verbal, concerning all or any portion of the Project.

4.03    Day-to-Day Operations. Subject to any restrictions contained in this
Agreement, the Managing Member shall have the duty and responsibility for the
following:
(a)    Independent Contractors. Retaining, supervising and coordinating, on
behalf of the Company, such Persons who are needed to render services to the
Company in order to achieve the Entitlements, develop and market the Project;
provided, however, any environmental consultant or environmental contractor must
be approved by IHP. The Managing Member shall cause any and all contracts
relating to the Project to be in the Company’s name or the Company shall be an
express third party beneficiary thereof with the benefits of such contract to be
assignable to the Company’s successors and assigns, and to the extent any such
contracts are not in the Company’s name, the Managing Member and/or its
Affiliate(s) shall hold such contracts in trust for the benefit of the Company,
and there shall be deemed to be an effective assignment of any such contracts to
the Company as of the effective date of each of such contracts. The Managing
Member shall include appropriate insurance requirements and other risk transfer
provisions in the contracts with such Persons for the protection of the Company,
the Managing Member and IHP, and shall diligently enforce compliance with same;
provided, however, to the extent that any such contractors are insured by the
Project’s insurance, Managing Member shall ensure that such contracts do not
include costs or credits for insurance.
(b)    Governmental Approvals and Compliance. Arranging for and coordinating the
issuance of any required governmental approvals for the Project. Ascertaining

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the applicability of, and causing the Company to comply with, all laws,
regulations, codes (including, without limitation, building codes), ordinances,
rules, regulations and requirements of any public agency, including, without
limitation, those dealing with employment and discrimination and the
Environmental Requirements (collectively, the “Laws”) applicable to the Company,
the Project and the Property.
(c)    Licenses. Obtaining any and all licenses including business licenses and
any other licenses or permits which may be required in connection with the
Project, including preparing and submitting or filing such reports as may be
required by the Company for the use of any public agency.
(d)    Insurance. Obtaining and keeping in full force insurance for the
protection of the Members, the Company and the Project, all insurance coverage
required to be maintained as detailed on Exhibit “I” or any applicable law,
regulation or order to which the Company is subject. Except as expressly stated
otherwise in Exhibit “I”, the premiums charged for such coverage shall be a
Project Cost. The Managing Member may not alter the types or amounts of
insurance required to be maintained without the prior written consent of IHP,
which consent may be withheld in IHP’s sole and absolute discretion.
(e)    Sale of the Project. At such time as approved by the Members,
Advertising, promoting and negotiating the sale of Lots within the Project to
prospective purchasers on the best terms and for the price approved by the
Members and causing the Company to comply with the terms of all sales contracts
and escrow instructions and enforcing said sales contracts and escrow
instructions for the benefit of the Company.
(f)    General Administrative. Performing all other functions of a general and
administrative nature required by the Members or provided elsewhere in this
Agreement or the Approved Business Plan including (i) keeping the books, records
and accounts of the Company and preparing and delivering the proposed amendments
to the Approved Project Budget and Approved Business Plan and other information
and reports required to be delivered to the Members pursuant to and in
compliance with the terms of this Agreement; (ii) inspecting the progress of the
course of construction of the improvements, including verifying the materials
and labor being expended in and on such construction so as to be competent to
approve or disapprove requests for payment; (iii) promptly paying, when due, all
Project Costs from Company funds; (iv) procuring lien releases and waivers or
such other documentation as may be required by any lenders or IHP; (v) verifying
the adequacy of the insurance maintained by the Company with respect to
materials located off-site; (vi) representing the Company in any homeowners’
association established for the Project; (vii) managing the Company’s defense
against any claims, demands, actions, or causes of action brought against the
Company with counsel approved by IHP; (viii) arranging for all improvement bonds
to be posted by or on behalf of the Company in connection with the Project (and
the timely exoneration of all such bonds), provided, that the Company may be the
named party to any such bonds and shall pay the premiums for such bonds provided
the projected cost of such bonded improvements are included in the Approved
Project Budget; (ix) causing to be timely filed all available property tax
appeals, exemptions and exclusions applicable to the Project; and (x) approving
change orders; provided, however, change orders greater than One Hundred
Thousand Dollars ($100,000.00) in the aggregate per Phase shall require the
prior written approval of IHP. The Managing Member shall

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submit to IHP all change orders which require IHP’s approval at least three (3)
business days prior to anticipated commencement of construction relating to such
proposed changes and such construction shall not commence unless and until
approved. In the event that IHP fails to respond to any required change order
request within three (3) business days, Managing Member may elect to provide a
further request for same; if IHP fails to respond within three (3) business days
after such second request is made, such change order request shall be deemed
approved by IHP. All change orders shall detail the economic impact of the
change on the applicable line item in the Approved Phase Budget, as well as the
cumulative impact of all changes on the costs to complete the Project in
comparison with amounts budgeted therefore in the Approved Project Budget.
(g)    Personnel. Hiring and retaining as employees of the Managing Member as
are required to properly perform the Managing Member’s management functions
hereunder. The Company shall not have any employees or long-term consultants
without the approval of the Members in their reasonable discretion. At all times
during the achievement of Entitlements and the course of the design and
construction of the improvements, the Managing Member shall retain a project
manager at the Company’s expense, to the extent included in the Approved Project
Budget, who shall be approved by IHP and who shall be directly charged with
monitoring the Entitlements process and the construction of the improvements.
Ashley Feeney is hereby designated as the initial project manager. If the
Managing Member desires to replace such project manager, a replacement approved
by IHP shall first be obtained, or if such project manager resigns, dies or is
disabled for a period longer than one (1) week, the Managing Member shall as
soon as feasible secure a qualified replacement for such project Manager who
shall be subject to the approval of IHP.
(h)    General Contractor. Without relieving the Managing Member of its
obligations under this Agreement, the Members acknowledge that TNHC Realty and
Construction, a California corporation (“General Contractor”), an Affiliate of
TNHC, is serving as the general contractor for the Project, and no other Person
shall be appointed to serve in such capacity without the consent of IHP in IHP’s
discretion. Any fees payable to General Contractor for acting in such capacity
shall be paid by TNHC, and the Company shall have no liability for any of such
fees. Managing Member shall cause General Contractor to enter into a
construction contract with the Company, the form and content of which shall be
satisfactory to IHP, in IHP’s discretion. As a related party contract, IHP shall
retain all rights described in Section 4.04(b) with respect to such contract.
TNHC hereby represents and warrants to the Company and IHP that General
Contractor is experienced in projects similar to the Project, and to the extent
required by applicable Laws, has and shall maintain all required licenses and
permits to carry out is obligations as the general contractor for the Project.
(i)    Quality Control. Implementing and executing a comprehensive quality
control program with respect to design and construction of the Project,
including engagement of appropriate quality control consultants.
(j)    Record Retention. Designing, implementing and executing a comprehensive
program for collection and retention of records pertaining to design and
construction of the Project.

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4.04    Miscellaneous Covenants
(a)    Other Business Opportunities. Except as otherwise provided in this
Agreement, no Member or Affiliate shall have any obligation, fiduciary or
otherwise, with respect to the Company or to the other Member insofar as making
other opportunities available to the Company or to the other Member. Except as
otherwise provided in this Agreement, the Members may, notwithstanding the
existence of this Agreement, engage in whatever activities they choose, whether
the same is competitive with the Company or otherwise, without having or
incurring any obligation to offer any interest in such activities to the Company
or to the other Member. Notwithstanding the above, until such time as ninety
percent (90%) of the Lots have been sold and eighty percent (80%) of such Lot
sales have closed, neither TNHC nor any of its Affiliates shall directly or
indirectly own any legal or equitable interest in any land development and sale
projects (where the business plan is primarily designed for sales to
non-Affiliates), other than age-restricted residential projects, within ten (10)
miles of any boundary of the Property.
(b)    Related Party Contracts. For purposes of this Agreement, “Affiliate”
means (i) any Person which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
Person in question; or (ii) any officer, director, partner, member, manager,
trustee, employee or beneficial holder of an interest of ten percent (10%) or
more in the Person in clause (i) above; and “Person” means any individual or any
corporation, partnership, limited liability company, limited liability
partnership, joint venture, trust, business trust, cooperative or association.
For purposes of this definition, the term “control” means the ownership of ten
percent (10%) or more of the beneficial interest or the voting power of the
appropriate Person. Except as otherwise provided in this Agreement, neither
Member may cause the Company to enter into any contract or agreement with a
Member or any Affiliate of a Member without the prior written consent of the
non-Affiliated Member. With respect to any contract between the Company and a
Member or any Affiliate of a Member, the non-Affiliated Member shall have the
sole and exclusive right, power and authority, on behalf of the Company, to
grant the Company’s consent to any amendment, modification or rescission
thereof; declare a default thereunder; institute, settle or compromise a claim
with respect thereto; waive any rights of the Company against the other party
thereto; or consent to the assignment of any rights or the delegation of any
duties by the other party thereto. Any contract between a Member or its
Affiliates and the Company shall provide that (A) such services are upon market
rates acceptable to the non-Affiliated Member and shall terminate upon the
occurrence of a Replacement Event with respect to such Affiliated Member, and
(B) the profits to be derived by such entities for the services provided to the
Company shall accrue to the benefit of the Company and shall be paid to the
Company promptly upon receipt. Each Member may review and/or audit the books and
records of such Affiliate upon request to verify the calculation of the profit
paid to the Company.
(c)    Improvement Plans. TNHC shall cause the improvement plans and
specifications for any and all of the proposed Project improvements to be
prepared and submitted to IHP in accordance with the Critical Dates Schedule
attached to the Approved Business Plan. Approval of improvement plans and
specifications, as well as amendments or additions thereto, is for IHP’s
internal administrative purposes only and does not constitute a representation
or warranty that the plans, specifications, amendments or additions are in
compliance with the Laws, are appropriate for their intended use or are
constructible. IHP expressly disclaims any

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liability to the Company, to TNHC and to third parties in connection with such
review and approval. If during the course of construction, any Member determines
that the Project improvements are not being constructed substantially in
accordance with the approved improvement plans and specifications, such Member
shall give notice in writing to the Managing Member specifying the particular
deficiency or omission and the Managing Member shall thereupon take or cause to
be taken all reasonable steps necessary to correct the same. TNHC represents to
the Company and IHP that any construction work performed for the Project shall
be lien free, subject to IHP’s funding obligations under this Agreement and
subject to Managing Member’s rights to contest any such liens, and in
substantial accordance with the approved improvement plans and specifications,
this Agreement and all applicable Laws and in compliance with any covenants,
conditions or restrictions affecting all or any portion of the Property.
(d)    Required Consent. Without the prior written consent of the other Member,
neither Member may: (i) enter into or execute any sale agreements or escrow
instructions on behalf of the Company other than on the form of sales
documentation approved by the Members; (ii) release, compromise, assign or
transfer any claims, rights or benefits of the Company unless such claim, right
or benefit has a value of less than One Hundred Thousand Dollars ($100,000.00)
and the same is released, compromised, assigned or transferred in the ordinary
course of business; (iii) compromise or settle any claim or confess a judgment
against the Company, file any actions on behalf of the Company or submit a claim
of the Company to arbitration; (iv) do any act (A) in contravention of this
Agreement, or (B) which would make it impossible or unreasonably burdensome to
carry on the business of the Company; or (v) possess property of, the Company in
other than the Company name or assign the rights of the Company in any of the
property of the Company, including rights of reimbursement for utility deposits
and other assessments.

4.05    Emergency Authority. Notwithstanding the provisions of Section 4.01, the
Managing Member shall have the right to take such action as it, in its
reasonable judgment, deems necessary for the protection of life or health, or
the preservation of Company assets if, under the circumstances, in the good
faith judgment of the Managing Member, there exists an emergency situation
requiring an immediate decision which should not reasonably be delayed until the
approval of IHP is obtained. The Managing Member shall notify IHP of such action
contemporaneously therewith or as soon as reasonably practicable thereafter.

4.06    Fees and Reimbursements. Except as otherwise set forth in this Section
4.06, neither the Company nor any Member shall pay any fees or reimbursements to
a Member or any Affiliate of a Member including any charge or reimbursement for
general overhead or administrative services or for reimbursements for salaries
or benefits of employees. The Company shall pay the following fees and
reimbursements:

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(a)    TNHC Management Fee. In consideration of its services to be rendered to
the Company, provided no Replacement Event has occurred with respect to TNHC
hereunder, TNHC shall be paid a management fee equal to […***…] (the “TNHC
Management Fee”). The TNHC Management Fee is deemed earned upon payment, subject
to subsection (i) below. The TNHC Management Fee shall be paid as follows:
[…***…]. The monthly payment of the TNHC Management Fee shall continue until the
line item for such fee as contained in the Approved Project Budget has been
exhausted. If upon the close of escrow of the last Lot in the Project (i) the
aggregate TNHC Management Fees advanced to TNHC exceed […***…], TNHC shall repay
to the Company such excess amount, or (ii) the aggregate TNHC Management Fees
advanced to TNHC are less than […***…], TNHC shall be entitled to receive such
shortfall from available Company funds, but only in the event that […***…] as
set forth in the original Project Proforma attached to Exhibit “B” of this
Agreement. For purposes of this Agreement, (A) “Net Revenues” means the actual
aggregate gross Lot sales prices reduced by any concessions or sales incentives
granted to purchasers of Lots, and (B) “Net Profits” means Net Revenues, less
all Project Costs, inclusive of Preferred Return. Notwithstanding the foregoing,
in the event the Project is delayed beyond the dates set forth in the Critical
Dates Schedule for any reason, IHP shall have the right to cause the Company to
adjust the monthly amounts distributable to TNHC pursuant to this Section
4.06(b) based upon IHP’s estimate of additional time required for the completion
and sale of the Project.
(b)    IHP Project Commitment Fee. The Company shall pay to IHP a project
commitment fee equal to […***…] (the “IHP Project Commitment Fee”), which IHP
Project Commitment Fee shall be deemed earned and nonrefundable upon the
Company’s acquisition of the Property. The IHP Project Commitment Fee shall be
paid as follows: […***…]. The monthly payment of the IHP Project Commitment Fee
shall continue until the line item for such fee as contained in the Approved
Project Budget has been exhausted. If upon the close of escrow of the last Lot
in the Project (i) the aggregate IHP Project Commitment Fees advanced to IHP
exceed […***…], IHP shall repay to the Company such excess amount, or (ii) the
aggregate IHP Project Commitment Fees advanced to IHP are less than […***…], IHP
shall be entitled to receive such shortfall from available Company funds, but
only in the event that the Company’s Net Profits exceed […***…] as set forth in
the original Project Proforma attached to Exhibit “B” of this Agreement.
(c)    Due Diligence and Formation Expenses. The Members shall be entitled to be
reimbursed by the Company for their out-of-pocket expenses incurred in the due
diligence investigation of the Project and the formation of the Company
including fees for attorneys, accountants, allocated costs for in-house legal
services, consultants, and other professionals.
(d)    Project Superintendent and Sales Staff. Provided no Replacement Event has
occurred, TNHC shall be entitled to reimbursement by the Company for the
salaries of certain employees of TNHC or its Affiliates responsible for Project
supervision and on-site Project sales; provided, however, (i) such employees
work full time on the Project; (ii) the salaries payable shall be upon monthly
rates acceptable to IHP; and (iii) provision for such reimbursement is set forth
in the Approved Project Budget.
The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

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(e)    Project Reports. The Members agree that IHP shall have the right, but not
the obligation, to review the processing of the Entitlements, review the final
construction documents and contracts relating thereto, review proposed updates
to the Approved Project Budget, inspect the construction of the Project
improvements, review the operations of the Managing Member and/or review the
marketability of the Project and to engage consultants to prepare reports
regarding same. MP shall be entitled to receive reimbursement from the Company
for any and all third party costs and expenses IHP reasonably incurs in
connection therewith. Any such reviews and/or inspections shall in no way cause
IHP to be responsible or liable for the construction means, methods, techniques
and/or the safety precautions and programs of TNHC, its Affiliates’ or any
design professionals, trade contractors or consultants. IHP’-s inspections (or
the failure to or election not to inspect) shall not relieve TNHC of any of
TNHC’s obligations under this Agreement, at law or otherwise. No payments or
distributions to TNHC shall be construed as a representation that IHP has made
any knowledgeable, informed, exhaustive and/or continuous inspections to
determine the quality or quantity of work by or for TNHC or the Company.
(f)    Insurance. So long as the Company provides and keeps in force the
required insurance coverages described in Exhibit “I” attached hereto, and
except as expressly stated to the contrary in Exhibit “I”, the cost for such
insurance shall be a Project Cost.

ARTICLE V
REPLACEMENT OF MANAGING MEMBER

5.01    Agreement of Members. The Members have agreed that the Original Budget
represents their expectations concerning the performance of the Project. TNHC
understands that IHP’s decision to become a Member and fund its capital required
under this Agreement is based upon its expectation that under TNHC’s management
of the Project as the Managing Member hereof, the Company would achieve at least
the performance anticipated in the Original Budget. However, nothing in this
Agreement shall be construed as a guarantee by TNHC that such performance will
be achieved. The mere failure of the Company to achieve such performance shall
not constitute either a default or a failure of Due Care by TNHC. Upon the
occurrence of any of the Replacement Events described below, in addition to its
other rights and remedies hereunder, at law or in equity, IHP shall have the
right, but not the obligation, by giving written notice to TNHC, to designate
another Person (the “Replacement Manager”), who may but need not be IHP or an
Affiliate of IHP, to manage the Company and/or to manage and operate the Project
in place of TNHC, including the performance of the Managing Member’s duties
hereunder.

5.02    Replacement Event. The occurrence of any of the following events
(individually, a “Replacement Event” and collectively, the “Replacement Events”)
shall give IHP the right, but not the obligation, to designate a Replacement
Manager as herein provided:
(a)    An Event of Default with respect to TNHC or any of its Affiliates.
(b)    An Event of Bankruptcy with respect to the Company, unless such
bankruptcy is solely the result of an Event of Default by IHP.
(c)    Any of the events described in the Critical Date Schedule fails to occur
within thirty (30) days of the date specified in such Critical Date Schedule for
any reason other than an Event of Default by IHP or an event of Force Majeure.
For the purposes of this

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Agreement, “Force Majeure” means delay (not to exceed one hundred twenty (120)
days) beyond the reasonable control of the party claiming the delay,
specifically excluding a party’s financial liability to perform and changes in
market conditions, but including, but not limited to (i) acts of God, including
but not limited to earthquakes, thunderstorms, windstorms, floods, fire, weather
conditions that are abnormal for the period of time and could not have been
reasonably anticipated, and other natural calamities, (ii) civil commotion;
(iii) riots; (iv) strikes, picketing or other labor disputes; (v) shortages of
materials or supplies which could not have been reasonably anticipated and
prevented; (vi) damage to work in progress by reason of earthquake,
thunderstorms, windstorms, floods, fires or other casualties; (vii) acts of war,
terrorism and/or vandalism; (viii) moratoria or other delays caused by actions,
any failure to act, and/or restrictions imposed or mandated by governmental or
quasi-governmental entities; or (ix) legal or administrative actions related to
the Entitlement and/or development of the Property, or any other third party
delays, actions or claims that prevent or delay Entitlement, development or sale
of all or a portion of the Property.
(d)    Any breach or default by the Company under the Company Financing provided
such breach or default is not a result of IHP’s failure to fund its required
capital contributions and TNHC received notice of such breach or default and
shall not have caused the Company to cure or remedy such breach or default
within any applicable cure period provided in the Company Financing documents.
(e)    IHP or its nominee is a buyer of Membership Interests pursuant to ARTICLE
VII.

5.03    Replacement of Managing Member; Loss of Participation in Management.
(a)    Upon TNHC’s receipt of written notice from IHP that a Replacement Event
has occurred, the Managing Member shall not have the power or authority to
authorize or approve any actions to be taken by the Company, any decisions to be
made by the Company, and/or any consents or approvals to be given by the Company
without IHP’s consent.
(b)    Upon IHP’s election to designate a Replacement Manager, TNHC shall cease
having any further right to participate in the management of the Company, to
vote on, consent to or approve any matter under this Agreement, and TNHC, at its
sole cost and expense, shall cooperate with IHP in the orderly transition of the
management and operation of the Project to the Replacement Manager, including,
without limitation, the delivery of all files, data, documents, correspondence,
agreements, permits, licenses, contracts, computer programs, contact lists and
the like (collectively, the “Company Assets”).
(c)    TNHC’s right to receive any further fees or compensation from the
Company, or otherwise to act on behalf of or bind the Company as the Managing
Member or otherwise shall cease upon IHP’s election to designate a Replacement
Manager. All compensation paid to a Replacement Manager by the Company to the
extent it exceeds the unpaid fees that would otherwise have been payable to TNHC
pursuant to this Agreement shall be deducted from amounts which would otherwise
be payable or distributable to TNHC or any Affiliate of TNHC pursuant to this
Agreement.
(d)    TNHC shall continue to (i) bear its respective share of Net Losses as
well as its obligation to fund amounts required of it under Section 8.06 below,
and (ii) be entitled to

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receive its respective share of any Net Profits and its respective share of Cash
Flow, provided that if TNHC is in breach of any of its obligations hereunder,
the Company may withhold any Cash Flow to which TNHC would otherwise be entitled
and use such sums to cure any and all damages caused in whole or in part by such
breach.
(e)    The remedy set forth in this ARTICLE V is in addition to and not in
substitution for the other remedies in this Agreement, at law or in equity.

ARTICLE VI
DEFAULTS AND REMEDIES

6.01    Event of Default. For purposes of this Agreement, “Event of Default”
means the occurrence of any of the following:
(a)    The material inaccuracy of any representation or warranty made by any
Member in this Agreement or by any Member’s Affiliate under any other agreement
with the Company or the other Member.
(b)    The breach or default by any Member or its Affiliate of any of its
respective covenants, agreements or obligations in this Agreement or in any
other agreement with the Company or the other Member, including, without
limitation, a breach of Due Care, provided such Member shall have received
written notice of such breach or default and:
(i)    in the case of a monetary breach or default, shall not have cured such
monetary breach or default within ten (10) days following receipt of such
notice, and
(ii)    in the case of a non-monetary breach or default which is reasonably
susceptible of cure, shall not have commenced to cure or remedy such breach or
default within ten (10) days following receipt of such notice and cured or
remedied such breach or default within thirty (30) days following the date of
such notice; provided, however, if the nature of such breach or default is not
reasonably susceptible of cure within such thirty (30) day period and the curing
Member has, in the reasonable opinion of the other Member, been diligently
proceeding with such cure or remedy, an additional period of time reasonably
required to effect such cure shall be granted not to exceed a period of ninety
(90) days.
(c)    The occurrence of an Event of Bankruptcy with respect to a Member,
Company or Guarantor or General Contractor. For purposes of this Agreement, an
“Event of Bankruptcy” means:
(i)    The entry of a decree or order by a court of competent jurisdiction (A)
adjudging the Company, Guarantor, General Contractor or a Member, as the case
may be, a bankrupt or insolvent, or (B) approving as properly filed a petition
seeking reorganization, readjustment, arrangement, composition or similar relief
for the Company, Guarantor, General Contractor or such Member, as the case may
be, under the federal bankruptcy laws or any other similar applicable law or
practice, and if such decree or order referred to in this Section 6.01(c)(i)
shall have continued undischarged and unstayed for a period of sixty (60) days.
(ii)    The entry of a decree or order by a court of competent jurisdiction (A)
for the appointment of a receiver, liquidator, trustee or assignee in bankruptcy
or insolvency of the Company, Guarantor, General Contractor or a Member, as the
case may be, or for the

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winding up or liquidation of its affairs, and such decree or order shall have
remained in force undischarged and unstayed for a period of sixty (60) days, or
(B) for the sequestration or attachment of any property of the Company, a
Guarantor, General Contractor or such Member, as the case may be, without its
return to the possession of the Company, Guarantor, General Contractor or such
Member, as the case may be, or its release from such sequestration or attachment
within sixty (60) days thereafter.
(iii)    If the Company, Guarantor, General Contractor or a Member, as the case
may be, (A) institutes proceedings to be adjudicated a voluntary bankrupt or an
insolvent; (B) consents to the filing of a bankruptcy proceeding against it; (C)
files a petition or answer or consent seeking reorganization, readjustment,
arrangement, composition or similar relief for itself under the federal
bankruptcy laws or any other similar applicable law or practice; (D) consents to
the filing of any such petition, or to the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency for itself or a
substantial part of its property; (E) makes an assignment for the benefit of its
creditors; (F) is unable to or admits in writing its inability to pay its debts
generally as they become due; or (G) takes any action in furtherance of any of
the aforesaid purposes.
For the purposes of this Agreement, an Event of Bankruptcy with respect to the
Company shall be treated as an Event of Bankruptcy by TNHC unless that Event of
Bankruptcy results solely from an Event of Default by IHP; and an Event of
Bankruptcy with respect to Guarantor and/or General Contractor shall be treated
as an Event of Bankruptcy by TNHC.
(d)    The gross negligence or willful misconduct of a Member or its Affiliate
in connection with its activities or obligations under this Agreement or under
any other agreement with the Company or the other Member.

6.02    Effect of Event of Default. In addition to the remedies set forth herein
for a Member’s failure to timely fund any required capital contribution or
payment, upon the occurrence of an Event of Default by any Member, the
non-defaulting Member shall have the right, but not the obligation, upon giving
the defaulting Member ten (10) calendar days written notice of such election
(and provided such Event of Default is continuing through the end of such 10-day
period), to take any of the following actions:
(a)    Dissolve the Company;
(b)    Consider such Event of Default as a Call Event as herein provided; or
(c)    Pursue any other right or remedy available in this Agreement, at law or
in equity.
The election to pursue any of the foregoing remedies shall not preclude or
prohibit the non-defaulting Member from concurrently and/or subsequently
pursuing any other remedy.

6.03    Failure to Fund. If a Member (a “Non-Contributing Member”) fails to fund
amounts required by such Member in accordance with this Agreement (the “Cash
Deficit”), such failure shall constitute a material breach hereunder. In
addition to its other rights and remedies in this Agreement, at law and in
equity, the other Member (the “Contributing Member”), provided such Contributing
Member has funded all amounts required of such Contributing Member, shall have
the right, but not the obligation, to elect to:

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(a)    Senior Capital. Fund the Cash Deficit to the Company as a Senior Capital
contribution, which contribution shall earn Senior Capital Preferred Return;
(b)    Dilution. Contribute the Cash Deficit to the Company as Additional
Capital, in which event the Percentage Interests of the Members shall be
adjusted as follows: to the extent a Contributing Member funds all or any
portion of a Cash Deficit, the Percentage Interest of the Contributing Member
shall be increased by one (1) percentage point (stated to the nearest one
thousandth 1/1,000th) for each Two Hundred Thousand Dollars ($200,000) of Cash
Deficit so contributed with a corresponding decrease in the Percentage Interest
of the Non-Contributing Member.
(c)    Right to Finance. The Contributing Member shall have the right to obtain
a loan secured by the Project in an amount not greater than the sum of (i) the
unfunded Project Costs, (ii) an adequate interest reserve to pay interest
accruing on said amounts, and (iii) the fees and costs associated with obtaining
any such financing. In no event may any such loan be recourse to the
Non-Contributing Member.
(d)    Failure to Elect. If the Contributing Member advances any amount to the
Company pursuant to this Section 6.03 but fails to specify which of the
foregoing options the Contributing Member has elected within ten (10) business
days following the date of such advance, the Contributing Member shall be deemed
to have elected to treat such advance as a contribution of Senior Capital.

6.04    Cross-Default. The Company may constitute just one of multiple entities
currently existing or hereafter formed between TNHC or its Affiliates with IHP
or its Affiliates (individually, “Other Entity”, and collectively, “Other
Entities”). In addition, this Agreement may constitute just one of a variety of
agreements currently existing or hereafter entered into between TNHC or its
Affiliates with IHP or its Affiliates. Although each such Other Entity is a
separate and distinct entity and each such agreement is a separate contractual
obligation, unless the governing documents for such Other Entities or the terms
of such other agreements specifically state that they are not to be considered
cross-defaulted as provided in this Section 6.04, TNHC hereby agrees that a
monetary default by TNHC or any of such Affiliates under any of such Other
Entity governing document or any such other agreement shall, at IHP’s election,
constitute a default under each entity governing document and each such other
agreement, including a default by TNHC under this Agreement. Notwithstanding the
foregoing, this Section 6.04 shall not apply to the following Other Entity in
which TNHC or one of its Affiliates is a Member: TNHC Meridian Investors LLC, a
Delaware limited liability company.

ARTICLE VII
CALL AND BUY/SELL AGREEMENT

7.01    Rights Arising From a Call Event.
(a)    Definition of Call Event. For purposes of this Agreement, “Call Event”
means the occurrence of any of the following:
(i)    The occurrence of an Event of Default with respect to TNHC or its
Affiliate.

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(ii)    The occurrence of a monetary-related Event of Default with respect to
IHP.
(iii)    Any breach or default by the Company (other than a breach or default
caused solely by IHP’s failure to contribute capital required of it pursuant to
this Agreement) on any material debt or obligation to a third party; provided
TNHC shall have received notice of such breach or default, and shall not have
caused the Company to commence to cure or remedy such breach or default within
ten (10) days following receipt of such notice and thereafter cure or remedy
such default within a reasonable period (not to exceed thirty (30) days in any
case).
(iv)    The breach or default of TNHC or Guarantor under any material debt or
obligation or a material adverse change in the financial condition of TNHC or
Guarantor which will, in the reasonable judgment of IHP, have a material adverse
impact on TNHC’s or Guarantor’s ability to perform hereunder or under the
Guaranty.
(v)    The occurrence of an Event of Bankruptcy with respect to the Company.
(b)    Election to Implement Call Procedure. Upon the occurrence of a Call
Event, the Member with respect to whom a Call Event has not occurred (the
“Electing Member”) shall have the right, but not the obligation, to implement
the procedures set forth in this ARTICLE VII by serving a written notice (the
“Election Notice”) on the other Member (the “Non-Electing Member”). For the
purposes of this Section 7.01, IHP shall be the Electing Member upon the
occurrence of any of the Call Events in Sections 7.01(a)(i), (iii), (iv) and
(v). Upon a Non-Electing Member’s receipt of an Election Notice given properly
pursuant to this Agreement, such Non-Electing Member shall not have the power or
authority to authorize or approve any actions to be taken by the Company, any
decisions to be made by the Company, and/or any consents or approvals to be
given by the Company without the Electing Member’s consent. Upon the giving of
the Election Notice, the Appraised Value of the assets of the Company shall be
determined in accordance with the provisions of Section 7.02. Within ten (10)
days following the Electing Member’s receipt of the accountant’s Purchase Price
Notice for the Non-Electing Member’s Membership Interest as hereinafter
provided, the Electing Member shall have the option to purchase all, but not
less than all, of the Membership Interest of the Non-Electing Member for the
Purchase Price applicable to the Non-Electing Member’s Membership Interest by
giving written notice thereof to the Non-Electing Member.

7.02    Determination of Appraised Value. For purposes of this Agreement,
“Appraised Value” means the fairest price estimated in terms of money which the
Company could obtain if its assets (other than cash then in Company bank
accounts) were sold in bulk in the open market allowing a reasonable time to
find a purchaser who purchases with knowledge of the uses for which such assets
in their then condition are adapted and for which such assets are capable of
being used. The Appraised Value of the assets of the Company shall be determined
as of the date of the Election Notice by one or more real estate appraisers
selected as hereafter provided, all of whom shall be members of The Appraisal
Institute with not less than five (5) years experience in the real estate
appraisal business and be familiar with real estate values in the geographic
region in which the Property is located. The Electing Member shall select one
(1) appraiser and shall notify the Non-Electing Member in writing of the
appraiser so selected within

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fifteen (15) days after giving the Election Notice. The Non-Electing Member
shall select a second appraiser within fifteen (15) days after receipt of that
notice and shall notify the Electing Member of the person so selected. If only
one (1) appraiser shall have been so selected within twenty (20) days after the
Electing Member’s notice to the Non-Electing Member of the appraiser selected by
the Electing Member, or if two (2) appraisers shall have been so selected but
only one (1) such appraiser shall have determined the Appraised Value of the
assets of the Company within thirty (30) days after the appointment of the
second appraiser, then the determination of such appraiser shall be final and
binding upon the parties. If two (2) appraisers shall have been appointed and
shall have made their determinations of the Appraised Value of the assets of the
Company within thirty (30) days after the appointment of the second appraiser
and if the difference between the appraised values so determined shall not
exceed five percent (5%) of the lesser of such appraised values, then the
Appraised Value shall be the average of the amounts so determined. If, however,
the difference between the amounts so determined shall exceed five percent (5%)
of the lesser of such amounts, then such two (2) appraisers shall have twenty
(20) days to select a third appraiser, but if such appraisers fail to do so,
then either Member may request the American Arbitration Association or any
successor organization thereto to appoint a third appraiser within twenty (20)
days of such request, and the Members shall be bound by any such selection
within such twenty (20) days. If no such appraiser shall have been selected by
the American Arbitration Association within such twenty (20) days, either Member
may apply to any court having jurisdiction to make such selection. Any appraiser
selected by the original appraisers, by the American Arbitration Association or
by such court shall be instructed to determine the Appraised Value in accordance
with the terms of this Agreement within thirty (30) days after its appointment.
If there is a third appraisal, the Appraised Value shall be the average of the
two (2) appraisals nearest in value. All such determinations of Appraised Value
shall be final and binding upon the Members. This provision for determination by
appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the Members. Except as hereinafter set forth, each Member shall
pay for the services of the appraiser appointed by such Member. The cost of the
services of the third appraiser, if any, shall be paid one-half (1/2) by each
Member. If only one appraiser is used, the cost of the services of such
appraiser shall be paid one-half (1/2) by each Member.

7.03    Buy/Sell.
(a)    Definition of Buy/Sell Events. For purposes of this Agreement, (i)
“Buy/Sell Event” means (A) any non-defaulting Member elects to implement the
Buy/Sell procedures after December 31, 2015, or (B) a Replacement Event, or (C)
a failure by the Members to agree on a Major Decision and the election by a
Member to treat such failure as a Buy/Sell Event; or (D) a failure by the
Members to elect to fund Additional Capital within the time periods set forth in
Section 2.02(e) above, in which event either. Member may elect to treat such
failure as a Buy/Sell Event within ninety (90) days of the applicable Funding
Date; or (E) a failure of at least one of the following three (3) individuals to
remain in control of the decisions of Managing Member as they relate to the
Project: Lawrence Webb, Kevin Carson or Joseph Davis (“Loss of Control Event”),
(ii) “Offeror Member” means in the case of (1) a Buy/Sell Event described in (A)
above, the non defaulting Member, (2) a Replacement Event, IHP, (3) the failure
of the Members to agree upon a Major Decision or the failure of the Members to
fund Additional Capital, either

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Member, and (4) a Loss of Control Event, IHP; and (iii) “Offeree Member” means
the Member who is not the Offeror Member.
(b)    Implementation of Buy/Sell.
(i)    The Offeror Member shall have the right, but not the obligation, to
implement the buy/sell procedures set forth in this ARTICLE VII by serving a
written notice (the “Buy/Sell Notice”) on the other Offeree Member. The Buy/Sell
Notice shall include a statement setting forth the Offeror Member’s estimate of
the amount of Cash Flow available for distribution to the Members which would be
generated, after a hypothetical sale of the assets of the Company and the
liquidation of the Company in accordance with Section 8.04 below (not including
cash then in Company bank accounts) (the “Buy/Sell Value”).
(ii)    On or before the expiration of fifteen (15) business days following the
date the Offeree Member receives the Buy/Sell Notice, the Offeree Member shall
elect, by giving written notice to the Offeror Member (the “Offeree’s Notice”),
to either: (i) purchase the Membership Interest of the Offeror Member, or (ii)
sell its Membership Interest to the Offeror Member. If the Offeree Member fails
to timely deliver such Offeree’s Notice to the Offeror Member, then the Offeree
Member shall be deemed to have elected to sell its Membership Interest to the
Offeror Member.
(iii)    Upon such election (or deemed election), the purchasing Member shall
deposit with an escrow established by the purchasing Member with a nationally
recognized title company selected by the purchasing Member, a good faith deposit
equal to five percent (5%) of the estimated Purchase Price (as set forth in the
Buy/Sell Notice), which deposit shall be non-refundable to the party depositing
same should it fail to perform its obligation to close the acquisition of a
Membership Interest pursuant to this ARTICLE VII.

7.04    Determination of the Purchase Price.
(a)    Statement of Liabilities.
(i)    Within fifteen (15) days after the determination of the Appraised Value
in the case of an Election Notice or the Buy/Sell Value in the case of a
Buy/Sell Notice, TNHC shall deliver to IHP and to the Company’s accountants a
statement of liabilities of the Company in sufficient detail as is reasonably
satisfactory to IHP (“Statement of Liabilities”), which Statement of Liabilities
shall only include debts and liabilities contemplated in the Approved Project
Budget.
(ii)    IHP shall have fifteen (15) days after receipt to review and approve or
disapprove the Statement of Liabilities, which disapproval shall be accompanied
by the reasons for such disapproval.
(iii)    In the event TNHC fails to timely deliver a Statement of Liabilities or
fails to deliver a revised Statement of Liabilities reasonably satisfactory to
IHP within five (5) days of receipt of IHP’s disapproval of the original
Statement of Liabilities, IHP may prepare a statement of liabilities
(“Substitute Statement of Liabilities”) of the Company and shall deliver such
statement to TNHC and to the Company’s accountants.
(iv)    TNHC acknowledges and agrees that as Managing Member, TNHC is
responsible for causing to be maintained full and correct books and financial
records of

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the Company; therefore, in the event that TNHC fails to deliver a Statement of
Liabilities pursuant to this Section 7.04(a), TNHC shall be responsible for
confirming the accuracy of any Substitute Statement of Liabilities prepared by
IHP within ten (10) days of receipt of such Substitute Statement of Liabilities,
at which time such Substitute Statement of Liabilities shall be deemed to be
true, correct, accurate and complete in all material respects subject to any
manifest error .
(v)    Upon its delivery of the Statement of Liabilities, TNHC shall be deemed
to represent and warrant to IHP that to the best of TNHC’s knowledge and belief,
such Statement of Liabilities (collectively, “TNHC’s Liabilities Reps and
Warranties”), (A) is true, correct, accurate and complete in all material
respects, (B) does not omit information or facts, the omission of which would
render any of the information set forth in the Statement of Liabilities
inaccurate or misleading in any sense, (C) includes all debts and liabilities of
the Company, all of which are contemplated in the Approved Project Budget, and
(D) represents TNHC’s best efforts to accurately and completely compile,
summarize and estimate the information contained therein.
(vi)    TNHC agrees to protect, indemnify, defend with counsel satisfactory to
MP and hold the IHP Indemnitees free and harmless from any and all losses,
costs, expenses, damages, attorney’s fees and costs, actions or causes of action
arising from or attributable to, whether directly or indirectly, to a breach of
TNHC’s Liabilities Reps and Warranties.
(vii)    The Company’s accountants shall determine the amount of cash which
would be distributed to each Member, based upon the Appraised Value or the
Buy/Sell Value, as the case may be, taking into account the liabilities of the
Company as shown on the Statement of Liabilities or the Substitute Statement of
Liabilities, as the case may be, assuming selling costs in an amount equal to
two percent (2%) of the Appraised Value or the Buy/Sell Value, as the case may
be, and the provisions of Section 8.06 below, and assuming the date of such Cash
Flow distributions is the date of the Election Notice or the Buy/Sell Notice,
whichever is applicable.
(b)    Holdback. In the event TNHC fails to timely deliver a Statement of
Liabilities as required in Section 7.04(a) above, and in the event IHP is the
purchasing Member under this ARTICLE VII, an amount equal to five percent (5%)
of the purchase price for TNHC’s Membership Interest (the “Holdback Amount”)
shall be held in reserves by (he Company to pay for liabilities of the Company
arising prior to the Closing and not taken into account on the Substitute
Statement of Liabilities prepared by IHP. The Holdback Amount, to the extent not
applied to the payment of Company liabilities arising prior to the Closing,
shall be released to TNHC six (6) months following the Closing; provided,
however, that for potential liabilities not shown on the Substitute Statement of
Liabilities arising prior to the Closing as to which IHP has given TNHC notice
prior to the expiration of such six (6) month period, the Holdback Amount shall
be retained until all liabilities arising out of the potential liability
described in such notice have been satisfied.
(c)    Purchase Price. Upon the Company’s accountant’s confirmation of the
calculation of the amount of Cash Flow which would be available for distribution
for such hypothetical sale and liquidations, based upon the Appraised Value or
the Buy/Sell Value, as the

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case may be, such accountant shall give each Member a written notice thereof
(the “Purchase Price Notice”). The Members acknowledge and understand that such
a hypothetical sale of assets and liquidation of the Company may result in the
selling Member hereunder having to contribute money to the Company for
distribution to the purchasing Member to the extent the selling Member’s
economic loss obligation under Section 8.06 exceeds the amount otherwise payable
for its Membership Interest. The amount determined by the accountants to be
distributable to a Member (or payable by the selling Member, if applicable)
shall constitute the purchase price (the “Purchase Price”) applicable to such
Member’s Membership Interest; provided, however, if Call Event gave rise to the
election by either Member to proceed under this ARTICLE VII, then the Purchase
Price to be paid to the defaulting Member shall be reduced by ten percent (10%)
of what would otherwise be payable pursuant hereto (and, if it is established by
the accountant’s Purchase Price Notice that selling Member as a result of a Call
Event is required to pay money as the seller, then the amount required to be
paid by such selling Member in connection with the purchase and sale of its
Membership Interest would be increased by ten percent (10%)). The determination
by the Company’s accountant of such amounts shall be conclusive, absent manifest
error. In no event may any allegation of manifest error delay the acquisition of
a Membership Interest pursuant to this ARTICLE VII, it being agreed and
understood by the Members that the sole remedy for an aggrieved Member alleging
manifest error shall be to recover the sum of (a) the difference between what
the Purchase Price would have been without the error and the Purchase Price as
determined by the Company’s accountant, and (b) the attorneys fees and costs
incurred by the aggrieved Member in prosecuting its claim of error and
collecting such difference. Upon such determination, the accountants shall give
each Member a written notice thereof. The determination by the accountants of
such amounts shall be adjusted for transactions occurring between the date of
the accountant’s Purchase Price Notice and the Closing.

7.05    Other Disclosures. Within five (5) days after the determination of the
Appraised Value in the case of an Election Notice or the Buy/Sell Value in the
case of a Buy/Sell Notice, TNHC shall deliver to IHP written disclosures of the
following, each of which shall be in sufficient detail as is reasonably
satisfactory to IHP:
(a)    Any material discussions with City or Agency officials affecting any
portion of the Property, and
(b)    Any pending or threatened litigation affecting the Company and/or any
portion of the .Property.

7.06    Closing of Purchase and Sale. The closing of a purchase and sale
pursuant to this ARTICLE VII (the “Closing”) shall be held at the principal
office of the Company on the thirtieth (30th) day following the determination of
the Purchase Price. The selling Member shall transfer to the purchasing Member,
or its nominee, the entire Membership Interest of the selling Member free and
clear of all liens, security interests and competing claims, and shall deliver
to the purchasing Member, or its nominee, (i) such instruments of transfer
and/or releases; (ii) such evidence of due authorization, execution and
delivery; and (iii) such evidence of the absence of any liens, security
interests or competing claims, as the purchasing Member, or its nominee, shall
reasonably request. Notwithstanding the foregoing, rather than acquiring the
Membership Interest of the selling Member, the purchasing Member, at its option
and in its discretion, shall

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have the right to cause the Company to convey to the purchasing Member or its
nominee one hundred percent (100%) of the assets of the Company, subject only to
those obligations contemplated in the Approved Project Budget. The purchasing
Member (the selling Member if it is required to pay money under Section 7.04
above) shall pay the Purchase Price (subject to the Holdback Amount, if
applicable) by delivery at the closing of a certified or bank cashier’s check
payable to the order of the other Member in the amount of such Purchase Price;
provided, however, and without limiting the obligations of the selling Member
under Section 7.07 below, in the event there are liabilities of the Company
known to the purchasing Member which are covered by any of the selling Member’s
indemnities under Section 7.07 below, to the extent the cost of any such
liabilities (or any portion thereof) can be quantified as of the Closing, the
Purchase Price shall be reduced by such amount.

7.07    Release and Indemnity. The acquiring Person shall acquire the selling
Member’s Membership Interest (or the assets of the Company, as applicable)
subject only to those obligations contemplated in the Approved Project Budget
and agrees that the Company (or in the case of a purchase of the assets of the
Company, the acquiring Person) shall protect, indemnify, defend with counsel
satisfactory to the selling Member, and hold the selling Member free and
harmless from any such liability or obligation. The selling Member shall remain
liable and hereby agrees to protect, indemnify, defend with counsel satisfactory
to the purchasing Member and hold the purchasing Member and such acquiring
Person free and harmless from any and all losses, costs, expenses, damages,
attorney’s fees, actions or causes of action arising from or attributable to,
whether directly or indirectly, any of the following:
(a)    Debts and liabilities incurred by the selling Member in violation of this
Agreement that were not contemplated in the Approved Project Budget;
(b)    Liabilities and obligations attributable to or arising from the breach or
default by the selling Member or any of its Affiliates of its covenants or
agreements herein contained, or contained in any other agreement with the
Company or the purchasing Member or the inaccuracy of any of the representations
or warranties made by such entities pursuant hereto or such other agreement; and
(c)    Liabilities or obligations arising from the negligence of the selling
Member or its Affiliates to the extent not covered by insurance, or the gross
negligence or willful misconduct of the selling Member or any of its Affiliates.

7.08    Bonds and Guaranties. As a condition precedent to any purchase
hereunder, the selling Member and its Affiliates must be released from monetary
liability under any guaranty given in connection with any Company Financing or
under any indemnity given a surety providing any bond for the Project or given a
lender in connection with any Company Financing; provided, however, in the event
that the buying Member is unable to obtain, after using reasonable efforts, any
such releases, the buying Member shall cause the Company to indemnify selling
Member and its applicable Affiliates for any claims, under any such repayment
guaranty(s) or indemnity(s) given to any surety, subject to indemnities under
Section 7.06 above.

7.09    Activities Prior to Closing. From and after the time that the Electing
Member delivers the Election Notice or the Offeror Member serves a Buy/Sell
Notice to the date of closing of a purchase pursuant to this ARTICLE VII, the
Members shall continue to have all

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rights and obligations as are set forth in this Agreement as if the election to
proceed under this ARTICLE VII had not occurred; provided, however, that (a) to
the extent that either Member funds any monies to the Company, such amounts,
together with any Preferred Return accruing thereon, shall be added to the
amounts which would be distributed to such Member under the accountant’s
Purchase Price Notice, (b) the Purchase Price shall be adjusted to reflect all
cash in accounts of the Company on the Closing Date, if not previously taken
into account in computing the Purchase Price or taken into account in subsection
(a) above, and (c) if IHP or its nominee is to be the buyer pursuant to this
ARTICLE VII, then IHP shall have the right to designate a Replacement Manager.

ARTICLE VIII
DISSOLUTION OF THE COMPANY

8.01    Events of Dissolution. Upon a Member’s retirement, removal, resignation
or withdrawal from the Company or the admission of a new Member to the Company,
or the occurrence of an Event of Bankruptcy with respect to either Member, the
Company shall dissolve unless within ninety (90) days after any such event, the
other Member elects to continue the Company. The Company shall, however, be
dissolved upon the first to occur of the following events:
(a)    Election by a Member. The election by a non-defaulting Member in the
event that all of the assets of the Company have not been sold on or before
seven (7) years after the date of this Agreement.
(b)    Liquidation of Assets. The sale of all or substantially all of the assets
of the Company unless such sale or other disposition involves any deferred
payment of the consideration for such sale or disposition, whereupon the Company
shall not dissolve until the last day of the calendar month during which the
Company shall receive the balance of such deferred payment.
(c)    Non-Defaulting Member’s Election. The election by the non-defaulting
Member following the occurrence of an Event of Default.
(d)    Election by Either Member. The election by either Member in the event
that neither Member elects to fund Additional Capital and neither Member elects
to timely implement the Buy/Sell procedures set forth in Section 7.03(a)(i)(D)
above.

8.02    Effect of Dissolution. Upon dissolution of the Company by reason of the
occurrence of any of the events described in Section 8.01 or by operation of
law, the Company shall not terminate but shall continue solely for the purposes
of (a) liquidating all of the assets owned by the Company (until all such assets
have been sold or liquidated) and (b) collecting the proceeds from such sales
and all receivables of the Company. Upon such dissolution, the Company shall
engage in no further business thereafter other than that necessary to cause the
Project to be operated on an interim basis and for the Company to collect its
receivables, liquidate its assets and pay or discharge its liabilities. The
indemnification agreements of the Members contained in Section 9.02 below shall
survive dissolution and termination of the Company.

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8.03    Liquidation of Assets. All of the assets, if any, other than cash, shall
be offered (either as an entirety or on an asset-by-asset basis) promptly for
sale by the Liquidating Trustee on behalf of the Company upon the best terms
available in the open market. For purposes of this Agreement, the “Liquidating
Trustee” shall be the Managing Member; provided, however, if (a) a Replacement
Event occurs with respect to TNHC, or (b) IHP elects to dissolve the Company as
provided in Section 8.01, then IHP or its designee shall be the Liquidating
Trustee. Each Member, provided it shall not be in breach of any of its
obligations hereunder (nor would be in breach but for the requirements of notice
or the passage of time or both), shall be entitled to negotiate or bid for the
purchase of any or all of the assets being offered for sale. The gross sales
proceeds and all other cash shall be applied and distributed in accordance with
Section 8.04.

8.04    Distributions Upon Liquidation. Upon the liquidation of the Company
caused by other than the termination of the Company under Section 708(b)(1)(B)
of the Code, the Liquidating Trustee shall proceed with winding up of the
affairs of the Company in accordance with the provisions of this ARTICLE VIII.
During such winding up process, the Net Profits, Net Losses and Cash Flow
distributions shall continue to be shared by the Members in accordance with this
Agreement. The proceeds from the sale of the Company’s assets, to the extent
available, shall be applied and distributed by the Company in the following
order:
(a)    Payment of Debts. To the payment of all known debts and liabilities of
the Company, including debts to any Members who are creditors of the Company;
(b)    Establishment of Reserves. In addition to the Cash Flow withheld to fund
the Unfunded SIR Amount, if applicable, to the establishment of the following
reserves:
(i)    A reserve to pay for the projected costs and expenses of maintaining the
Company’s existence for a period of time agreed to by the Members, but in no
event less than the later of one (1) year following the sale of the last Lot in
the Project or the period of time required by the Project’s insurance provider
(the “Close-Out Period”) including annual franchise fees, annual renewal fees
for domestic representation, anticipated accounting costs for preparation of the
Company’s annual tax returns and filing fees as well as the costs of completing
the liquidation and winding-up of the Company at the expiration of the Close-Out
Period including filing and publication costs and fees.
(ii)    In the event the Company has not previously purchased insurance coverage
for the duration of the Close-Out Period, a reserve to pay for the projected
cost of annual insurance premiums to maintain the Company’s insurance during the
Close-Out Period. The Members intend that the proceeds of such insurance will be
reasonably likely to be sufficient to provide compensation for claims that have
not been made known to the Company or that have not arisen but that, based on
facts known to the Company, are likely to arise or to become known to the
Company during the Close-Out Period.
(iii)    A reserve to pay all claims and obligations, including all contingent,
conditional or unmatured contractual claims, known to the Company to the extent
said items have not been satisfied under Section 8.04(a) above.
(iv)    A reserve as will be reasonably likely to be sufficient to provide
compensation for any claim against the Company which is the subject of a pending
action, suit or proceeding to which the Company is a party.

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(c)    Balance. To the Members in the order of priority set forth in ARTICLE
III. The Members believe and intend that the effect of making any and all
liquidating distributions in accordance with this provision will result in each
Member receiving liquidating distributions equal to the amount of Cash Flow each
such Member would have received if liquidating distributions were instead
distributed in accordance with the positive balance standing in each such
Member’s Capital Account. If the immediately preceding sentence is for any
reason inaccurate, then the Members, upon the advice of tax counsel to the
Company, are hereby authorized to make such revisions to the provisions of
Exhibit “C” and/or to file such amended tax returns for the Company as may be
reasonably necessary to cause such allocations to be in compliance with Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.

8.05    Completion of Winding-Up. The Liquidating Trustee shall maintain the
Company in existence for the duration of the Close-Out Period and utilize the
reserves established under Section 8.04(b) to pay all costs and expenses of the
Company during the Close-Out Period. From time to time during the Close-Out
Period upon IHP’s request, the Liquidating Trustee shall provide reports to the
Members detailing for each Member the status of such reserves and what, if any,
claims have been made against the Company or the Project. Except as otherwise
provided by law or under this Agreement, in no event shall either Member be
required to fund any additional sums to the Company should such reserves prove
to be inadequate. Notwithstanding the foregoing, upon the request of either
Member, the Members shall meet and confer to consider an earlier completion of
the winding-up process which may be accelerated with the prior written consent
of both Members. Upon expiration of the Close-Out Period, provided the Company
does not then have any known, unsatisfied claims against it, the Liquidating
Trustee shall proceed to complete the dissolution and winding-up of the Company
in accordance with applicable law.

8.06    No Capital Account Restoration; Economic Shortfall and Loss Sharing.
Upon the sale of the last Lot in the Project or the sale of a Membership
Interest therein (which for purposes of this Section 8.06 shall also include a
sale of a Membership Interest following the occurrence of a Call Event or a
Buy/Sell Event as provided in this Agreement), neither Member shall be obligated
to restore any negative balance as may then exist in its Capital Account.
Notwithstanding the foregoing, if upon the sale of the last Lot in the Project
or the sale of a Membership Interest therein (or a Purchase Price calculation
based upon a hypothetical sale of the Company’s assets for the Appraised Value
or the Buy/Sell Value), Cash Flow distributions to the Members have not been
sufficient to repay each Member its entire Preferred Return and Unrecovered
Capital Account (collectively, the “Economic Shortfall”), the Members shall
share in such Economic Shortfall (a “Member’s Share of Loss”) on a 50:50 basis.
Each Member shall receive a credit against such Member’s Share of Loss in an
amount equal to such Member’s accrued and unpaid Preferred Return and the
positive balance of its Unrecovered Capital Account. If, after applying such
credit, it is determined that either Member has failed to bear such Member’s
Share of Loss, the balance owed by such Member shall be funded by such Member to
the Company concurrently with the earlier of thirty (30) days following the sale
of the last Lot in the Project or the liquidation of a Membership Interest
herein and shall immediately be distributed to the Member entitled thereto by
the Company. Nothing contained in this Section 8.06 is intended to release,
limit or impair either Member’s obligations

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and liabilities with respect to the other covenants, warranties and indemnities
contained in this Agreement.

ARTICLE IX
INDEMNIFICATION

9.01    Limitation on Liability. Except as otherwise expressly provided in the
Act or in this Agreement, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Company, and no Member shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Member of the Company; provided, however, nothing in this
Section 9.01 shall limit the liability of any Member to the other Member as
provided in this Agreement or under the Act. Except as otherwise provided
herein, no Member or its Affiliates shall be liable to the Company or to any
other Member for any losses, costs, obligations, claims, expenses, damages or
liabilities (including attorneys’ fees and costs) arising from any act or
omission performed or omitted by it arising out of or in connection with this
Agreement or the Company’s business or affairs, except to the extent any such
loss, cost, obligation, claim, damage, expense or liability attributable, in
whole or in part, to such Member’s or its Affiliate’s (a) negligence to the
extent not covered by insurance, (b) gross negligence or willful misconduct, or
(c) breach of its obligations under this Agreement or under any agreement
between such Member or its Affiliate with the Company.

9.02    Indemnification by Members.
(a)    TNHC has disclosed to IHP those liabilities identified on Exhibit “L” and
IHP consents to the assumption of such liabilities by the Company. Except for
such liabilities, the Company shall not be liable for any other obligations
incurred by TNHC or any of its Affiliates prior to the formation of the Company.
To the fullest extent permitted by law, except to the extent any of the
following arises from the sole negligence, willful misconduct or breach of IHP
or agents, servants or independent contractors who are directly responsible to
IHP, TNHC hereby agrees to protect, indemnify, defend with counsel satisfactory
to IHP, and hold harmless the Company, IHP, its Affiliates and their respective
partners, members, managers, employees, agents, trustees, beneficiaries,
officers, directors, shareholders, divisions, subsidiaries and successors
(collectively, “IHP Indemnitees”), from and against any and all losses, costs,
obligations, claims, expenses, damages, liabilities, attorneys’ fees and costs,
expert and consultant costs, fines, judgments, penalties, debts, suits, actions
and causes of action (including those arising out of bodily injury and/or
personal injury to, or death of, persons) (collectively, “Liabilities”) caused
by, arising out of or relating directly or indirectly to (i) any liability or
obligation not expressly assumed by the Company as identified on Exhibit “L”
incurred by TNHC or any of its Affiliates prior to formation of the Company;
(ii) the material inaccuracy of any representation or warranty made by or deemed
to be made by TNHC or its Affiliates in this Agreement; (iii) the negligence
(whether active or passive) or willful misconduct of TNHC, its Affiliates and
their respective officers, employees, directors, shareholders, constituent
members, managers, partners, agents, subcontractors, suppliers, invitees,
licensees and representatives to the extent proceeds from insurance do not fully
satisfy same; (iv) the failure of TNHC to satisfy any of its obligations in
connection with the Project insurance; (v) to the extent of TNHC’s failure to
use Due Care, any and all claims on any improvements bonds for the Project
and/or

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claims from any bonding companies relating to the non-payment or failure to
complete any such bonded work; and (vi) the breach by TNHC of any of its
obligations under this Agreement or at law or by any Affiliate of TNHC under any
agreement with the Company, or the occurrence of an Event of Default with
respect to TNHC or any of its Affiliates.
(b)    Subject to the limitations of Section 12.20 hereof, and except to the
extent of any Liabilities arising from the negligence, willful misconduct or
breach of TNHC or agents, servants or independent contractors who are directly
responsible to TNHC, IHP hereby agrees to indemnify, defend with counsel
satisfactory to TNHC, and hold harmless the Company, TNHC, its respective
partners, members, managers, employees, agents, trustees, beneficiaries,
officers, directors and shareholders, from and against any and all Liabilities
caused by, arising out of or relating directly or indirectly to (i) the
negligence or willful misconduct of IHP, its Affiliates, and their respective
officers, employees, directors, shareholders, constituent members, managers,
partners, agents, and representatives to the extent proceeds from insurance do
not fully satisfy same, and (ii) the breach or default by IHP of any of its
obligations under this Agreement or at law, or the occurrence of an Event of
Default with respect to IHP.

9.03    Indemnification of Members and Others by the Company. The Company does
hereby indemnify, defend with counsel satisfactory to the Members, protect and
hold harmless each Member, Replacement Manager, their respective shareholders,
directors, officers, constituent partners, members, managers, agents and
employees (an “Indemnified Party”) from and against any and all Liabilities
suffered by such Indemnified Party by reason of anything that such Indemnified
Party may do or refrain from doing hereafter for and on behalf of the Company
and in furtherance of the interests of the Company; provided, however, that the
Company shall not be required to indemnify and shall not be deemed to have
indemnified such Indemnified Party from any Liabilities which such Indemnified
Party may suffer as a result of the negligence of the Indemnified Party not
covered by insurance, the gross negligence or willful misconduct of the
Indemnified Party in performing or in failing to perform its duties hereunder or
taking any action beyond the authority of that Indemnified Party hereunder or
with respect to anything that such Indemnified Party may do or refrain from
doing with respect to the ownership, management or control of any of its own
affairs or assets (including its Membership Interest in the Company) as distinct
from the affairs and assets of the Company. Provided, further, the Company shall
not be required to indemnify and shall not be deemed to have indemnified any
Member, its shareholders, directors, officers, constituent partners, members,
agents and employees for any Liabilities which such Member has agreed to
indemnify the Company for under this Agreement. If an Indemnified Party becomes
involved in any capacity in any action, proceeding or investigation in
connection with any matter arising out of or in connection with this Agreement
or the Company’s business or affairs, the Company shall reimburse such
Indemnified Party for its reasonable legal and other reasonable out-of-pocket
expenses (including the cost of any investigation and preparation) as are
incurred in connection therewith, provided that (i) the Company shall exercise
exclusive control over the conduct of such action or proceeding and decisions as
to settlement thereof, and (ii) such Indemnified Party shall promptly repay to
the Company the amount of any such reimbursed expenses paid to it, together with
interest thereon from the date of reimbursement to the date of repayment at the
rate equal to the lesser of fifteen percent (15%) per annum or the maximum rate
permitted by law, if it shall ultimately be

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determined that such Indemnified Party was not entitled to be indemnified by the
Company in connection with such action, proceeding or investigation.

9.04    Survival.
(a)    The provisions of this Article IX shall survive dissolution of the
Company until such time as all claims or suits arising out of the indemnified
matters are barred by the applicable statute of limitations; provided that the
obligations of the Company under this Article IX shall be satisfied solely out
of Company assets.
(b)    Notwithstanding anything to the contrary contained in this Agreement, the
obligations of the Company or any Member under this Article IX shall (i) be in
addition to any liability which the Company or such Member may otherwise have
and (ii) inure to the benefit of the other Member, its Affiliates and their
respective partners, members, managers, shareholders, directors, officers,
employees, agents and Affiliates and any successors, assigns, heirs and personal
representatives of such Persons.

ARTICLE X
ACCOUNTING

10.01    Books and Records. The Managing Member shall cause to be maintained
full and correct books and financial records of the Company. Such books and
records may be maintained in electronic form. The Company financial records and
accounts shall be kept in such a manner as to clearly show a true, accurate
separate record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with the
operation of the Company’s business in accordance with United States generally
accepted accounting principles consistently applied. The fiscal year of the
Company (the “Fiscal Year”) shall be the calendar year. For financial and income
tax reporting purposes, the Company shall elect the accrual basis of accounting.
In IHP’s discretion, the Company accounts shall be audited each year that the
Company is in existence by a firm of auditors approved by IHP.

10.02    Location and Availability of Records. All books and records of the
Company, including, without limitation, the Company Assets, shall be kept and
maintained at the principal office of the Company or such other place as may be
agreed upon by the Members, and shall during regular business hours, be
available for inspection, duplication and audit by each Member, and its
designated representatives, including attorneys, auditors and accountants.

10.03    Reports. The Managing Member shall provide periodic Project reports to
IHP, the form and content of which shall be in accordance with Exhibit “M” and
as determined from time to time by IHP in its reasonable discretion. The timely
receipt of such reports is of critical importance to HP as it is the primary
means for IHP to monitor Project performance and IHP utilizes the information
therein in preparing reports required of IHP to be provided to its investors. If
the Managing Member fails to timely deliver the reports required herein, in
addition to its other rights and remedies herein, IHP shall have the right, but
not the obligation, to cause the Company to withhold further distributions of
any fees payable to TNHC, without interest, until such reports are delivered.
The reports initially required shall be as follows:
(a)    Weekly Reports. From and after the date that the Lots are released for
sale, on each Monday prior to 12:00 p.m. noon (or Tuesday if Monday is a
holiday), the

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Managing Member shall send by facsimile or email a weekly Sales and Inventory
Report and a weekly Sales and Traffic Summary.
(b)    Monthly Reports. Within twenty (20) days after the end of each calendar
month, the Managing Member shall provide IHP with an unaudited monthly report
containing information as hereinafter described:
(i)    A balance sheet, a statement of operations for the Company, a
statement of each Member’s Capital Account and Unrecovered Capital Account and a
schedule of accrued and unpaid Preferred Returns due each Member.
(ii)    A summary of closed Lot sales and/or pending Lot sales in escrow.
(iii)    A Project status report providing updates on status of Entitlements and
Critical Dates achievement.
(c)    Quarterly Reports. Within twenty (20) days after the end of each calendar
quarter, the Managing Member will provide the information outlined above in
Section 10.03(b), and an unaudited quarterly report containing the following
information:
(i)    A responsible contractor report.
(ii)    A report detailing variances from the Approved Project Budget together
with an explanation of the reason for all increases or decreases in excess of
one percent (1%) by line item as shown in the Approved Project Budget.
(iii)    A construction status report showing the critical dates for the
development of the Project.
(iv)    A summary comparing projected construction starts and closings on an
actual and forecast basis.
(v)    A comparison of Lot sales prices including a description of material
price changes for Lots in excess of those shown in the Approved Business Plan.
(vi)    A report specifying the balance of the Unfunded SIR Amount, itemizing
any and all costs paid to date toward the self-insured retention on the Project
insurance, and specifying the amount and date of any reimbursements made to TNHC
or any Affiliate of TNHC from the Unfunded SIR Amount.
(d)    Annual Reports.
(i)    Within twenty-five (25) days after the end of each Fiscal Year and/or the
final reporting period of the Company, the Managing Member shall furnish IHP for
its review and approval with draft financial statements of the Company prepared
in accordance with generally accepted accounting principles, consistently
applied. Within sixty (60) days after the end of each Fiscal Year, the Managing
Member shall furnish IHP with financial statements, including without
limitation, Company statements, certified as to their accuracy by auditors
approved by IHP (in the event that IHP elects to have the Company accounts
audited), which shall contain a balance sheet as of the end of the Fiscal Year,
statements of profit and loss, changes in the Capital Accounts and a statement
of cash flows for the Fiscal Year then ended. The cost of any such audit shall
be an expense of the Company; provided however, if the

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Managing Member fails to submit information pursuant to the time periods
required in this Section 10.03(d)(i) and as a result the auditors are unable to
prepare and deliver the audit by March 1 of each year, the cost of the audit
shall be borne exclusively by the Managing Member.
(ii)    In addition to the report required in Section 10.03(d)(i) above, from
time to time IHP shall have the right, but not the obligation, and with the
Managing Member’s cooperation, to obtain a report verifying total Project Costs
prepared by a consultant approved by IHP. The cost of such report will be a
Company expense.
(e)    Tax Returns. Within sixty (60) days after the end of each Fiscal Year or
the final reporting period of the Company, the Managing Member shall cause tax
accountants approved by IHP to prepare all income and other tax returns of the
Company including Company K-1 statements for each Member of the Company and
submit such returns to IHP for its approval and, when approved by IHP, cause the
same to be filed in a timely manner. The Managing Member shall not file on
behalf of the Company any federal or state income tax or information returns,
elections or choices of methods of reporting income or loss for federal or state
income tax purposes without the prior written consent of IHP. The Managing
Member shall furnish to IHP a copy of each such return as soon as they have been
filed, together with any schedules or other information which any Member may
require in connection with its tax affairs. Each of the Members shall, in its
respective income tax return and other statements filed with the Internal
Revenue Service or other taxing authority, report taxable income in accordance
with the Company’s K-1 statements provided to the Members under this Agreement.
Managing Member shall consult with IHP and its accountants, from time to time as
requested by IHP, to discuss tax planning for the Company.
(f)    Financial Statements. TNHC has provided IHP with true and accurate
financial statements of TNHC and Guarantor for the period ending March 31, 2013.
TNHC and Guarantor shall provide IHP with updated financial statements for TNHC
and Guarantor quarterly for the quarterly time periods ending March 31, June 30,
September 30 and December 31 during each year of the Company, to be provided on
April 30, July 30, October 30 and February 30 during each year of the Company,
with the first such statement due June 30, 2013. Each such financial statement
shall disclose and/or footnote, in sufficient detail, all items of income, gain,
loss (contingent or otherwise) and changes in financial position (including
without limitation any contingent liabilities) from the financial statements
previously provided.
(g)    Certified Closing Statements. Upon the close of the sale of any portion
of the Property, the Managing Member shall provide IHP with a certified closing
statement detailing all terms and disbursements attributable to each such sale,
which shall include, but not be limited to, a certified escrow statement and
description of any other terms of the transaction.
(h)    Insurance Reports. The Managing Member shall prepare and deliver to IHP
insurance reports, in form approved by IHP, as IHP may request from time to
time. The insurance reports shall, without limitation, document compliance by
the trade contractors, design professionals and consultants with all insurance
requirements applicable to such parties, including, without limitation, evidence
reflecting receipt by the Managing Member of complying certificates of insurance
and additional insured endorsements from such parties.

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(i)    Other Reports. The Managing Member shall also prepare and deliver to IHP
such other reports, in form approved by IHP, as IHP may request from time to
time including, without limitation, a narrative report providing a summary of
the Project including significant changes from the Approved Project Budget.

10.04    Consolidation Reporting. The Managing Member shall consult with IHP and
the Company auditors, from time to time as requested by IHP, to provide and
discuss any calculations/models used in Managing Member’s interpretation of the
consolidation requirements under FASB Accounting Standards Codification 810,
Consolidations, as amended from time to time. To the extent that the Company
auditors are the auditors of the Consolidated financial statements of the
Managing Member, the interpretation of any such consolidation requirements must
be reviewed and approved by the Company auditors.

ARTICLE XI
TRANSFER OF MEMBERSHIP INTERESTS AND PARTITION

11.01    Restriction on Transfer. Except for a Permitted Transfer or the
purchase of a Membership Interest pursuant to this Agreement, TNHC shall not
(directly, indirectly, voluntarily, involuntarily or by operation of law) sell,
assign, mortgage, encumber, grant a security interest in, dispose of or
hypothecate (hereinafter “transfer”) all or any portion of its Membership
Interests, or withdraw or retire from the Company, without the prior written
consent of IHP, which consent may be withheld in IHP’s discretion. TNHC
acknowledges and understands that IHP has entered into this Company in reliance
upon the identity and control of TNHC, its expertise and reputation in the home
building industry, its financial strength and its ability to perform its
obligations hereunder. Any change in the management, ownership, operation or
control of TNHC is of extreme importance to IHP. TNHC hereby acknowledges and
agrees that IHP shall not be required to (1) accept performance under this
Agreement from any person other than the named TNHC, or (2) respond or perform
in accordance with any demands made upon the Company and/or IHP from any person
other than the named TNHC, including (a) TNHC, should it become a debtor in
possession under 11 U.S.C. Sections 101 et. seq. of the Bankruptcy Code, or (b)
any trustee of TNHC appointed under 11 U.S.C. Sections 101 et. seq. of the
Bankruptcy Code or any assignee of any such trustee of TNHC. Any attempted
transfer, withdrawal or retirement not permitted under this Agreement shall be
void. For the purposes of this ARTICLE XI, the term “Membership Interests” shall
be deemed to include the TNHC’s Membership Interests and any transfer of
membership interests in TNHC, or in the constituent members of the member of
TNHC, and the assets of TNHC not transferred or replaced in the ordinary course
of business; provided, however, there shall be no restriction on transfers of
IHP’s membership interests in TNHC. Any transfer of any Membership Interest in
TNHC other than in compliance with the terms and provisions of this ARTICLE XI
shall be deemed a material breach or default by TNHC not capable of cure.
Notwithstanding any other provision of this Agreement to the contrary, nothing
in this Agreement shall be construed to prohibit or restrict any TNHC
Reorganization or to require any consent of IHP or any of its Affiliates to any
TNHC Reorganization so long as (A) any of the following individuals remain
active in the business of New Home: Lawrence Webb, Wayne Stelmar, Joseph Davis
and Thomas Redwitz, and (B) a TNHC Reorganization or any subsequent
organizational decision resulting from a TNHC Reorganization does not result in
Seller exercising any right to accelerate

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the repayment of the Seller Purchase Money Loan. Notwithstanding (B) above, in
the event of an acceleration of the repayment of the Seller Purchase Money Loan
resulting from a TNHC Reorganization, provided, that, TNHC timely secures
Company Financing from a third party lender approved by MP to replace such,
loan, on similar terms and at no additional cost to the Company, then subsection
(B) shall have no further force and effect. New Home may replace any such
persons from time to time with the prior reasonable consent of IHP. “TNHC
Reorganization” means: (i) the conversion of New Home from a limited liability
company to a corporation and the issuance of shares in such corporation pursuant
to a public or private offering of securities, or (ii) any substantial
recapitalization of New Home whereby (A) one or more new investors contribute
capital to New Home and are admitted as additional members, or (B) a new
partnership or limited liability company is formed wherein the constituent
partners or members are New Home and one or more new investors. A TNHC
Reorganization may result in control of the resulting entity residing in persons
other than Lawrence Webb, Wayne Stelmar, Joseph Davis and the other current
owners of New Home.

11.02    Partition. No Member shall, either directly or indirectly, take any
action to require partition of the Project or any other assets or properties of
the Company pursuant to applicable law, nor shall any Member make application or
commence a proceeding for a partition or sale thereof and, upon any breach of
the provisions of this Section 11.02 by any Member, the other Member (in
addition to all rights and remedies afforded by law or in equity) shall be
entitled to a decree or order restraining or enjoining such application, action
or proceeding.

11.03    Admission of Substituted Member. If a Member transfers its Membership
Interest in accordance with this ARTICLE XI, and such purchaser is designated by
the conveying Member as a substituted Member, such assignee shall be entitled to
be admitted to the Company as a substituted Member, and this Agreement shall be
amended to reflect such admission, provided that the following conditions are
complied with:
(a)    Form of Assignment. IHP shall approve the form and content of the
instrument of assignment.
(b)    Other Documents. The conveying Member and assignee or assignees named
therein executes and acknowledges such other instrument or instruments as the
non-conveying Member may reasonably deem necessary to effectuate such admission.
(c)    Acceptance of Agreement. The assignee or assignees in writing accepts and
adopts all of the terms and conditions of this Agreement, as the same may have
been amended.
(d)    Payment of Costs. The conveying Member pays, as IHP may reasonably
determine, all reasonable expenses connected with such admission, including
legal fees and costs.
(e)    Amendment of Certificate. If required, an amendment to the Certificate of
Formation of the Company is filed and recorded, as appropriate.

11.04    Compliance. Notwithstanding anything to the contrary in this Agreement,
at law or in equity, no Member shall transfer or otherwise deal with any
Membership Interest in a way

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that would cause a default under any material agreement to which the Company is
a party or by which it is bound.

11.05    Permitted Transfers. For purposes of this Agreement, a “Permitted
Transfer” means any of the following:
(a)    Constituent Member Transfers. Constituent Member Transfers of interests
in TNHC Partners LLC, a Delaware limited liability company (“TNHC Partners”), a
member of The New Home Company LLC, a Delaware limited liability company (“New
Home”), which is the sole member of TNHC. As used herein, “Constituent Member
Transfers” shall mean transfers of interest between a constituent member of TNHC
Partners, on the one hand, and the other constituent members of TNHC Partners
and/or TNHC Partners, on the other hand, upon the death, permanent disability,
marital dissolution, default or termination of employment of any such
constituent member pursuant to the buy/sell agreement among TNHC Partners and
such constituent members.
(b)    Estate Planning Transfers. With respect to transfers of interest in TNHC
or in its constituent members, transfers to a trust for the benefit of such
member, his or her spouse and/or lineal descendants, so long as such member
retains control over the decisions of such trust.
(c)    TNHC Reorganization. Subject to the restrictions contained in Section
11.01 above, any TNHC Reorganization.
Notwithstanding the restrictions of Section 11.01 to the contrary, a Permitted
Transfer by TNHC shall not require the prior written consent or approval of IHP.
The transferee of a Permitted Transfer (the “Permitted Transferee”) shall
receive and hold such Membership Interest or portion thereof subject to the
terms of this Agreement and to the obligations hereunder of the transferor
Member, and there shall be no further transfer of such Membership Interest or
portion thereof except to a Person to whom such Permitted Transferee could have
transferred its Membership Interest had such Permitted Transferee originally
been named as Member hereunder, or in accordance with the other terms of this
Agreement.

11.06    Transferor Remains Liable. If any Member transfers its Membership
Interest pursuant to this ARTICLE XI, such Member shall remain liable for its
obligations hereunder and any subsequent obligations of its transferee named in
accordance with the terms of this Agreement notwithstanding any such transfer
unless the other Member expressly releases, in writing, such transferor from
such obligations.

11.07    Restrictions on Assignees. An assignee of a Membership Interest, or
portion thereof, who does not become a substituted Member shall have no right to
require any information or account of the Company’s transactions, to inspect the
Company books, or to vote on any of the matters as to which a Member would be
entitled to vote under this Agreement.

11.08    IHP Transfers. There is no restriction on transfers by IHP of its
Membership Interest. For avoidance of doubt, IHP may directly or indirectly
transfer all or any portion of its Membership Interest (and its constituent
members may directly or indirectly transfer all or any portion of their
respective interests in IHP) without the consent of TNHC.

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ARTICLE XII
MISCELLANEOUS

12.01    Integration/Amendment. This Agreement is the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, understandings and agreements with respect
thereto. The Members acknowledge that they have entered into this Agreement in
reliance upon their own independent investigation and analysis and that neither
Member has been induced to enter into this Agreement by virtue of, and is not
relying upon, any representations or warranties not set forth in this Agreement.
No amendment, alteration, modification or interpretation hereof shall be binding
unless in writing and signed by the Members.

12.02    Attorneys’ Fees. If any proceeding (including without limitation any
appellate or bankruptcy court proceeding) is brought by one Member against the
other to enforce, interpret, or for the breach of any of the provisions in this
Agreement, the prevailing Member shall be entitled in such proceeding to recover
its reasonable attorneys’ fees together with the costs of such proceeding
therein incurred (including expert witness fees and costs) in addition to such
other relief as may be granted.

12.03    Notices. All notices required or permitted by this Agreement shall be
in writing and may be delivered in person to either party or may be sent by
registered or certified mail, with postage prepaid, return receipt requested, or
delivered by Express Mail of the U.S. Postal Service or Federal Express or any
other courier service guaranteeing overnight delivery, charges prepaid, or may
be transmitted by email or facsimile and addressed:
In the case of MP:
c/o IHP Capital Partners
100 Bayview Circle, Suite 2000
Newport Beach, California 92660
Attention: Douglas C. Neff
Telephone: (949) 655-7003
Facsimile: (949) 851-8284
Email: dneff@ihpinc.com
With a copy to:
IHP Capital Partners
100 Bayview Circle, Suite 2000
Newport Beach, California 92660
Attention: Legal Department
Telephone: (949) 851-2121
Facsimile: (949) 655-9035
Email: legalnotices@ihpinc.com
In the case of TNHC:
TNHC Land Company LLC
95 Enterprise, Suite 325
Aliso Viejo, California 92656
Attention: Joseph Davis
Telephone: (949) 382-7813
Facsimile: (949) 382-7801
Email: jdavis@thenewhomecompany.com
With a copy to:
Dzida, Carey & Steinman
3 Park Plaza, Suite 750
Irvine, California 92614
Attention: Steven J. Dzida
Telephone: (949) 399-0363
Facsimile: (949) 399-0361
Email: sdzida@dcslaw.com

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or such other address as shall, from time to time, be supplied in writing by any
party to the others. If any notice or other document is sent by registered or
certified mail, postage prepaid, with return receipt requested, addressed as
above provided, the same shall be deemed served or delivered within forty-eight
(48) hours after deposit in the United States mail. Notices delivered by
overnight service shall be deemed to have been given twenty-four (24) hours
after delivery of the same, charges prepaid, to the U.S. postal service or
private courier. Any notice sent by email shall be deemed served or delivered
upon confirmation by the recipient of the transmission thereof. Any notice sent
by facsimile transmission shall be deemed served or delivered within twenty-four
(24) hours after confirmation of the transmission thereof. Any notice or other
document sent or delivered in any other manner shall be effective only if and
when received. Rejection or other refusal to accept delivery, or the inability
to deliver because of a changed address of which no notice was given, shall be
deemed to constitute receipt of notice or other communication sent.

12.04    Execution of Other Documents. The parties hereto agree that they will
cooperate with each other and will execute and deliver, or cause to be
delivered, all such other instruments, and will take all such other actions, as
any party hereto reasonably requests from time to time in order to effectuate
the provisions and purposes hereof.

12.05    Brokers. The Members warrant and represent, respectively, that they
have not dealt with any person, firm or corporation who is or may be entitled to
a brokerage commission, finder’s fee or other like payment from the Company or
any of the Members on account of the negotiation or consummation of this
Agreement, the creation of the Company or the acquisition of any of the property
of the Company. Each Member does hereby indemnify, defend, protect and agree to
hold harmless the other from and against any and all loss, cost, liability or
expense (including reasonable attorneys’ fees) should its warranty and
representation contained herein be false or prove inaccurate.

12.06    Waiver. No consent or waiver, express or implied, by any Member to or
of any breach or default by the other in the performance by the other of the
obligations of such Member hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other Member hereunder. Failure on the part of any Member to complain of
any act or failure to act of any other Member or to declare any other Member in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Member of its rights hereunder.

12.07    Equitable Remedies. Each Member shall, in addition to all other rights
provided herein or as may be provided by law, be entitled to all equitable
remedies including those of specific performance and injunction, to enforce its
rights hereunder.

12.08    Captions, Gender. The headings of the Articles and Sections of this
Agreement are inserted solely for convenience of reference and are not a part of
and are not intended to govern, limit or aid in the construction of any term or
provision hereof. Where the context so requires, the use of the neuter gender
shall include the masculine and feminine genders, and the masculine gender shall
include the feminine and neuter genders and the singular shall include the
plural and vice versa.

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12.09    Benefits and Obligations. The representations, covenants and agreements
herein contained shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns. Any person succeeding to the
Membership Interest of a Member shall succeed to all of such Member’s rights,
interests and obligations hereunder, subject to and with the benefit of all
terms and conditions of this Agreement, including the restrictive conditions
contained herein.

12.10    Severability. If any provision of this Agreement or application to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or circumstance,
other than as to which it is so determined invalid or unenforceable, shall not
be affected thereby, and each provision shall be valid and shall be enforced to
the fullest extent permitted by law.

12.11    Applicable Law. This Agreement and the rights and obligations of the
Members hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware; provided, however, issues concerning title to the
Property shall be governed by the laws of the state where the Property is
located. The parties further agree that venue shall be proper in the Superior
Court or federal district court for Orange County, California, in the event of
any litigation between the parties with respect to this Agreement. In connection
thereto; the parties hereby waive any claim of proper venue in any other
jurisdiction and any objection to venue as described herein, and personally and
unconditionally submit to the jurisdiction of the Superior Court or federal
district court for Orange County, California.

12.12    No Third Party Beneficiary. Any agreement to contribute capital to the
Company or to pay any amount or any assumption of liability herein contained,
express or implied, shall be only for the benefit of the Members and their
respective permitted successors and assigns, and any rights and authority of a
Member shall be only for the benefit of such Member and their permitted
successors and assigns. Any and all such agreements, rights and assumption shall
not inure to the benefit of the obligees of any indebtedness or any other
Person, including, without limitation, the Managing Member should it become a
debtor in possession under 11 U.S.C. Sections 101 et. seq. of the Bankruptcy
Code, or any trustee of the Managing Member appointed under 11 U.S.C. Sections
101 et. seq. of the Bankruptcy Code or any assignee of any such trustee of
Managing Member. It is the intention of the Members that there shall be no third
party beneficiaries of the obligations of the Members in this Agreement.

12.13    Exhibits. Each of the Exhibits attached hereto is hereby incorporated
herein and made a part hereof for all purposes, and references herein thereto
shall be deemed to include this reference and incorporation.

12.14    Estoppels. Each Member shall, upon not less than fifteen (15) days
written notice from the other Member, execute and deliver to such other Member a
statement certifying that this Agreement is unmodified and in full force and
effect (or, if modified, the nature of the modification) and whether or not
there are, to such Member’s knowledge, any uncured defaults on the part of the
other Member, specifying such defaults if any are claimed. Any such statement
may be relied upon by the requesting Member and any third parties.

12.15    References to this Agreement. Numbered or lettered articles, sections
and subsections herein contained refer to articles, sections and subsections of
this Agreement unless otherwise expressly stated. The words “herein,” “hereof,”
“hereunder,” “hereby,” “this Agreement” and other similar references shall be
construed to mean and include this Agreement and all amendments thereof and
supplements hereto unless the context shall clearly indicate or require
otherwise. The word “including” means “including, without limitation.”

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12.16    Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same document.

12.17    Time. Time is of the essence with respect to each provision herein
setting forth a time for any performance.

12.18    Investment Representations. Each Member, by executing and delivering a
copy of this Agreement, hereby represents and warrants to and covenants with
each other Member and the Company as follows:
(a)    Acquisition for Own Account. The Membership Interest is being acquired
for its own account, for investment, and not with a view to or for sale in
connection with any distribution thereof. In that connection, the Member
recognizes and understands that the Membership Interest being purchased and sold
hereunder has not been registered under the Securities Act nor qualified under
any applicable securities laws, as amended, by reason of the fact that the
contemplated transaction constitutes a private offering within the meaning of
Section 4(2) of the Securities Act and Regulation D, promulgated thereunder, and
is exempt from qualification pursuant to applicable State securities laws.
(b)    Use of Counsel. Each Member has been fully advised of the facts
respecting the formation of the Company and has been given the opportunity to
consult its legal counsel with respect to the Company. Each Member hereby agrees
that the offer and sale of the Membership Interest to it does not involve any
public offering of such Membership Interest. Each Member hereby acknowledges
that it is a sophisticated party that has been separately represented by
counsel, and that neither is relying upon any representations or warranties (or
the absence of any representations or warranties), except as set forth in this
Agreement. This Agreement has been negotiated and drafted by all parties hereto
and the general rule of contract construction that ‘ambiguities shall be
construed against the draftsman’ shall have no application to this Agreement.

12.19    Nondiscrimination. During the term of this Agreement, no Member nor any
of its Affiliates, employees or agents shall unlawfully discriminate against any
employee or applicant for employment because of race, religion, color, national
origin, ancestry, physical handicap, medical condition, marital status, age
(over 40) or sex. Each Member and its Affiliates, employees and agents shall
assure that the evaluation and treatment of their employees and applicants for
employment are free of such discrimination. Each Member and its Affiliates,
employees and agents shall comply with the provisions of the California Fair
Employment and Housing Act (Section 12900 et. seq. of the California Government
Code) and the applicable regulations promulgated thereunder (California
Administrative Code, Title 2, Section 7286.0 et. seq.). The applicable
regulations of the Fair Employment and Housing Commission implementing
Government Code Section 12990, set forth in Chapter 5 of Division 4 of Title 2
of the California Administrative Code are incorporated herein by this reference
and are made a part hereof as if set forth herein in full. Each Member and its
Affiliates, employees and agents shall give written notice of their obligations
under this clause to labor organizations with which they have a collective
bargaining or other agreement. Each Member and its Affiliates shall include the
foregoing nondiscrimination compliance provisions in all contracts to perform
work or provide services under this Agreement. During the term of this
Agreement, each Member, its

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Affiliates, employees and agents shall conduct their respective activities in
accordance with Title VI of the Civil Rights Act of 1964 and the rules and
regulations promulgated therein.

12.20    Exculpation and Waiver. TNHC acknowledges that the System is a member
in IHP. Notwithstanding any other term or provision of this Agreement, System’s
liability hereunder is solely that of a member in IHP and no personal or direct
liability shall at any time be asserted or enforceable against System, its
Board, any member thereof, or any officer, shareholder, partner, member,
retirant, beneficiary, trustee, agent, employee, internal investment contractor,
representative or Affiliates of System on account of or arising out of any
obligations arising out of or related to this Agreement. TNHC agrees that it
shall look solely to the Membership Interest of IHP under this Agreement for the
enforcement of any claims against IHP arising hereunder or related hereto, and
waives any claim against the members in IHP including the System, irrespective
of the compliance or noncompliance now or in the future with any requirements
relating to the limitation of liability of members.

12.21    Responsible Contractor Policy and Guidelines. Attached hereto as
Exhibit “P” is the Responsible Contractor Policy and Guidelines adopted by the
System. TNHC agrees to comply and require all applicable parties providing
materials or services to the Project to comply with the goals and requirements
of such Responsible Contractor Policy and Guidelines, as it may be modified from
time to time by System.

12.22    Hazardous Material.
(a)    Definition of Hazardous Material. For purposes of this Agreement,
“Hazardous Material” means:
(i)    any flammable, explosive or radioactive materials, chemical substances,
pollutants, contaminants or hazardous or toxic wastes, materials or substances
or related materials whether solid, liquid or gaseous in nature, including,
without limitation, substances defined as “hazardous substances,” “hazardous
materials;” “toxic substances” or “solid waste” in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sec. 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 5101, et seq.; the Toxic Substances Control Act, 15 U.S.C., Section
2601, et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901, et seq.; and in the regulations adopted and publications
promulgated pursuant to said laws;
(ii)    those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 C.F.R. Part 302 and amendments thereto);
(iii)    those substances defined as “hazardous wastes,” “hazardous substances”
or “toxic substances” in any similar federal, state or local Laws or in the
regulations adopted and publications promulgated pursuant to any of the
foregoing laws or which otherwise are regulated for purposes of protecting the
environment or human health by any governmental authority, agency, department,
commission, board or instrumentality of the United States of America, the State
of California or any political subdivision thereof;
(iv)    any pollutant or contaminant or hazardous, dangerous or toxic chemicals,
materials, or substances within the meaning of any other applicable federal,
state, or local Law, regulation, ordinance, or requirement (including consent
decrees and administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic, or dangerous waste,
substance or material all as amended;
(v)    petroleum or any by-products thereof;
(vi)    any radioactive material, including any source, special nuclear or
by-product material as defined at 42 U.S.C. Sections 2011 et seq., as amended,
and in the regulations adopted and publications promulgated pursuant to said
law;
(vii)    asbestos in any form or condition;
(viii)    polychlorinated biphenyls;
(ix)    radon; or
(x)    mold or fungi known to cause harm to human health.
(b)    “Environmental Requirements” means all applicable present and future
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises and similar items, of
all governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political subdivisions
thereof and all applicable judicial and administrative and regulatory

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decrees, judgments and orders relating to the protection of human health or the
environment, including:
(i)    all requirements, including those pertaining to reporting, licensing,
permitting, investigation and Environmental Remediation of “Hazardous
Materials,” chemical substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes whether solid, liquid or gaseous in nature, into
the air, surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of chemical substances, pollutants, contaminants or hazardous or toxic
substances, materials, or wastes, whether solid, liquid or gaseous in nature;
and
(ii)    all requirements pertaining to the protection of the health and safety
of employees or the public.
(iii)    TNHC shall have the responsibility to (A) control and supervise any
applicable the Environmental Remediation program on behalf of the Company to the
extent of the Company’s involvement therein, and (B) cause all contracts,
agreements and payments thereunder to be in the name of the Company. Under no
circumstances may TNHC cause or allow System’s name to be on or in any such
contracts or agreements.
(c)    “Environmental Remediation” means, (i) all those activities necessary to
detect, investigate, remove, monitor, remediate, mitigate, safeguard the
environment and public health from, and properly dispose of, Hazardous
Materials, including without limitation obtaining all permits and filing all
applications, notifications and other instruments required by law; (ii) the
removal of any remaining underground storage tanks; (iii) all those actions
necessary to achieve a “no further action” or closure status from all applicable
regulatory and governmental agencies related to all removed and former
underground storage tanks, without the imposition of institutional controls
(such as deed restrictions); and (iv) remediation of soil, improvements and
water, disposal of materials and restoration of the Project such that the
Project is in compliance with all applicable environmental Laws (or, if there
are no applicable environmental Laws establishing remediation levels for such
Hazardous Materials, to the remediation levels recommended by the environmental
consultant for the Project), all as necessary to obtain; if required, written
approval from all applicable regulatory and governmental agencies of the
remediation levels achieved and, if the Project includes residential use, result
in a finding of no significant health risk (without use of further mitigation
measures) through the performance of an appropriate health risk assessment by
the environmental consultant for the Project.
(d)    “Approved Environmental Parameters” means that, subject to the following
provisions and restrictions, the Company will prudently accept environmental
exposure and potential liability in a manner consistent with overall industry
standards applicable to lot developers acting in a like manner under similar
circumstances. Further, “Approved Environmental Parameters” means that the
Company will not make investments in projects with environmental conditions
unless: (i) the dollar value of the environmental risk associated with such
environmental condition has been quantified; (ii) the cost of the Environmental
Remediation of such environmental condition has been quantified; (iii) the
environmental liability can be mitigated with measures already in place or to be
implemented by the Managing Member to effectively mitigate the risks to the
Company associated with such environmental condition and result in risk-adjusted
rates of return contemplated by the Approved Project

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Budget; (iv) any such potential environmental liability associated with such
environmental condition is limited to only the Company; and (v) investing in a
project affected by such environmental condition does not expose IHP or any of
its other assets to any potential liability. In addition, “Approved
Environmental Parameters” means that all environmental risks associated with
such environmental condition will be appropriately mitigated by factors that may
include, but are not limited to, specific Environmental Remediation,
environmental insurance, indemnifications by creditworthy indemnitors,
agreements with regulatory authorities, and the legal structure of ownership,
all as determined by the Members in their discretion. The appropriate level of
environmental risks to be assumed and the appropriate mitigation measures to be
employed shall be detailed in environmental guidelines and procedures adopted
and maintained for the Company by the Managing Member in the exercise of Due
Care.
(e)    IHP’s Rights. If IHP becomes aware of any Hazardous Material on, under or
near the Property, whether or not a claim is asserted against IHP, IHP, in its
discretion, shall have the right, but not the obligation, to take such action as
IHP shall deem necessary (i) to protect the health and safety of individuals
that may be on or near the Property and the value of the Property, and (ii) to
minimize the probability or extent of liability to IHP, including complying with
the Environmental Requirements.
(f)    TNHC’s Responsibility. TNHC shall have the responsibility to comply with
all Environmental Requirements pertaining to the development and operation of
the Project and to comply with all applicable pollution prevention, control,
monitoring, reporting, inspection and permitting conditions and requirements
related thereto. TNHC hereby agrees to indemnify, defend and bold the IHP
Indemnitees harmless from and against any and all claims, damages, liabilities,
costs, expenses, including reasonable attorneys’ and consultants’ fees, actions
or causes of action (collectively, “Damages”) suffered or incurred by any of the
IHP Indemnitees as a result of any Hazardous Material:
(i)    Subsequently released or discharged onto, in or under the Project or
improvements constructed thereon from sources existing on or off the Project, to
the extent TNHC failed to use Due Care; or
(ii)    Released or discharged onto, in or under the Project by TNHC, or, to the
extent TNHC failed to use Due Care, any contractor, subcontractor or sub-tier
subcontractor during the course of development of the Project.
The liability of TNHC as set forth in the preceding sentence includes, without
limitation, the cost of, or liability for, investigation, clean-up or
Environmental Remediation; any damages resulting in diminution in value or
adverse effect on the marketability of the Project; any fees, penalties,
interest, assessments, judgments or other liabilities arising from any laws
relating to Hazardous Materials; any liabilities for property damage, personal
injury, injury to natural resources, and consequential damages; and any amounts
expended by any of the IHP Related Persons to settle or compromise any claim or
allegation of liability arising out of Hazardous Materials. The indemnity
contained in this Section 12.22 shall not relate to any matter to the extent
caused by the negligence or willful misconduct of IHP, its agents, employees or
invitees. Each of the obligations of this Section 12.22 shall survive any
acquisition of the Project by TNHC and shall survive until such time as all
claims or suits arising out of the indemnified matters are barred by the
applicable statute of limitations.

12.23    Confidentiality.
(a)    Each Member hereby acknowledges and agrees that during the term of this
Agreement and in the course of the discharge of such Member’s duties hereunder,
such Member and its officers, directors, shareholders, partners, members,
managers, affiliates, employees and agents (collectively, “Parties”) may have
access to, either directly or indirectly, orally or in writing, matters
affecting or relating to the business, trade secrets and proprietary information
of the other Member’s Parties, including, without limitation, market
attractiveness studies, market analysis, contracts, files, computer software
programs and spreadsheets, marketing strategies, operational procedures,
financial information, pricing and bid information, marketing tools, research
and development strategies, pending projects, and proposals and other
information that is owned by or regularly used in the operation of the business
of any and all of the other Member’s Parties (collectively, “Confidential
Information”).
(b)    Each Member, on behalf of itself and its related Parties, agrees to
maintain the terms and provisions of this Agreement and any Approved Business
Plan in confidence and not to disclose the terms or provisions hereof except as
may be required to perform its duties and obligations hereunder or as may be
required under applicable law. In addition, each Member, on

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behalf of itself and its related Parties, hereby agrees that (i) none of such
Member’s Parties shall disclose any such Confidential Information of the other
Member’s Parties, directly or indirectly, to any other Person or use them in any
way, either during the term of this Agreement or at any other time thereafter,
except as is required in the course of such Member’s duties with respect to the
Company; (ii) all Confidential Information of the other Member’s Parties shall
remain exclusively the property of the other Member’s Parties; (iii) all
Confidential Information of the other Member’s Parties is agreed to be valuable,
special and unique assets of the other Member’s Parties; (iv) upon a Call Event
or Replacement Event with respect to a Member or upon the dissolution of the
Company or upon a Member’s transfer of its Membership Interest in the Company,
such Member shall return to the other Member any and all such Confidential
Information of the other Member’s Parties, and such Member shall neither make
nor allow to be made or retained by any Person any copies, duplicates,
abstracts, summaries or other compilation or recordation of any such
Confidential Information of the other Member’s Parties; (v) such Member shall
protect, defend (with counsel satisfactory to the other Member), indemnify and
hold the other Member and its Parties free and harmless from and against any and
all liability, loss, cost, damage or expense (including without limitation,
attorneys’ fees and expenses) arising out of or relating in any manner
whatsoever to any breach or alleged breach of any of such Member’s Parties under
this Section 12.23; and (vi) the obligations of such Member under this Section
12.23 shall survive the dissolution of the Company and/or the transfer of such
Member’s Membership Interest in the Company.

12.24    Standard for Consent. Whenever the determination, consent or approval
of either Member is permitted or required herein, except in instances where this
Agreement provides that such determination, consent or approval may be made or
withheld in the “discretion” of such Member, such determination, consent or
approval shall not be unreasonably made, withheld or delayed. Whenever the
determination, consent or approval of either Member is permitted or required
herein and this Agreement provides that such determination, consent or approval
may be made or withheld in such Member’s “discretion,” such determination,
consent or approval may be made or withheld in the sole and absolute discretion
of such Member.
[The remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate as of
the date first above written.
“TNHC”
TNHC LAND COMPANY LLC,
a Delaware limited liability company

By: /s/ Andrew Jarvis 
Its:  President
By: /s/ Joseph Davis 
Its:  Executive Vice President
 
 
 
 
“IHP”
IHP CAPITAL PARTNERS VI LLC., a Delaware limited liability company
By: Institutional Housing Partners VI L.P., a California limited partnership,
Its Manager
   By: IHP Capital Partners, a California corporation, Its General Partner

      By: _/s/ Donald S. Grant
Donald S. Grant
Executive Vice President
      By: _/s/ Douglas C. Neff
Douglas C. Neff
President

 
 

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EXHIBIT “A”
LEGAL DESCRIPTION OF PROPERTY
Parcel 1:
All that portion of Sections 10 and 15, Township 9 North, Range 8 East, M. D. B.
& M., according to the official plat thereof, described as follows:
Beginning at the Northeast corner of the Northwest one-quarter of the Northwest
one-quarter of said Section 15; thence from said point of beginning along the
Easterly line of said Northeast one-quarter of said Northeast one-quarter South
02°00’09” West 73.55 feet; thence North 64°55’44” West 322.21 feet; thence North
58°37’23” East 335.68 feet to the Easterly line of the Southwest one-quarter of
the Southwest one-quarter of said Section 10; thence along last said Easterly
line South 01°53’16” East 237.94 feet to the point of beginning.
Being Parcel No. 6 as shown on that certain “Lot Line Adjustment” and
“Conditional Certificate of Compliance”, recorded August 18, 1989, in Book
89-08-18 of Official Records, at Pages 1679 and 1687.
Parcel 2:
All that portion of Sections 9, 10, 15 and 16; Township 9 North, Range 8 East,
M. D. B. & M., according to the official plat thereof, described as follows:
Beginning at the intersection of the Southerly line of State of California
Interstate Freeway Route 50, with the Easterly line of “Parcel A”, as shown on
that certain Parcel Map recorded in the office of the Recorder of Sacramento
County, in Book 55 of Parcel Maps, at Page 8; thence from said point of
beginning along the boundary of said “Parcel A” the following two (2) courses;
(1) South 02°06’07” East 171.36 feet and (2) South 01°53’16” East 1058.43 feet;
thence South 58°37’23” West 335.68 feet; thence South 64°55’44” East 322.21 feet
to said boundary of “Parcel “A; thence along said boundary of “Parcel A” the
following eighteen (18) courses: (1) South 02°00’09” West 1364.64 feet, (2)
North 88°22’57” East 2656.26 feet, (3) South 01°44’08” East 1195.41 feet, (4)
South 31°15’15” East 1114.76 feet, (5) South 26°57’57” West 556.95 feet, (6)
South 37°34’42” West 433.33 feet, (7) South 01°27’14” East 968.15 feet, (8)
South 88°49’49” West 1310.48 feet, (9) North 00°04’51” West 2687.74 feet, (10)
South 88°48’56” West 2646.14 feet, (11) South 89°02’34” West 1210.30 feet, (12)
North 38°51’54” West 1190.34 feet, (13) curving to the left on an arc of 1943.03
feet radius, said arc being subtended by a chord bearing North 45°25’09” West
443.56 feet, (14) North 51°58’24” West 626.27 feet, (15) curving to the right on
an arc of 2831.79 feet radius, said arc being subtended by a chord bearing North
43°57’16” West 790.07 feet, (16) North 35°56’08” West 503.26 feet, (17) North
88°54’43” East 2190.88 feet and (18) North 01°09’41” West 739.99 feet to the
Southerly line of said California Interstate Freeway Route 50; thence along last
said Southerly line the following four (4) courses: (1) North 85°56’40” East
369.73 feet, (2) curving to the left on an arc of 3750.00 feet radius, from a
radial bearing of South 02°54’24” East, said arc being subtended by a chord
bearing North 78°53’44” East 1069.43 feet, (3) North 63°58’32” East 1293.83 feet
and (4) North 65°03’56” East 40.82 feet to the point of beginning.
EXHIBIT "A"
Page 1 of 2

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The basis of bearing of these descriptions is identical with that of that
certain record of survey recorded in the office of the Recorder of Sacramento
County in Book 39 of Surveys, at Page 6.
Being Parcel No. 7 as shown on that certain “Lot Line Adjustment” and
“Conditional Certificate of Compliance”, recorded August 18, 1989, in Book
89-08-18 of Official Records, at Pages 1679 and 1687.
Excepting therefrom all that portion of above described Parcel lying within the
Northeast 1/4 of the Southeast 1/4 of Section 15, Township 9 North, Range 8
East, M.D.B. & M., all the gold or silver beneath surface of the land and the
right to work said gold and silver mines in any manner without disturbing said
surface, as reserved in Deed dated September 24, 1891, recorded February 21,
1899, in Book 166 of Deeds, Page 115, executed by C.T.H. Palmer, etc., to
William Carpenter.
Further Excepting from Parcels 1 and 2 all oil, gas and other hydrocarbon
substances, inert gases, minerals, and metals, lying below a depth of 500 feet
from the surface of said land and real property, whether now known to exist or
hereafter discovered, including but not limited to the rights to explore for,
develop, and remove such oil, gas or other hydrocarbon substances, inert gases,
minerals, and metals without however, any right to use the surface of such land
and real property or any other portion thereof above a depth of 500 feet from
the surface of such land and real property for any purpose whatsoever.
Assessor’s Parcel Numbers: 072-0270-138 & 072-0070-032

EXHIBIT "A"
Page 2 of 2

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EXHIBIT “B”
APPROVED BUSINESS PLAN
(SEE ATTACHED)

EXHIBIT “B”
Page 1 of 1

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EXHIBIT B
APPROVED BUSINESS PLAN
Russell Ranch - Folsom

Attached is the Approved Business Plan for the Project and includes the
following:

ITEM B-1:
PROJECT PROFORMA (CASHFLOW)
ITEM B-2:
CRITICAL DATES SCHEDULE
ITEM B-3:
ORIGINAL/APPROVED PHASE BUDGET

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Russell Ranch
LAND PROJECT SUMMARY

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

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Russell Ranch                    Project Cash Flow – Page 1
New Home Co.
Folsom, CA
22-May-13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

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Russell Ranch                    Project Cash Flow – Page 2
New Home Co.
Folsom, CA
22-May-13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

Exhibit B-2

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Russell Ranch                    Project Cash Flow – Page 3
New Home Co.
Folsom, CA
22-May-13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

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Russell Ranch                    Project Cash Flow – Page 4
New Home Co.
Folsom, CA
22-May-13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

--------------------------------------------------------------------------------

Russell Ranch                    Project Cash Flow – Page 5
New Home Co.
Folsom, CA
22-May-13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

--------------------------------------------------------------------------------

Russell Ranch                    
New Home Co.
Folsom, CA
22-May-13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

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EXHIBIT B-2
CRITICAL DATES - RUSSELL RANCH, FOLSOM

 
Finish Date
Critical Completion
Date (1)
Entitlement Approvals
May 2014
Q1-2015
Commencement of Phase I Rough Grading
July 2014
Q3-2015
First Lot Disposition
August 2015
Q4-2016

(1)
The dates set forth in this column shall be the only dates referenced in Section
5.02(c) of this Agreement referenced as the Critical Date Schedule. The Finish
Date column above reflects target dates and are not applicable to Section
5.02(c) of this Agreement.

Exhibit B-2

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EXHIBIT B
APPROVED PROJECT BUDGET

PROJECT NAME:    Russell Ranch – Folsom, CA
AS OF:             05/20/13
LAST REVISED:    05/20/13

[…***…]

The mark *** indicates that text has been redacted pursuant
to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934 and filed separately
with the Securities and Exchange Commission.

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EXHIBIT “C”
TAX PROVISIONS
The Members intend for the Company to be taxed as a partnership in accordance
with applicable provisions of the Code.
1.    Definitions. For purposes of the Agreement and this Exhibit, capitalized
terms used herein not otherwise defined in the Agreement have the following
meanings:
(a)    “Code” means the Internal Revenue Code of 1986, as amended from time to
time, and all published rules, rulings and regulations thereunder at the time of
reference thereto.
(b)    “Company Minimum Gain” means “partnership minimum gain” as defined in
Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).
(c)    “Gross Asset Value” means, with respect to any asset of the Company, such
asset’s adjusted basis for federal income tax purposes; provided, however, that
(i) the Gross Asset Value of any asset contributed or deemed contributed by a
Member to the Company or distributed to a Member by the Company shall be the
gross fair market value of such asset (without taking into account Section
7701(g) of the Code), as reasonably determined by the Members; (ii) the Gross
Asset Values of all Company assets shall be adjusted to equal their respective
gross fair market values (without taking into account Section 7701(g) of the
Code), as reasonably determined by the Members, upon the termination of the
Company for federal income tax purposes pursuant to Section 708(b)(1)(B) of the
Code; and (iii) the Gross Asset Values of all Company assets may be adjusted to
equal their respective gross fair market values (taking into account Section
7701(g) of the Code), as reasonably determined by the Members as of (A) the date
of the acquisition of an additional Membership Interest in the Company by any
new or existing Member in exchange for more than a de minimis contribution to
the capital of the Company or (B) upon the liquidation of the Company or the
distribution by the Company to a retiring or continuing Member of more than a de
minimis amount of money or other Company property in reduction of such Member’s
Membership Interest in the Company. Any adjustments made to the Gross Asset
Value of Company assets pursuant to this paragraph shall be reflected in the
Members’ Capital Account balances in the manner set forth in Treasury Regulation
Section 1.704-1(b).
(d)    “Member Minimum Gain” means the Company’s “partner nonrecourse debt
minimum gain” as defined in Treasury Regulation Section 1.704-2(i)(2).
(e)    “Member Nonrecourse Debt” means “partner nonrecourse debt” as defined in
Treasury Regulation Section 1.704-2(b)(4).
(f)    “Member Nonrecourse Deductions” means “partner nonrecourse deductions” as
defined in Treasury Regulation Section 1.704-2(i)(2).

EXHIBIT “C”
Page 1 of 6

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(g)    “Net Losses” means for each Fiscal Year or other period, an amount equal
to the Company’s taxable loss and book loss, as the case may be, for such year
or period, determined in accordance with Section 703(a) of the Code. For this
purpose, all items of income, gain, loss and deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss computed as provided herein.
(h)    “Net Profits” means for each Fiscal Year or other period, an amount equal
to the Company’s taxable income and book income, as the case may be, for such
year or period, determined in accordance with Section 703(a) of the Code. For
this purpose, all items of income and gain required to be stated separately
pursuant to Section 703(a)(1) of the Code shall be included in taxable income
computed as provided herein.
(i)    “Nonrecourse Deductions” has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(1).
(j)    “Regulatory Allocations” has the meaning set forth in Section 4(e) below.
(k)    “Treasury Regulation” means, with respect to any referenced provision,
such provision of the regulations of the United States Department of the
Treasury or any successor provision.
2.    Maintenance of Capital Accounts. Each Member’s Capital Account shall be
increased by: (a) the amount of money contributed or deemed contributed by such
Member to the capital of the Company, (b) the Gross Asset Value of any property
contributed by such Member to the capital of the Company (net of liabilities
secured by such contributed property that the Company is considered to assume or
take subject to under Section 752 of the Code), (c) the amount of any Net
Profits allocated to such Member and (d) any and all items of gross income or
gain specially allocated to such Member pursuant to Section 4 below. Each
Member’s Capital Account shall be decreased by (w) the amount of money
distributed to such Member by the Company (exclusive of any guaranteed payment
within the meaning of Section 707(c) of the Code paid to such Member), (x) the
Gross Asset Value of any property distributed to such Member by the Company (net
of liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code), (y) the
amount of any Net Losses charged to such Member, and (z) any items of loss or
deduction specially allocated to such Member pursuant to Section 4 below. If a
distribution to a Member gives rise to the adjustment to the adjusted tax basis
of Company property under Section 734 of the Code, the Capital Account of such
Member if the distribution is in liquidation of such Member’s Membership
Interest, or the Capital Accounts of the Members if the distribution is not in
liquidation of such Member’s Membership Interest, shall be adjusted by the
amount of such adjustment to the adjusted tax basis of Company property in
accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(m). If the Gross Asset Values of Company assets are adjusted
pursuant to the terms of this Agreement, the Capital Accounts of the Members
shall be adjusted simultaneously to reflect the aggregate net adjustment as if
the Company recognized gain or loss equal to the amount of such aggregate net
adjustment and such gain or loss was allocated to the Members pursuant to the
appropriate provisions of this Agreement. The foregoing Capital Account
definition and the other provisions of this Agreement relating to the
maintenance of Capital

EXHIBIT “C”
Page 2 of 6

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Accounts are intended to comply with Treasury Regulation Section 1.704-1(b), and
shall be interpreted and applied in a manner consistent with such Regulations.
3.    Determination of Net Profits and Net Losses. For purposes of determining
Net Profits and Net Losses under the Agreement, the following rules shall apply:
(a)    Any deductions for depreciation, cost recovery or amortization
attributable to any assets of the Company shall be determined by reference to
their Gross Asset Value, except that if the Gross Asset Value of an asset
differs from its adjusted tax basis for federal income tax purposes at any time
during such year or other period, the deductions for depreciation, cost
recovery, or amortization attributable to such asset from and after the date
during such year or period in which such difference first occurs shall bear the
same ratio to the Gross Asset Value as of such date as the federal income
depreciation, amortization or other cost recovery deduction for such year or
other period from and after such date bears to the adjusted tax basis as of such
date;
(b)    Any gain or loss attributable to the taxable disposition of any property
shall be determined by the Company as if the adjusted tax basis of such property
as of such date of disposition was such Gross Asset Value reduced by all
amortization, depreciation and cost recovery deductions which are attributable
to said property;
(c)    The computation of all items of income, gain, loss and deduction shall be
made without regard to any basis adjustment, under Section 743 of the Code,
which may be made by the Company;
(d)    Any receipts of the Company that are exempt from federal income tax and
are not otherwise included in taxable income or loss shall be added to such
taxable income or loss;
(e)    Any expenditures of the Company described in Section 705(a)(2)(B) of the
Code or treated as expenditures described in Section 705(a)(2)(B) of the Code
pursuant to Treasury Regulations Section 1.704-1(b) shall be subtracted from
such taxable income or loss; and
(f)    Any and all items of gross income or gain, Nonrecourse Deductions and/or
Member Nonrecourse Deductions specially allocated to a Member pursuant to
Section 4 below shall not be taken into account in computing such Net Profits or
Net Losses.
4.    Special Allocations and Compliance with Section 704(b). The following
special allocations shall, except as otherwise provided, be made in the
following order:
(a)    Notwithstanding any other provision of this Section 4, if there is a net
decrease in Company Minimum Gain or in any Member Minimum Gain during any Fiscal
Year or other period, prior to any other allocation pursuant hereto, such Member
shall be specially allocated items of Company income and gain for such year
(and, if necessary, subsequent years) in an amount and manner required by
Treasury Regulation Sections 1.704-2(f) or 1.704-2(i)(4).

EXHIBIT “C”
Page 3 of 6

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The items to be so allocated shall be determined in accordance with Treasury
Regulation Section 1.704-2.
(b)    Any Member who unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6) which causes or increases a negative balance in his or its Capital
Account shall be allocated items of income and gain sufficient to eliminate such
increase or negative balance caused thereby, as quickly as possible, to the
extent required by such Treasury Regulation.
(c)    Nonrecourse Deductions for any Fiscal Year or other period shall be
allocated (as nearly as possible) under Treasury Regulation Section 1.704-2 to
the Members, with fifty percent (50%) allocated to IHP and fifty percent (50%)
to TNHC.
(d)    Any Member Nonrecourse Deductions for any Fiscal Year or other period
shall be allocated to the Member that made, or guaranteed or is otherwise liable
with respect to the loan to which such Member Nonrecourse Deductions are
attributable in accordance with principles under Treasury Regulation Section
1.704-2(i).
(e)    The allocations contained in Sections 4(a), 4(b), 4(c) and 4(d) (the
“Regulatory Allocations”) are intended to comply with certain requirements of
Treasury Regulation Section 1.704. The Regulatory Allocations shall be taken
into account in allocating Net Profit and Net Loss and other items of income,
gain, loss and deduction among the Members so that to the extent possible, the
allocations contained in this Agreement other than the Regulatory Allocations
and the Regulatory Allocations made to each Member shall equal the net amount
that would have been allocated to each Member had the Regulatory Allocations not
occurred.
5.    Allocations of Net Losses and Net Profits.
5.01    Net Losses. Net Losses of the Company for each Fiscal Year shall be
charged to the Members at the end of such Fiscal Year as follows:
(a)    First, to the Members in proportion to the cumulative Net Profits
allocated to-each Member pursuant to Sections 5.02(b)-(d) below until the
cumulative Net Losses allocated to each Member pursuant to this Section 5.01(a)
is equal to the cumulative Net Profits allocated to each Member pursuant to
Sections 5.02(b)-(d) below, in the inverse order of the prior allocations of Net
Profits to them pursuant to Section 5.02 below.
(b)    Thereafter, to the Members on a 50:50 basis.
5.02    Net Profits. Net Profits for each Fiscal Year shall be allocated to the
Members at the end of each Fiscal Year in the following order of priority:
(a)    First, to the Members in proportion to the cumulative Net Losses
allocated to each Member pursuant to Section 5.01 above, until the cumulative
Net Profits allocated to each Member pursuant to this Section 5.02(a) is equal
to the cumulative Net Losses

EXHIBIT “C”
Page 4 of 6

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allocated to each Member pursuant to Section 5.01 above, in the inverse order of
the prior allocations of Net Losses to them pursuant to Section 5.01 above.
(b)    Next, to the Members, in proportion to the cumulative Senior Capital
Preferred Return distributed or distributable to them pursuant to Section
3.02(a) of the Agreement, until the cumulative Net Profits allocated pursuant to
this Section 5.02(b) equals the sum of the cumulative Senior Capital Preferred
Return distributed or distributable to each such Member for the current and all
prior Fiscal Years.
(c)    Next, to the Members, in proportion to the cumulative Base Capital
Preferred Return distributed or distributable to them pursuant to Section
3.02(c) of the Agreement, until the cumulative Net Profits allocated pursuant to
this Section 5.02(c) equals the sum of the cumulative Base Capital Preferred
Return distributed or distributable to each such Member for the current and all
prior Fiscal Years.
(d)    Thereafter, to the Members, in proportion to the Cash Flow distributed or
distributable to them pursuant to Section 3.02(e) of the Agreement, until the
cumulative Net Profits allocated pursuant to this Section 5.02(d) equals the sum
of the cumulative Cash Flow distributed or distributable to the Members pursuant
to Section 3.02(e) of the Agreement for the current and all prior Fiscal Years.
6.    Tax Matters. TNHC is hereby designated as the “tax matters partner” as
defined in the Code; provided, however, that IHP shall, at its election, serve
as tax matters partner upon the occurrence of a Replacement Event. TNHC agrees
to meet with IHP and its accountants, from time to time as requested by IHP, to
discuss tax planning for the Company. The tax matters partner hereby agrees that
it shall not enter into any proposed settlement or other agreement with respect
to any “partnership items” (as defined in Section 6231(a)(3) of the Code),
commence any litigation relative thereto, take any administrative or judicial
appeal, or make any tax elections on behalf of the Company or any Member without
the prior written approval of IHP. The Company and its Members shall make all
applicable elections, determinations and other decisions under the Code,
including the deductibility of a particular item of expense and the positions to
be taken on the Company’s tax return, and shall approve the settlement or
compromise of all audit matters raised by the Internal Revenue Service affecting
the Members generally. The Members shall each take reporting positions on their
respective federal, state and local income tax returns consistent with the
positions determined for the Company. The Managing Member shall cause all
federal, state and local income and other tax returns to be timely filed by the
Company.
7.    Section 704(c). In accordance with Section 704(c) of the Code and the
applicable Treasury Regulations thereunder, income, gain, loss, deduction and
tax depreciation with respect to any property contributed to the capital of the
Company, or with respect to any property which has a Gross Asset Value different
than its adjusted tax basis, shall, solely for federal income tax purposes, be
allocated among the Members so as to take into account any variation between the
adjusted tax basis of such property to the Company and the Gross Asset Value of
such property.

EXHIBIT “C”
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8.    Election. Upon a transfer of the Membership Interest of any Member or the
distribution of any property of the Company to a Member, the Company may, with
the approval of the Members, file an election in accordance with applicable
Treasury Regulations to cause the basis of the Company property to be adjusted
for federal income tax purposes as provided by Sections 734 and 743 of the Code.
Subject to the provisions of Treasury Regulation Section 1.704-1(b), adjustments
to the adjusted tax basis of Company property under Sections 743 and 732(d) of
the Code shall not be reflected in the Capital Account of the transferee Member
or on the books of the Company, and subsequent Capital Account adjustments for
distributions, depreciation, amortization, and gain or loss with respect to such
property shall disregard the effect of such basis adjustment.

EXHIBIT “C”
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EXHIBIT “D”
FUNDING REQUIREMENTS
1.    Conditions Precedent.
As a condition precedent to IHP’s obligation to fund to the Company all or any
portion of the IHP Maximum Capital Commitment, the following requirements must
be satisfied:
(a)    As a condition to any advance for the acquisition of the Property, the
Company shall have obtained an ALTA Owner’s Policy of Title Insurance-Extended
Coverage, in such amount and with such endorsements as IHP may require, which
shall insure that fee simple title to the Property is vested in the Company,
free and clear of all liens, encumbrances and restrictions or other matters
except the Permitted Exceptions.
(b)    The Managing Member shall have furnished to IHP
(i)    the documents required by Section 2 below;
(ii)    evidence that all insurance as required under Exhibit “I” attached to
the Agreement is in full force and effect;
(iii)    a certification that no default exists under the Agreement and that
each of the representations and warranties set forth in Exhibit “G” attached to
the Agreement is true and correct;
(iv)    upon IHP’s request, correct lists of all consultants, contractors,
subcontractors and all other persons who have or have been retained to perform
or furnish any work, labor or material in connection with the development of the
Project. Each such list shall show the name, address and telephone number of
each such contractor or subcontractor, a general statement of the nature of the
work to be done, the labor and materials to be supplied, the names of
materialmen, if known, the approximate dollar value of such labor, work and
materials with respect to each, and the status of such work or whether such
materials have been delivered. IHP and its agents shall have the right (without
either the obligation or the duty) to directly contact each contractor,
subcontractor and materialman to verify the facts disclosed by said list;
(v)    upon IHP’s request, signed and legally binding mechanics’ and
materialmans’ lien releases from all persons who furnished labor, services
and/or materials for the disbursement immediately prior to the disbursement
requested and conditional lien releases from all persons who furnished labor,
services and/or materials for which a disbursement is requested;
(vi)    upon IHP’s request, evidence satisfactory to IHP that no mechanic’s lien
has been recorded; and
(vii)    evidence satisfactory to IHP that TNHC has sufficient and available
sums to pay any Project Costs as required under the Agreement.

EXHIBIT “D”
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2.    Disbursement Procedure.
IHP shall advance funds to the Company up to the IHP Maximum Capital Commitment
(collectively hereafter the “Funds”) in the manner and for the purposes set
forth herein.
(a)    Upon verification of the accuracy of the Request for Funds, including
inspection of the Project by or on behalf of IHP and satisfaction of all
applicable conditions contained herein, IHP shall make the approved
disbursements to the Company’s Project Cost Account; provided, however, that IHP
reserves the right, at IHP’s option, to make any disbursements for construction
of the Project directly to the general contractor and/or subcontractors,
laborers and materialmen.
(b)    Disbursement of the Funds shall be requested as follows:
(i)    The Managing Member and IHP shall agree to a set date each calendar month
following commencement of the Project by which the Managing Member shall submit
to IHP a Request for Funds on IHP’s standard form attached hereto as Attachment
“1” hereto, including a funding request detail in the form of the disbursement
control system provided by IHP to the Managing Member. The disbursement control
system shall set forth, among other things, a description of the Phase for which
the disbursement is requested, the total amount of funds requested for each
Phase with respect to each line item of the Approved Phase Budget, the
applicable percentage of completion of each Phase, the total amount incurred,
expended and/or due for each requested item less prior disbursements for each
such item for such Phase and for the Project as a whole. Upon IHP’s request, the
Managing Member shall also submit with each Request for Funds the cost detail of
labor performed on and materials stored on or incorporated into the Project
under each line item on each Approved Phase Budget. IHP hereby reserves the
right, at any time, to require statements, bills or invoices, along with lien
releases from any contractors, subcontractors, laborers or materialmen regarding
all direct construction costs from the Managing Member. IHP shall have ten (10)
business days after receipt of each Request for Funds and any other information
required to be submitted to IHP pursuant to this Agreement to approve or
disapprove such Request for Funds. If IHP does not respond within said ten (10)
day period, the Request for Funds will be deemed disapproved.
(c)    The following persons, each able to act alone, are hereby designated by
the Managing Member as persons authorized by the Managing Member to certify and
sign Requests for Funds in accordance with the terms of this Exhibit “D,” and
the Managing Member, with the consent of IHP, shall have the right to revoke
such designation, and substitute any other person as the person authorized to
sign such orders:
Lawrence Webb
Wayne Stelmar
Kevin Carson
Joseph Davis
Mark Kawanami

EXHIBIT “D”
Page 2 of 4

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(d)    All disbursements and Requests for Funds shall be in accordance with the
cost breakdown set forth in each Approved Phase Budget. If the Managing Member
becomes aware of any change in the construction costs which would increase the
total cost of construction of the Project as shown on each Approved Phase
Budget, the Managing Member shall immediately notify IHP in writing and promptly
submit to IHP for its approval a proposed revision to the Approved Phase Budget
and the Approved Project Budget. No further disbursements will be made by IHP
unless and until the proposed revisions to the Approved Phase Budget and
Approved Project Budget is received and approved by IHP. IHP reserves the right
to approve or disapprove any proposed revisions to the Approved Phase Budget and
Approved Project Budget in its discretion. Notwithstanding anything herein to
the contrary, unless IHP otherwise specifically consents in writing, which
consent may be withheld in its discretion, IHP shall have no obligation to
disburse more Funds per Phase for any item or category of Project Costs other
than the amount specified with respect to that Phase and item or category in the
Approved Phase Budget, or to make any disbursement of Funds allocated to future
Phases unless and until the conditions precedent for beginning construction on
such Phases have been satisfied.
(e)    IHP shall not be liable for any error, omission, irregularity, or action
taken with respect to the disbursement of the Funds.
(f)    Except as expressly set forth in the Agreement and this Exhibit “D,” in
no event shall any part of the Funds be used to pay any costs, profit or
overhead of the Managing Member. The Managing Member acknowledges that it has no
right to undisbursed Funds other than to have the same disbursed by IHP in
accordance with this Exhibit “D.”
(g)    The Managing Member covenants that any disbursements received by it
hereunder shall be held as trust funds in the Company bank accounts to be
applied first for the purpose of paying for the appropriate Project Costs and
for no other purpose, but nothing herein shall impose upon IHP any obligation to
see to the proper application of such payments.
(h)    Each portion of the Approved Phase Budget shall be periodically disbursed
into the Project Cost Account or to or for the benefit of the Company for the
payment of Project Costs for each Subitem by category in accordance with the
percentages of completion of the work up to the maximum amount allocated for any
requested Subitem less prior disbursements and upon satisfactory evidence that
such Project Costs are due and payable.
(i)    Contingency will be reallocated upon the approval of the Members.
(j)    If any Request for Funds includes the cost of materials stored at a
location other than the Property (“Off-site Materials”), such Request for Funds
shall include each of the following: (i) evidence that the Off-site Materials
have been paid for, have been segregated from other Materials in the facility
and have been appropriately marked to indicate Company’s ownership thereof; (ii)
evidence that the Off-site Materials are insured as required hereunder; and
(iii) at IHP’s request, such other additional documentation and evidence as IHP
may reasonably require.

EXHIBIT “D”
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(k)    If any Request for Funds includes the cost of materials stored on the
Property (“On-site Materials”), such Request for Funds shall include each of the
following: (i) evidence that the On-site Materials have been paid for; (ii)
evidence that the On-site Materials are insured as required hereunder; and (iii)
evidence that the On-site Materials are stored in an area on the Property for
which adequate security is provided against theft and vandalism.
(l)    The portion of the Approved Project Budget representing costs at sale
which are to be deducted from gross sales proceeds are not available until the
close of escrow of a Lot.
Notwithstanding the forgoing, pursuant to the Agreement and without further
authorization by TNHC, IHP may disburse Funds to pay Project Costs as and when
due including the following: Interest payments (if any); escrow, title and
insurance charges; inspection fees; any overhead fees, reimbursements and other
payments that may be owed to the Managing Member or IHP under the Agreement;
real property taxes; and such other sums as may be owing from time to time and
by the Company with respect to the Property and the Project. Such payments may
be made, at the option of IHP, by disbursing Funds in the amount of such
payments without first disbursing such amount to the Company.

EXHIBIT “D”
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REQUEST FOR FUNDS
Request No.        
Current Request    $    
Less Interim Disbursement    $    
Net Funding Amount    $    
To:     IHP CAPITAL PARTNERS VI, LLC (“IHP”)
19800 MacArthur Boulevard, Suite 700
Irvine, CA 92612
By signing below, TNHC Land Company LLC, a Delaware limited liability company
(“TNHC”), hereby requests that IHP advance funds to TNHC Russell Ranch LLC, a
Delaware limited liability company (the “Company”), for the payment of Project
Costs according to the provisions outlined in the Limited Liability Company
Agreement between IHP and TNHC dated May 22, 2013 (“Company Agreement”).
To the best of TNHC’s knowledge and information, the amount requested is now
payable and all requested items are for true costs associated with this Project
as authorized pursuant to the Company Agreement. TNHC has attached a copy of the
detailed breakdown of the costs to be paid and copies of invoices, as
applicable, for items to be paid.
TNHC hereby certifies to IHP that (a) there have been no changes to the Approved
Business Plan, no material changes to the improvement plans, as applicable, and
no increases in the costs to date which IHP has not approved, (b) there are no
defaults by TNHC under the Company Agreement, and (c) each of the
representations and warranties set forth in Exhibit “G” attached to the Company
Agreement is true.
Dated:        , 20    
“TNHC”    TNHC LAND COMPANY LLC,
a Delaware limited liability company

By:        
Its:        

ATTACHMENT “1”

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EXHIBIT “E”
PERMITTED EXCEPTIONS

SEE ATTACHED

EXHIBIT “E”
Page 1 of 6

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ALTA OWNER’S POLICY (6/17/06)
SCHEDULE B
File No.:    15-013597    Proforma Policy No.: O-9301-
This policy does not insure against loss or damage (and the Company will not pay
costs, attorneys’ fees or expenses) that arise by reason of:
A.Taxes for the Fiscal Year 2013-2014, a lien not yet due or payable.
B.    The herein described property does lie within the newly formed School
Facilities Improvement District No. 3 and is subject to assessments imposed
thereby, as disclosed by instrument recorded July 7, 2006, in Book 20060707,
Page 662, Official Records.
C.    The Lien of Special Assessments, assessed pursuant to the procedures of
the Mello-Roos Community Facilities Act of 1982 and/or the Landscaping &
Lighting Act of 1972, amounts are included and collected with the Taxes shown
herein.
D.    The Lien of Supplemental Taxes, if any, assessed pursuant to the
provisions of Chapter 3.5, Revenue and Taxation Code, Section 75 et seq, as
result of events occurring from and after the dated of Policy.
E.    Any possible outstanding charges for utility services. Amounts may be
obtained by contacting the City and/or County of Sacramento’s Utility Services
and Billing Department.
1.    Any implied rights that may exist for various unnamed water courses over
those portions of said land that lie within the lines of any creek and to any
changes in the boundary lines of said water courses as they now exist by natural
causes as disclosed on Assessor Plat book 72 page 7.
2.    Covenants, conditions and restrictions, but omitting restrictions, if any,
based upon race, sex, color, religion, handicap, familial status or national
origin, as contained in instrument recorded in Book 112 of Deeds pages 218 and
236, Official Records.
In addition to the Covenants, Conditions and Restrictions, said document
reserves unto Central Pacific Railroad and their successors in interest for
Railroad purposes a strip of land 100 feet in width over portions of said land.
“Terms, provisions, covenants, conditions, and restrictions, easements, charges,
assessments and liens provided in the Covenants, Conditions and Restrictions
above, but omitting any covenant, condition or restriction, if any, based on
race, color, religion, sex, handicap, familial status or national origin unless
and only to the extent that the covenant, condition or restriction (a) is exempt
under Title 42 of the United States Code, or (b) relates to handicap, but does
not discriminate against handicapped persons.”

EXHIBIT “E”
Page 2 of 6

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ALTA OWNER’S POLICY (6/17/06)
Attached to and made a part of Stewart Title Guaranty Company
File No. 15-013597, Proforma Policy No. O-9301-
Continuation of Schedule B
Note: Section 12956.1 of the Government Code provides the following: If this
document contains any restrictions based on race, color, religion, sex, familial
status, marital status, disability, national origin, or ancestry, that
restriction violates state and federal fair housing laws and is void. Any person
holding an interest in this property may request that the county recorder remove
the restrictive language pursuant to subdivision (c) of Section 12956.1 of the
Government Code.
3.    An easement over said land for public highway and incidental purposes as
Granted to County of Sacramento, in Deed recorded May 20, 1884, in Book 109 of
Deeds page 15, Official Records.
Affects: The exact location of said easement is not disclosed.
4.    An easement over said land for public highway and incidental purposes as
Granted to the County of Sacramento, in Deed recorded October 13, 1916, in Book
109 of Deeds page 435, Official Records.
Affects: Portions of Section 15 as more particularly described in said easement.
5.    An easement in favor of the County of Sacramento for road and incidental
purposes as disclosed by Relinquishment of Right of Way being a portion of Road
III-SAC-A executed by the State of California to the County of Sacramento
recorded October 22, 1940 in Book 848 page 188, Official Records.
Affects: A strip of land 60 feet in width in Section 15 being a portion of White
Rock Road as more particularly described in said Relinquishment.
6.    Lack of Abutter’s Rights in and to Highway 50 along the Northerly boundary
of said land, said rights having been relinquished and released by Deed to the
State of California, recorded September 30, 1964 in Book 5075 page 18, Official
Records.
7.    An unrecorded lease by and between Russell Ranch, a California Limited
Partnership (et al), as lessor, and Pacific Bell Mobile Services, as Lessee, for
term and upon the terms and conditions contained therein as disclosed by
Information, provided this Company.
The Lessor’s interest in said unrecorded Lease has been assigned to TNHC Russell
Ranch LLC, a Delaware limited liability company, in Assignment of Leases, dated
__________, 2013, recorded __________, 2013, in Book 2013_______, Page ________,
Official Records.

EXHIBIT “E”
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ALTA OWNER’S POLICY (6/17/06)
Attached to and made a part of Stewart Title Guaranty Company
File No. 15-013597, Proforma Policy No. O-9301-
Continuation of Schedule B
8.    An easement over said land for communication facilities and incidental
purposes as Granted to Pacific Bell, in Deed recorded May 24, 2000 in Book
20000524 page 210, Official Records.
Affects a portion of said Section 10 as more particularly described in said
easement.
9.    Terms, conditions, provisions and easements contained in the instrument
entitled “Easement Agreement”, dated December 30, 2010, by and between Russell
Promontory L.L.C., an Illinois limited liability company and Spectrasite
Communications, LLC, a Delaware limited liability company, recorded April 7,
2011, in Book 20110407, Page 734, Official Records.
10.    Terms, conditions, provisions and easements contained in the instrument
entitled “Easement Agreement”, dated December 30, 2010, by and between Russell
Promontory L.L.C., an Illinois limited liability company and American Tower
L.P., a Delaware limited partnership, recorded April 7, 2011, in Book 20110407,
Page 735, Official Records.
11.    Tier 1 Development Agreement Relative to the Folsom South Specific Plan
dated August 2, 2011, by and between the City of Folsom and Russell-Promontory
LLC, et al, recorded August 3, 2011, in Book 20110803, Page 422, Official
Records. Reference is hereby made to said instrument for full particulars.
Assignment and Assumption Agreement Relative to the Folsom South Specific Plan
Tier 1 Development Agreement dated ______, 2013, by and between
Russell-Promontory, L.L.C., an Illinois limited liability company, as Landowner,
and TNHC Russell Ranch LLC, a Delaware limited liability company, as Assignee,
recorded __________, 2013, in Book 2013_______, Page ________, Official Records.
12.    Water rights, claims or title to water.
13.    Unrecorded Livestock Grazing Lease, dated November 1, 2012, by and
between Russell Promontory, LLC, as Lessor, and Dan Russell III, as Lessee, as
disclosed by information provided this company. Subject to the terms, provisions
and conditions contained in said unrecorded Lease.
The Lessor’s interest in said unrecorded Lease has been assigned to TNHC Russell
Ranch LLC, a Delaware limited liability company, in Assignment of Leases, dated
_______, 2013, recorded __________, 2013, in Book 2013_______, Page ________,
Official Records.

EXHIBIT “E”
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ALTA OWNER’S POLICY (6/17/06)
Attached to and made a part of Stewart Title Guaranty Company
File No. 15-013597, Proforma Policy No. O-9301-
Continuation of Schedule B
14.    The terms, provisions and conditions as contained in an instrument
entitled “Water Supply and Facilities Financing Plan and Agreement between the
City of Folsom and Certain Landowners in the Folsom Plan Area”, dated December
11, 2012, by and between the City of Folsom, a charter city and
Russell-Promontory, LLC, et al, recorded January 24, 2013, in Book 20130124,
Page 1382, Official Records.
Assignment and Assumption Agreement Relative to Water Supply and Facilities
Financing Plan and Agreement between the City of Folsom and Certain Landowners
in the Folsom Plan Area, by and between Russell-Promontory, L.L.C., an Illinois
limited liability company, as Landowner, and TNHC Russell Ranch LLC, a Delaware
limited liability company, as Assignee, recorded ________, 2013, in Book
2013______, Page____, Official Records.
15.    Any and all matters that may be disclosed on an ALTA/ACSM Land Title
Survey prepared by Psomas on May 15, 2013, Project Number 6NEW0101.00.
A.
Any easement or Lessors Rights which the owner or owners of those certain phone
panels, electric pull boxes and electric control boxes may claim as set forth on
that certain ALTA/ACSM Land Title Survey.

B.
Any easement or Lessors Rights which the owner or owners of those certain single
pole signs may claim as set forth on that certain ALTA/ACSM Land Title Survey.

C.
Any easement or Lessors rights which the owner or owners of those certain
utilities shown as power poles may claim asset forth on that certain ALTA/ACSM
Land Title Survey.

D.
An encroachment of fences from the property to the Southwest and Southeast onto
the herein described property, as disclosed on that certain ALTA/ACSM Land Title
Survey.

E.
Any easement or Lessors rights of the owner of that certain AC drainage basin
from the property to the North may claim, as disclosed on that certain ALTA/ACSM
Land Title Survey.

F.
Any easement or Lessors rights of the owner of that certain concrete box culvert
from the property to the South may claim, as disclosed on that certain ALTA/ACSM
Land Title Survey.

EXHIBIT “E”
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N ALTA OWNER’S POLICY (6/17/06)
Attached to and made a part of Stewart Title Guaranty Company
File No. 15-013597, Proforma Policy No. O-9301-
Continuation of Schedule B
16.    The terms, conditions and provision as contained in instrument entitled
“Holding Agreement” dated ________, 2013, by and between Russell-Promontory,
L.L.C., an Illinois limited liability company, as Seller, and TNHC Russell Ranch
LLC, a Delaware limited liability company, as Buyer, recorded __________, 2013,
in Book 2013_____, Page _____, Official Records.
17.    Deed of Trust to secure an indebtedness of $20,000,000.00, dated    
_____, 2013, recorded _________, 2013, in Book 2013_____, Page ___, Official
Records.
Trustor:    TNHC Russell Ranch LLC, a Delaware limited liability company
Trustee:    Stewart Title of Sacramento, a California corporation
Beneficiary:    Russell-Promontory, L.L.C., an Illinois limited liability
company

EXHIBIT “E”
Page 6 of 6

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EXHIBIT “F”
LIST OF ASSETS

EXHIBIT “F”
Page 1 of 1

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Exhibit “F”
Date
Num
Vendor Name
Budget Category
Description
Amount
 
 
 
 
 
 
3/8/2013
 
Russell-Promontory L.L.C.
Land Deposits
Deposit on Russell Road
500,000.00
4/29/2013
 
Russell-Promontory L.L.C.
Land Deposits
Land Deposits on Russell Ranch
500,000.00
 
 
 
 
Subtotal Land Deposits
1,000,000.00
 
 
 
 
 
 
04/30/13
51128
Youngdahl Consulting
Feasibility
Geotechnical Engineering Services - 3/29/13 Report
0.00
 
 
 
 
Subtotal Youngdahl Inc
0.00
 
 
 
 
 
 
04/26/13
200141
Engeo Incorporated
Feasibility
Phase 1 Environmental Site Assessment - 5/07/13
0.00
 
 
 
 
Subtotal Engeo Inc
0.00
 
 
 
 
 
 
02/28/13
7689.0022 - 1
Hefner Stark & Marois LLP
Feasibility Legal
Purchase Documentation
7,373.50
 
 
 
 
Subtotal Hefner, Stark & Marois
7,373.50
 
 
 
 
 
 
03/28/13
8818
John Burns RE Consulting
Feasibility
Market Study
6,000.00
 
 
 
 
Subtotal John Burns
6,000.00
 
 
 
 
 
 
04/04/13
93193
Developers Research
Feasibilty
Grading Analysis /Cost Estimate
19,500.00
 
 
 
 
Subtotal Developers Research
19,500.00
 
 
 
 
 
 
05/15/13
 
Roger McErlane
Feasibility
Land Planning - Concepts
0.00
 
 
 
 
Subtotal Roger McErlane
0.00
 
 
 
 
 
 
05/15/13
88497
PSOMAS
Feasibility
ALTA Survey
0.00
 
 
 
 
Subtotal PSOMAS
0.00
 
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
1,032,873.50

Page 1 of 3

--------------------------------------------------------------------------------

EXHIBIT “G”
REPRESENTATIONS AND WARRANTIES
As an inducement of IHP to enter into this Agreement, TNHC makes the following
representations and warranties, all to the best of TNHC’s current, actual
knowledge. If facts or circumstances occur which would render any of such
representations or warranties untrue or inaccurate in any material respect, TNHC
or Guarantor shall, promptly upon learning of same, notify IHP, in writing, of
the nature of such changed facts or circumstances that have occurred and the
impact such change has or may have on the truth or accuracy of such
representations or warranties.
(a)    Except as set forth in Exhibit “O” attached to the Agreement, there are
no suits, actions or proceedings at law or in equity pending or, to the best of
its knowledge, threatened against TNHC (or Guarantor) that could have a material
adverse impact upon the financial strength of TNHC (or Guarantor) or their
ability to perform their respective obligations contained in the Agreement or
the Guaranty.
(b)    The execution and delivery of this Agreement has been authorized by all
requisite action and is in accordance with the governing documents of TNHC and
constitutes the duly authorized, valid and binding obligation of TNHC,
enforceable in accordance with its terms. No consent, authorization, permit or
approval is required for the due, prompt and complete delivery and performance
by TNHC of this Agreement and all instruments and documents executed in
connection herewith.
(c)    Neither TNHC nor Guarantor are in breach or default (nor would be in
breach or default but for the requirements of notice or the passage of time or
both) under any agreement, contract, indenture, covenant, note, deed of trust,
mortgage, security agreement or other instrument or document which would have a
material, adverse impact upon the financial strength of TNHC or Guarantor or
their ability to perform their respective obligations contained in the
Agreement.
(d)    To the best of TNHC’s knowledge and belief, the Approved Project Budget
attached to the Approved Business Plan (i) is true, correct, accurate and
complete in all material respects, (ii) does not omit information or facts, the
omission of which would render any of the information set forth in the Approved
Project Budget inaccurate or misleading in any sense, and (iii) represents
TNHC’s best efforts to accurately and completely compile, summarize and estimate
the information contained therein.
(e)    All financial data that has been given to IHP with respect to TNHC and
Guarantor (i) is complete and correct in all material respects, (ii) accurately
represents the financial condition of TNHC and Guarantor as of the date on
which, and the results of TNHC’s and Guarantor’s operations for the period for
which, the same have been furnished, and (iii) has been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered. All balance sheets disclose all known liabilities, direct
and contingent, as of their respective dates and do not omit any material fact
which would render the information provided inaccurate or misleading in any
manner. There has been no adverse change

EXHIBIT “G”
Page 1 of 3

--------------------------------------------------------------------------------

in the financial condition of TNHC or the Guarantor since the date of the most
recent of such financial statements given to IHP other than changes in the
ordinary course of business, none of which changes has been materially adverse.
To the best of TNHC’s and Guarantor’s knowledge and belief, all other reports,
papers, data and information given to IHP with respect to TNHC and Guarantor are
accurate and correct in all material respects and complete insofar as
completeness may be necessary to give IHP a true and accurate knowledge of the
subject matters thereof.
(f)    Neither TNHC nor the Guarantor are a party to any agreement or instrument
materially and adversely affecting its present or proposed business, properties
or assets, operation or condition, financial or otherwise; and is not in default
in the performance, observance or fulfillment of any of the material
obligations, covenants or conditions set forth in any agreement or instrument to
which it is a party.
(g)    TNHC has reviewed the Purchase Agreement, escrow instructions and all
other documents pertaining to the acquisition of the Property, including,
without limitation, any rights and covenants in favor of the seller, and to the
best of TNHC’s knowledge and belief, the acquisition, Entitlement, development
and sale of the Project as contemplated by the Approved Business Plan are
consistent with and will not result in a breach or default under the acquisition
documents, and to the extent required, any consents or approvals required from
the seller have been or will be obtained in the ordinary course of business as
contemplated by the Approved Business Plan.
(h)    Other than the Permitted Exceptions set forth in Exhibit “E” attached
hereto, TNHC knows of no lien, encumbrance, restriction, defect, security
interest, adverse claim or right, or other matter or condition of title to the
Property or any of the assets to be acquired by the Company. TNHC has reviewed
the Permitted Exceptions, is familiar with the impact of such Permitted
Exceptions on the Project, and to the best of TNHC’s knowledge and belief, all
costs associated with the Permitted Exceptions are included in the Approved
Project Budget.
(i)    TNHC and Guarantor have filed all federal, state, county and municipal
income tax returns required to have been filed by them, and have paid all taxes
which have become due pursuant to such returns or pursuant to any assessments
received by them, neither TNHC nor Guarantor know of any basis for additional
assessment in respect of any such taxes.
(j)    No person, firm or corporation has performed any construction work or
furnished services in connection with the Project and/or the Property who or
which remains unpaid other than payments to be made in connection with an
Approved Phase Budget.
(k)    Neither TNHC nor any Affiliate has received any inducement, payment,
deposit, rebate, refund, discount, or other consideration of any kind or nature
with respect to the Property, any of the other assets to be acquired by the
Company, or TNHC’s Membership Interest in the Company, nor does TNHC know of any
undisclosed contracts, agreements, rights or arrangements of any kind with
respect to any of the foregoing.
(l)    TNHC has examined and is familiar with all conditions, restrictions,
reservations and zoning ordinances affecting the Property. The Project will in
all material respects conform to and comply with all of the requirements of said
conditions, restrictions, reservations and zoning

EXHIBIT “G”
Page 2 of 3

--------------------------------------------------------------------------------

ordinances and all construction and installation of the Project shall conform in
all material respects with applicable ordinances and statutes, including
subdivision laws and environmental impact laws, and shall be in accordance with
all requirements of the regulatory authorities having jurisdiction thereof and
the Project shall not encroach upon any easement affecting the Property.
(m)    Other than as set forth in Exhibit “L” to the Agreement, TNHC has not
entered into any obligations or liabilities prior to the formation of the
Company nor is TNHC aware of any potential obligations or liabilities arising
prior to the formation of the Company which may be claimed against the Company.
(n)    To the best of TNHC’s knowledge, neither TNHC nor the Company has
participated in or approved, and there has not occurred, any release, disposal,
generation or storage upon the Property or contamination of the Property by any
Hazardous Material, and there is no violation of any Environmental Requirement
relating to the presence or existence of any Hazardous Material upon the
Property.
(o)    Neither TNHC nor the Company has received any written notice that (i) the
Property is, or was, in violation of any Environmental Requirement for the
Property, or (ii) that any Person has used, generated, stored or disposed of on,
under, or about the Property or transferred to or from the Property any
Hazardous Material.

EXHIBIT “G”
Page 3 of 3

--------------------------------------------------------------------------------

EXHIBIT “H”
RESERVED

EXHIBIT “H”
Page 1 of 1

--------------------------------------------------------------------------------

EXHIBIT “I”
INSURANCE REQUIREMENTS
The insurance requirements contained in Part I below shall be in place upon the
Company’s acquisition of the Property and at all times thereafter. Prior to the
Company’s commencement of any development operations, the additional insurance
requirements contained in Part II below shall be in place.
Part I
1.    Commercial General Liability:
The limits of liability shall not be less than:
Each Occurrence Limit    $1,000,000
Personal Advertising Injury Limit    $1,000,000
Products/Completed Operations Aggregate Limit     $1,000,000
General Aggregate Limit    $1,000,000
(Other than Products-Completed Operations)
The policy form must include:
a.
Premises and Operations coverage with no explosion, collapse, or underground
damage (XCU) exclusions.

b.
Products and completed operations coverage. Managing Member agrees to maintain
this coverage for the Company for the greater of ten (10) years following
substantial completion of the Project or until all statutes of limitations
expire.

Managing Member further agrees to continue naming IBP and any other parties in
interest as Additional Insured(s) for such coverage period.
c.    Blanket contractual coverage or its equivalent.
d.
Broad Form Property Damage coverage including completed operations or its
equivalent.

An endorsement naming IHP, its members, and their respective members and
partners, California State Teachers Retirement System, and any other parties in
interest as additional insured(s) under the coverage specified under Insurance
Requirement 1 above. Such endorsement shall contain the following provision:
“It is understood and agreed that IHP Capital Partners VI, LLC, its members and
their respective members, partners, officers, directors,

EXHIBIT “I”
Page 1 of 7

--------------------------------------------------------------------------------

trustees, agents, servants, employees, divisions, subsidiaries, shareholders and
affiliated companies are additionally named as insureds under this policy, with
respect to legal liability or claims caused by, arising out of, or relating to
the acts or omissions, work or work product, of the named insured or of others
performed on behalf of the named insured.”
The above endorsement shall be acceptable as well as ISO forms CO2010B 11/85 or
CG2010 and CG 2037, or equivalent. ISO forms CG2010A or CG2010B 10/93 or their
equivalent ARE NOT ACCEPTABLE. Any form that limits coverage to ONGOING
OPERATIONS or otherwise does not grant additional insured status under the
products/completed operations coverage IS NOT ACCEPTABLE.
e.    Subsidence coverage.
f.
An endorsement stating: “Such coverage as is afforded by this policy for the
benefit of the additional insured(s) is primary and any other coverage
maintained by such additional insured(s) shall be non-contributing with the
coverage provided under this policy.”

g.
Coverage on an “occurrence” form. “Claims made” and “modified occurrence” forms
are not acceptable.

h.
An endorsement stating that any aggregate limits apply on a “per project” and on
a “per location” basis.

2.    Umbrella/Excess Liability coverage minimum limit shall be Ten Million
Dollars ($10,000,000) each occurrence and annual aggregate per location, and
coverage shall be at least as “broad as primary.”
3.    Environmental Liability insurance for the Project shall be provided by IHP
in its discretion, including clean-up, third party bodily injury, and “mold,”
with limits of Five Million Dollars ($5,000,000) per occurrence and Five Million
Dollars ($5,000,000) annual aggregate. The cost for this insurance shall be
allocated to the Project in a manner as reasonably determined by IHP.
4.    The Managing Member, at its sole cost and expense, shall purchase and
maintain (a) Workers’ Compensation (statutory limits) and Employers’ Liability
coverage (with not less than One Million Dollars ($1,000,000) in coverage
limits) including a Waiver of Subrogation in favor of IHP; (b) Commercial
Automobile liability covering owned, hired, and non-owned autos (with not less
than One Million Dollars ($1,000,000) in coverage limits); (c) General Liability
coverage for operations away from the Project (with not less than One Million
Dollars ($1,000,000) in coverage limits); and (d) Umbrella Liability coverage
(with not less than Ten Million Dollars ($10,000,000) in coverage limits),
listing all policies and coverages under clauses 4(a), (b) and (c) hereof.

EXHIBIT “I”
Page 2 of 7

--------------------------------------------------------------------------------

5.    The Managing Member, at its sole cost and expense, shall purchase and
maintain Comprehensive Crime coverage in a limit of Five Hundred Thousand
Dollars ($500,000) per claim, with a deductible of no more than Fifty Thousand
Dollars ($50,000).
6.    Policies referenced in 1 though 5 above must contain the following
provisions:
(a)
All policies must contain an endorsement affording an unqualified thirty (30)
days notice of cancellation to the additional insured(s) in the event of
cancellation or non-renewal, and Managing Member shall endeavor to cause the
policies to contain an endorsement with thirty (30) days notice of material
change in coverage.

(b)
All policies must be written by insurance companies whose rating in the most
recent Best’s Rating Guide, is not less than A- IX. All coverage forms must be
acceptable to IHP. Managing Member shall provide certified copies of all such
policies to IHP, upon request.

(c)
Certificates of Insurance with the required endorsements evidencing the required
coverages must be delivered to IHP. All certificates of insurance shall show the
amount of any self-insured retention or deductible.

7.    Further Managing Member Obligations:
(a)
If Managing Member fails to secure and maintain the required insurance, IHP
shall have the right (without any obligation to do so, however) to secure same
in the name and for the account of the Company, in which event Managing Member
shall pay the costs thereof and furnish upon demand all information that may be
required in connection therewith.

(b)
IHP reserves the right, but shall have no obligation, to procure the insurance,
or any portion thereof, for which Managing Member is herein responsible and
which is described in this Exhibit. IHP shall notify Managing Member if IHP
exercises this right, whereupon Managing Member’s responsibility to carry such
insurance shall cease and all premiums and other charges associated with such
insurance shall be refunded to IHP.

(c)
IHP further reserves the right at any time, with thirty (30) days written notice
to Managing Member, to require that Managing Member resume the procurement and
maintenance of any insurance for which IHP has elected to become responsible
pursuant to this subsection. In such event, all premiums and other charges
associated with such insurance shall be equitably pro-rated based upon Managing
Member’s completed work.

(d)
IHP reserves the right, in its discretion and at the Company’s cost, to require
higher limits of liability coverage if, in IHP’s opinion, operations

EXHIBIT “I”
Page 3 of 7

--------------------------------------------------------------------------------

by or on behalf of Managing Member create higher than normal hazards and, to
require Managing Member to name additional parties in interest to be Additional
Insureds.
(e)
IHP reserves the right to obtain complete copies of all insurance policies as
requested, and to review annually (or as needed) the limits of liability
provided thereunder and the total number of units and projects being insured
under one policy.

(f)
In the event that rental of equipment is undertaken to complete and/or perform
the work, Managing Member agrees that it shall be solely responsible for such
rental equipment. Such responsibility shall include, but not be limited to,
theft, fire, vandalism and use by unauthorized persons.

(g)
Managing Member shall be responsible for causing the agreements with design and
engineering professionals to require that such professionals maintain
professional liability insurance, automobile liability, general liability, and
statutory workers’ compensations and employers’ liability (if applicable). All
policies should contain a minimum limit of liability of One Million Dollars
($1,000,000).

Part II - Project Insurance
Prior to the Company’s commencement of any development operations, the following
additional insurance shall be placed.
1.    Project Specific Commercial General Liability:
The limits of liability shall not be less than:
Each Occurrence Limit    $1,000,000
Personal Advertising Injury Limit    $1,000,000
Products/Completed Operations Aggregate Limit    $1,000,000
General Aggregate Limit    $1,000,000
(Other than Products-Completed Operations)
The policy form must include:
a.
Premises and Operations coverage with no explosion, collapse, or underground
damage (XCU) exclusions.

b.
Products and completed operations coverage. Managing Member agrees to maintain
this coverage for the Company for the greater of ten (10) years following
substantial completion of the Project or until all statutes of limitations
expire.

EXHIBIT “I”
Page 4 of 7

--------------------------------------------------------------------------------

Managing Member further agrees to continue naming IHP and any other parties in
interest as Additional Named Insured(s) for such coverage period.
c.
Blanket contractual coverage or its equivalent.

d.
Modification or deletion of the Alienated Premises Exclusion.

e.
Broad Form Property Damage coverage including completed operations or its
equivalent.

f.
The Company shall be the first named insured, and IHP Capital Partners VI, LLC
(“IHP”), Institutional Housing Partners VI L.P., IHP Fund VI Investors LLC, IHP
Fund VI Incentive Holdings LLC, California State Teachers’ Retirement System and
any other parties in interest as Additional Named Insureds. Since the Policy is
a “wrap-up” the eligible and enrolled subcontractors are also insured under the
Policy. The design and engineering professionals are included for coverage under
the Policy, but only for bodily injury and property damage claims.

g.    Subsidence coverage.
h.
An endorsement stating: “Such coverage as is afforded by this policy for the
benefit of the additional insured(s) is primary and any other coverage
maintained by such additional insured(s) shall be non-contributing with the
coverage provided under this policy.”

i.
Coverage on an “occurrence” form. “Claims made” and “modified occurrence” forms
are not acceptable.

j.
An endorsement stating that any aggregate limits apply on a “per project” and on
a “per location” basis.

2.    Umbrella/Excess Liability coverage minimum limit shall be Twenty-Five
Million Dollars ($25,000,000) each occurrence and annual aggregate per location,
and coverage shall be at least as “broad as primary.” Owner shall have the
option to require higher limits at time of construction that are warranted by
the current marketplace conditions.
3.    Prior to the commencement of any development work upon the Project, the
Managing Member shall purchase and maintain Builders’ Risk property insurance
for the Project to the full replacement value thereof and without any
co-insurance requirements. Such insurance shall be on an “All Risks” policy
form, excluding Earthquake and Flood unless the project meets the criteria
outlined in section 3(a) below. The policy shall include the interests of IHP,
the lender, if any, the Managing Member, subcontractors and sub-subcontractors.
Managing Member shall assume liability for any losses or damages to the work not
covered as a result of any deductible provision in such policy, but not for more
than Ten Thousand Dollars

EXHIBIT “I”
Page 5 of 7

--------------------------------------------------------------------------------

($10,000.00) per occurrence. Any loss covered by such Builders’ Risk policy
shall be adjusted and made payable to IHP as trustee for all insureds, as their
interests may appear, subject to any lender’s requirements. IHP may purchase and
maintain, at IHP’s sole option and expense, any other insurance that IHP deems
necessary or desirable for IHP’s further protection.
If the Builders’ Risk policy will not extend coverage to the following, then a
separate Property Policy shall be maintained covering all completed buildings
awaiting sale, model homes and their contents, property on site, property off
site, and property in transit, all to their full replacement value.
a.
Flood, Earthquake, and Windstorm Hazards. If the Project is in a designated
flood area (zone A or V), then Flood coverage shall be required. The limits of
coverage shall be the maximum limits available from the National Flood Insurance
Program, at a minimum. Additionally, if the Project is in a seismically active
area, then earthquake coverage shall be required in a form reasonably
satisfactory to IHP, in an amount not less than thirty percent (30%) of the
building replacement cost. If the Project is in a Tier One windstorm zone, then
windstorm coverage shall be required to the full replacement cost, subject to a
deductible of not more than three percent (3%).

4.    Unless real estate sales are outsourced to a third party, Managing Member
shall, at its sole cost and expense, carry Real Estate Professional Liability
(Errors and Omissions) with limits of Two Million Dollars ($2,000,000) per
occurrence and annual aggregate, and a deductible of not more than One Hundred
Thousand Dollars ($100,000).
5.    Policies referenced in 1 though 4 above must contain the following
provisions:
(a)
All policies must contain an endorsement affording an unqualified thirty (30)
days notice of cancellation to the additional insured(s) in the event of
cancellation or non-renewal, and Managing Member shall endeavor to cause the
policies to contain an endorsement with thirty (30) days notice of material
change in coverage.

(b)
All policies must be written by insurance companies whose rating in the most
recent Best’s Rating Guide, is not less than A- IX. All coverage forms must be
acceptable to IHP. Managing Member shall provide certified copies of all such
policies to IHP, upon request.

(c)
Certificates of Insurance with the required endorsements evidencing the required
coverages must be delivered to IHP prior to entry upon the Property and each
year thereafter for the greater of ten (10) years following substantial
completion of the Project or until all applicable Statutes of Limitations
expire. Managing Member further agrees to continue naming IHP and any other
parties in interest as Additional Insured(s) for such coverage period. All
certificates of insurance shall show the amount of any self-insured retention or
deductible.

EXHIBIT “I”
Page 6 of 7

--------------------------------------------------------------------------------

6.    Further Managing Member Obligations
(a)
Managing Member agrees to include in its agreements with all subcontractors the
provisions of Part II, Section 1 (Commercial General Liability) and Part II,
Section 5 (Worker’s Compensation, Commercial Automobile liability, etc.). In
addition, subcontractors performing work on behalf of Managing Member shall be
required to name IHP as an additional insured on their general liability
policies under the terms and conditions previously set forth in item 1(f) above.

(b)
Also, the Managing Member shall cause its standard form of subcontract agreement
to contain the following, to the extent necessary, to permit the Managing Member
to (i) use subcontractor indemnity provisions to contribute to the Company’s
self-insured retention obligations under the policy, and (ii) enroll
subcontractors (and lower tier contractors) in the wrap policy and carve out the
cost of insurance from the gross contract amount.

(c)
IHP reserves the right, in its discretion and at the Company’s cost, to require
higher limits of liability coverage if, in IHP’s opinion, operations by or on
behalf of Managing Member create higher than normal hazards and, to require
Managing Member to name additional parties in interest to be Additional Named
Insureds.

In the event that materials or any other type of personal property (“personal
property”) are acquired for the Project or delivered to the Property, Managing
Member agrees that it shall be solely responsible for such personal property
until it becomes a fixture on the Property, or otherwise is installed and
incorporated as a final part of the Property. Such responsibility shall include,
but not be limited to, theft, fire, vandalism and use by unauthorized persons.

EXHIBIT “I”
Page 7 of 7

--------------------------------------------------------------------------------

EXHIBIT “J”
RESERVED

EXHIBIT “J”
Page 1 of 1

--------------------------------------------------------------------------------

EXHIBIT “K”
RESERVED

EXHIBIT “K”
Page 1 of 1

--------------------------------------------------------------------------------

EXHIBIT “L”
ASSUMED LIABILITIES

EXHIBIT “L”
Page 1 of 1

--------------------------------------------------------------------------------

russellr_image1a01.gif [russellr_image1a01.gif]

--------------------------------------------------------------------------------

EXHIBIT “M”
FORM OF REPORTS

EXHIBIT “M”
Page 1 of 1

--------------------------------------------------------------------------------

<PARTNER/VENTURE NAME>
SCHEDULE OF REPORTING REQUIREMENTS
<Adjusted Pursuant to Venture’s Requirements>
To:    IHP Capital Partners
    19800 MacArthur Blvd., #700
    Irvine, CA 92612

FOR THE MONTH ENDING ____________________________________
 
Due
Forward To
Received
Y/N
MONTHLY
 
 
 
1. STATEMENT OF FINANCIAL POSITION*
<PER VENTURE>
Accounting
 
2. STATEMENT OF OPERATIONS*
<PER VENTURE>
Accounting
 
3. STATEMENT OF MEMBER’S CAPITAL*
<PER VENTURE>
Accounting
 
4. STATEMENT OF UNRECOVERED CAPITAL ACCOUNT*
<PER VENTURE>
Accounting
 
QUARTERLY
 
 
 
1. ALL REPORTS DUE MONTHLY
<PER VENTURE>
 
 
2. PROJECT PROFORMA UPDATE (PPU)
<PER VENTURE>
Asset Management
 
3. ENTITLEMENT STATUS REPORT*
<PER VENTURE>
Asset Management
 
ANNUAL
 
 
 
1. COMPANY TAX RETURNS
<PER VENTURE>
Accounting
 
2. AUDITED COMPANY FINANCIAL STATEMENTS
<PER VENTURE>
Accounting
 
3. PROJECT COST/COMPLIANCE AUDIT
3 months after final close of escrow
Asset Management
 
OTHER
 
 
 
1. MONTHLY DRAW REQUEST/PPU with budget changes
TBD
Asset Management
 
2. CHANGE ORDER APPROVAL
<PER VENTURE>
Asset Management
 
When possible please email/fax reports to appropriate recipients as follows:
email
fax
Phone
Accounting:
Asset Management:
 
 
 

*These forms are samples only builder’s internal forms may be used if
information provided is acceptable to IHP.

Page 1 of 9
C-01 -Reporting Requirements LAND.XLS

--------------------------------------------------------------------------------

STATEMENT OF FINANCIAL POSITION
MONTH ENDED:
PROJECT NAME: ________________________
ASSETS

 
REAL ESTATE INVENTORY

 
LAND:
 
RAW LAND
0
FINISHED LOTS
0
TOTAL

0
HOMES

CONSTRUCTION-IN-PROCESS
0
COMPLETED HOMES / MODELS (STANDING INVENTORY)
0
TOTAL

0
REAL ESTATE TOTAL

0
 
 
CASH
0
PREPAID EXPENSES
0
UTILITY DEPOSITS
0
OTHER
0
TOTAL ASSETS

0
 
 
LIABILITIES AND EQUITY
 
 
 
THIRD-PARTY LOANS
 
PRINCIPAL
0
ACCRUED INTEREST
0
TOTAL

0
 
 
CUSTOMER DEPOSITS
0
ACCRUED PROPERTY TAXES
0
CONSTRUCTION PAYABLES
0
OTHER LIABILITIES
0
WARRANTY RESERVE
0
TOTAL LIABILITIES

0
EQUITY

CONTRIBUTED CAPITAL
0
RETAINED EARNINGS (PRIOR YEARS’ PROFIT (LOSS))
0
CURRENT YEAR PROFIT (LOSS)
0
TOTAL EQUITY

0
TOTAL LIABILITIES AND EQUITY

0

Page 2 of 9
C-01 -Reporting Requirements LAND.XLS

--------------------------------------------------------------------------------

STATEMENT OF OPERATIONS
MONTH ENDED: ________________________
PROJECT NAME: ________________________

--------------------------------------------------------------------------------

REVENUES

 
GROSS SALES
0

WARRANTY RESERVE
0

SELLING EXPENSES (COMMISSIONS & CLOSING COSTS)
0

OTHER INCOME
0

NET REVENUES

0

 
 
EXPENSES
 
 
 
COST OF SALES
0

 
 
TOTAL COST OF SALES
0

 
 
GROSS INCOME FROM SALE OF HOMES
0

GROSS MARGIN
0.00
%
 
 
GENERAL AND ADMINISTRATIVE EXPENSES
0

SALES AND MARKETING
0

 
 
NET PROFIT (LOSS)

0

Page 3 of 9
C-01 -Reporting Requirements LAND.XLS

--------------------------------------------------------------------------------

STATEMENT OF MEMBERS’/PARTNERS’ CAPITAL
MONTH ENDED: ________________________
PROJECT NAME: ________________________

--------------------------------------------------------------------------------

 
IHP Capital Partners VI, LLC
 
DEVELOPER
TOTAL
 
 
 
 
 
BALANCE BEGINNING OF QUARTER
0
 
0
0
 
 
 
 
 
CONTRIBUTIONS
0
 
0
0
 
 
 
 
 
DISTRIBUTIONS:
 
 
 
 
RETURN OF CAPITAL-PREFERRED RETURN (_%)
0
 
0
0
RETURN OF CAPITAL-CONSTRUCTION LOAN EQUIVALENT (_%)
0
 
0
0
PREFERRED RETURN EARNINGS (_%)
0
 
0
0
CONSTRUCTION LOAN EQUIVALENT EARNINGS (_%)
0
 
0
0
 
 
 
 
 
NET EARNINGS (LOSS)
0
 
0
0
 
 
 
 
 
BALANCE END OF QUARTER
0
 
0
0

 
IHP Capital Partners VI, LLC
 
DEVELOPER
TOTAL
 
 
 
 
 
BALANCE BEGINNING OF YEAR
0
 
0
0
 
 
 
 
 
CONTRIBUTIONS
0
 
0
0
 
 
 
 
 
DISTRIBUTIONS:
 
 
 
 
RETURN OF CAPITAL- PREF. (___%)
0
 
0
0
RETURN OF CAPITAL-CLE (___%)
0
 
0
0
PREFERRED RETURN EARNINGS (___%)
0
 
0
0
CONSTRUCTION LOAN EQUIVALENT EARNINGS (___%)
0
 
0
0
 
 
 
 
 
NET EARNINGS (LOSS)
0
 
0
0
 
 
 
 
 
BALANCE END OF PERIOD
0
 
0
0

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STATEMENT OF MANAGING MEMBERS’ UNRECOVERED CAPITAL ACCOUNT
<BUILDER/PROJECT>
CALCULATION OF PREFERRED RETURN
<Closing Date>    <Current Date>
PREFERRED RETURN RATE= <Per Agreement>
FROM
TO
DAYS OUT.
CAPITAL CONTRIBUTION
CAPITAL DISTRIBUTION
 
TOTAL UNRETURNED CAPITAL
RATE
PREFERRED RETURN EARNED
PREFERRED RETURN DISTRIBUTION
UNPAID PREFERRED RETURN
<Closing Date>
<Current Date>
 
<Init. Cap. Contrib.>
0.00
 
0.00
<Per Agrmnt>
0.00
0.00
0.00
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTALS
 
0.00
0.00
 
 
 
0.00
0.00
0.00

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ENTITLEMENT STATUS REPORT
Intentionally blank. Form to be mutually agreed upon post closing.

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EXHIBIT “N”
RESERVED

EXHIBIT “N”
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EXHIBIT “O”
PENDING AND HISTORICAL LITIGATION
None.

EXHIBIT “O”
Page 1 of 1

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EXHIBIT “P”
RESPONSIBLE CONTRACTOR POLICY AND GUIDELINES

EXHIBIT “P”
Page 1 of 1

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CalSTRS Responsible Contractor Policy Summary – IHP Builder & Developer Partners
Overview
CalSTRS has developed robust policies and standards for fair and open governance
of corporations. As long-term owners and lenders to corporations around the
world, CalSTRS’s duty is to protect those assets through the pursuit of good
governance and operational accountability.
In 2003, the CalSTRS Board adopted a Responsible Contractor Policy (the
“Policy”). CalSTRS supports and encourages fair wages and fair benefits for
workers employed by its contractors and subcontractors. The policy defines a
Responsible Contractor as follows: “A Responsible Contractor, as used in this
Policy, is a contractor or subcontractor who pays workers a fair wage and fair
benefit as evidenced by payroll and employee records. “Fair benefits” are
defined as including, but are not limited to, employer-paid family health care
coverage, pension benefits, and apprenticeship programs. What constitutes a
“fair wage” and a “fair benefit” depends on the wages and benefits paid on
comparable real estate projects, based upon local market factors, that include
the nature of the project (e.g., residential or commercial; public or private),
comparable job or trade classifications, and the scope and complexity of
services provided.”
Attached is a copy of the entire CalSTRS Responsible Contractor Policy. Each of
IHP’s builder and developer partners shall comply with the Policy and shall
require all applicable parties providing materials or services to a Project to
comply with the goals and requirements of the Policy, as it may be modified from
time to time by CalSTRS. IHP will provide its builder and developer partners
with a copy of any modified Policy.
As CalSTRS partners we are required to comply with this Policy in soliciting and
letting contracts and to show affirmative evidence of its implementation in the
competitive bidding process as described below.
Responsible Contractor Competitive Bidding Process
The Responsible Contractor Policy states with respect to competitive bidding of
contracts: “Contractors and their subcontractors for construction, maintenance,
and services shall be selected through a competitive bidding and selection
process. The purpose of this provision is to encourage fair competition and to
actively seek bids from all qualified sources within an area, particularly those
identified as Responsible Contractors. Advisors and their subcontractors shall
create a bidding process that includes notification and invitations to bid,
distributed to a broad spectrum of potential bidders, particularly those
identified as Responsible Contractors. The review of the bids shall include
consideration of loyalty, prudence, and competitive risk-adjusted returns
(factors to be considered include experience, reputation for honesty, integrity,
timeliness, dependability, fees, safety record, and the adherence to the
Responsible Contracting Policy).”
IHP’s builder and developer partners will have the responsibility to manage the
policy’s implementation with its contractors and report the results to IHP. In
turn, IHP will report the results annually to CalSTRS.

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CalSTRS Responsible Contractor Policy Summary – IHP Builder & Developer Partners
Compliance Obligation of IHP Builder and Developer Partners
As discussed in more detail in the Policy, IHP builder and developer partners
are primarily responsible for:
•Communicating the Policy to contract bidders and including Responsible
Contractors in their bidding process
•    Collecting “Certification of Responsible Contractor Status” forms from all
bidders (minimum $25,000 contract) and particularly from winning contractors
•    Reporting results to IHP on an annual basis as and when required by IHP
Responsible Contractor Documents
•    Responsible Contractor Policy (PDF —the current Policy is attached)
•    IHP CalSTRS Resp Cont Builder Status (Excel - submitted by builder to IHP;
the current form is attached)
•    Certification of Responsible Contractor Status (Word - submitted by
contractor to builder; the current form is attached)
What IHP Builder and Developer Partners Need to Do
Builder and Developer Management of Contracts
1.    Each bidding contractor should be given a Certification of Responsible
Contractor Status form (separate, 2-page Word document) along with the bid
package for any contracts over $25,000 incurred during a 12-month period from
July to June
2.    The contractor should return this status form along with the contract
proposal
3.    Document the reasons for your choice of the winning subcontractor
including your consideration of the subcontractor’s Responsible Contractor
status
4.    Retain all bid proposals in your files
Also, the contracts and/or subcontracts should state that 1) the LLC (or owner
of a Project) has agreed to comply with the Responsible Contractor Policy and 2)
all parties providing services or materials to the owner of a Project agree to
comply with the goals and requirements of this policy.
Builder Reporting to IHP

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Annually in the summer, at a specific time to be designated by IHP, each builder
or developer partner will submit their completed IHP CalSTRS Responsible
Contractor Builder Status form (in Excel, the current form is attached). The
builder or developer partner retains contractor-level information and
certifications. Contractors who select the Responsible Contractor Status “Meets
all Responsible Contractor requirements” or “Meets certain of the Responsible
Contractor requirements...” are considered to be a Responsible Contractor under
this policy and may be reported as Responsible Contractors.

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California State Teachers’ Retirement System
Responsible Contractor Policy
I.    INTRODUCTION
The California State Teachers’ Retirement System (“CalSTRS” or “the System”) has
a deep interest in the condition of workers employed by the System and its
advisors. The System, through the Responsible Contractor Policy (“Policy”)
described below, supports and encourages fair wages and fair benefits for
workers employed by its contractors and subcontractors, subject to fiduciary
principles concerning duties of loyalty and prudence, both of which further
require competitive returns on the System’s real estate investments. The System
endorses small business development, market competition, and control of
operating costs. CalSTRS supports many of the ideals espoused by labor unions
and encourages participation by labor unions and their signatory contractors in
the development and management of the System’s real estate investments. The
System believes that an adequately compensated and trained worker delivers a
higher quality product and service.
II.    DEFINITION OF A RESPONSIBLE CONTRACTOR
A Responsible Contractor, as used in this Policy, is a contractor or
subcontractor who pays workers a fair wage and a fair benefit as evidenced by
payroll and employee records. “Fair benefits” are defined as including, but are
not limited to, employer-paid family health care coverage, pension benefits, and
apprenticeship programs. What constitutes a “fair wage” and “fair benefit”
depends on the wages and benefits paid on comparable real estate projects, based
upon local market factors, that include the nature of the project (e.g.,
residential or commercial; public or private), comparable job or trade
classifications, and the scope and complexity of services provided.
III.    INITIAL REQUIREMENTS OF THE RESPONSIBLE CONTRACTING POLICY
A.
Duty of Loyalty: Notwithstanding any other considerations, assets shall be
managed for the exclusive benefit of the participants and the beneficiaries of
CalSTRS. CalSTRS’ as well as its advisors’, duty to the participants and their
beneficiaries shall take precedence over any other duty.

B.
Prudence: CalSTRS’ Board, staff and advisors are charged with the fiduciary duty
to exercise the care, skill, prudence and diligence appropriate to the task.

C.
Competitive Return: To comply with duties of loyalty and prudence, all
investments and services must be made and managed in a manner that produces a
competitive risk-adjusted return.

D.
Competitive Bidding: Contractors and their subcontractors for construction,
maintenance, and services shall be selected through a competitive bidding and
selection process. The purpose of this provision is to encourage fair
competition and to actively seek bids from all qualified sources within an area,
particularly those identified as Responsible Contractors. Advisors and their
subcontractors shall create

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a bidding process that includes notification and invitations to bid, distributed
to a broad spectrum of potential bidders, particularly those identified as
Responsible Contractors. The review of the bids shall include consideration of
loyalty, prudence, and competitive risk-adjusted returns (factors to be
considered include experience, reputation for honesty, integrity, timeliness,
dependability, fees, safety record, and the adherence to the Responsible
Contracting Policy.)
E.
Local, state and national laws. All advisors, property managers, contractors,
and their subcontractors shall observe all local, state, and national laws
(including by way of illustration those pertaining to insurance, withholding
taxes, minimum wage, labor relations, health, and occupational safety).

IV.    SELECTION PREFERENCE OF A RESPONSIBLE CONTRACTOR
If Initial Requirements A through D (see Section III. above) are satisfied,
CalSTRS expresses a strong preference that Responsible Contractors be hired.
V.    TRANSITION, ENFORCEMENT, MONITORING, AND ADMINISTRATION
A.
Applicable Investments and Phasing: This Policy shall apply to all applicable
real estate advisors. The Policy shall not apply to investments such as hybrid
debt, joint ventures, opportunity funds and other real estate investments where
CalSTRS does not have 100% ownership and/or full control of the investment.
However, in those instances where CalSTRS does not have 100% ownership and/or
full control of the investment, staff will make reasonable attempts to encourage
partners to comply with the spirit and practice of Responsible Contracting.

B.
Notification: CalSTRS shall provide all applicable current and prospective real
estate advisors with a copy of this Policy, including investments where CalSTRS
does not have 100% ownership and/or full control of the investment.

C.
Solicitation Documents: All requests for proposal and invitations to bid covered
by this Policy shall include the terms of this Policy. Responses by bidders
shall include information to assist the staff in evaluating a bid.

D.
Contracts and Renewals: All contracts entered into after the effective date of
this Policy and pertaining to applicable real estate investments, including
renewals of such contracts, shall include the terms of this Policy.

E.
Responsibilities: The responsibilities of CalSTRS’ staff, advisors, property
managers, contractors, and unions are defined as follows:

1.
Staff: CalSTRS staff shall have the following responsibilities:

a.
Review the advisors’ annual certification statement regarding compliance with
the Policy.

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b.
Develop and maintain contact lists for all CalSTRS’ properties and provide a
copy to inquiring parties.

c.
Insert appropriate contract language where applicable.

d.
In those instances where CalSTRS does not have 100% ownership and/or full
control of an investment, make reasonable attempts to encourage partners to
comply with the spirit and practice of Responsible Contracting.

2.
Advisors: Advisors’ responsibilities shall include:

a.
Communicate the Policy to all property managers.

b.
Review a contract listing for each property prepared by each property manager.

c.
Maintain a simplified bid summary for each applicable contract. The summary
should include identifying contract, successful bidder, and bidder’s status as
Responsible Contractor.

d.
Maintain an annual report in their home office, describing their own efforts as
well as those by property managers and their subcontractors.

e.
Monitor and enforce the Policy including investigation of potential violations.

f.
Annually, the signatory to the CalSTRS contract will file a certification
statement that their firm complied with the Responsible Contractor Policy for
the preceding year and upon request will provide written substantiation of such
compliance. This provision will be subject to periodic audits.

3.
Property Managers: Property managers will have responsibility for the following:

a.
Communicate in bid documents the Responsible Contractor Program Policy to
contractors seeking to secure construction or building service contracts.

b.
Communicate the Policy to any interested party.

c.
Ensure there is a competitive bidding process that is inclusive of potentially
eligible Responsible Contractors.

d.
Require bidders to provide to property manager a Responsible Contractor
self-certification on a form approved by CalSTRS.

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e.
Prepare and send to advisors a contract listing for applicable service contracts
for each property under management. The building trades and service trades and
other potential bidders will have access to this list.

f.
Provide advisors with a simplified bid summary for each contract.

g.
Provide property level annual report information to advisor.

h.
Maintain documentation for successful bidders.

i.
Seek from trade unions/service unions input in the development of Responsible
Contractor lists.

j.
Maintain list of any interested Responsible Contractors. (Names, addresses and
telephone numbers).

4.
Contractors: Contractors will have the responsibility for the following:

a.
Submit to property manager a Responsible Contractor self-certification on a form
approved by CalSTRS.

b.
Communicate to subcontractors the Responsible Contractor Program Policy.

c.
Provide to property manager Responsible Contractor documentation.

5.
Unions: Trade unions/service unions shall be asked to perform the following
tasks:

a.
Deliver to the property manager or advisor lists of names and phone numbers of
Responsible Contractors.

b.
Refer interested and qualified Responsible Contractors to the property manager.

c.
Continually monitor the local labor markets to update the lists.

d.
Provide technical input as appropriate.

F.
Outreach: CalSTRS’ staff will develop and maintain a list of all CalSTRS 100%
owned and/or fully controlled properties. The list will include the property
name, address, advisor and property manager, and phone number of the property
manager and real estate advisors. The CalSTRS’ staff will provide this list to
anyone who requests a copy. Actual contract expiration inquiries will be
referred to the property level. Property managers shall provide solicitation
documents to any potential contractor who has, in writing, expressed an interest
in bidding for the relevant contract.

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G.
Minimum Contract Size: The Policy shall absolutely apply to all contracts of a
minimum size of $25,000, individually or annually as applicable. Minimum
contract size refers to the total project value of the work being contracted for
and not to any desegregation by trade or task. For example, a $25,000 contract
to paint two buildings in a single office complex would not be treated as two
$12,500 contracts, each less than the minimum contract size. Desegregation
designed to evade the requirements of the Policy is not permitted.

H.
Applicable Expenditures Categories: The Policy shall apply to tenant
improvements, capital expenditures, and operational service contracts (such as
cleaning).

I.
Fair Wage, Fair Benefits, Training: The Policy avoids a narrow definition of
“fair wage”, “fair benefits”, and “training” that might not be practical in all
markets. Furthermore, the Policy does not require a “prevailing wage”, as
defined by government surveys. Instead, the Policy looks to local practices with
regard to type of trade and type of project. The Policy recognizes that
practices and labor market conditions vary across the country and that
flexibility in its implementation is very important.

In determining “fair wages” and “fair benefits” with regard to a specific
contract in a specific market, items that may be considered include local wage
practices, state laws, prevailing wages, labor market conditions, and other
items.
In place of a prevailing wage standard, the Policy requires a broad outreach and
competitive bidding program, as described in Section III.D, and V.F and J. This
program is premised upon the availability of a list of Responsible Contractors
in every market in which CalSTRS directly owns a property. While advisors and
their property managers and contractors are responsible for gathering and
analyzing information relevant to identifying and hiring a Responsible
Contractor, compilation of this list does not depend solely on the advisors,
property managers, or contractor. This Policy instead invites the various local
trades to suggest contractors, which in their view qualify as Responsible
Contractors. Sources of information include local building and service trade
councils, builders association, and governments.
J.
Competitive Bidding: Property managers and contractors should give notice for
applicable bids in local trade publications, bulletin boards and union building
trades councils. Property managers should seek input from building trades
councils to develop lists of Responsible Contractors for inclusion in the
bidding process.

Property managers may choose from the list of Responsible Contractors a
reasonable number of contractors to be invited to bid. Given the time and
expense required to solicit and evaluate bids, it is not essential that
advisors, property managers, and contractors invite all potential bidders.
The property manager must ensure that there is a competitive bidding process,
which is inclusive of potentially eligible Responsible Contractors. Inclusion is
not

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necessarily assured by large numbers of bidders. Care must be taken that bidders
include potentially eligible Responsible Contractors.
Although the Policy does not require hiring union workers, the trade unions will
be invited to (1) deliver to the property manager or advisor lists of names and
phone numbers of Responsible Contractors including those Responsible Contractors
who have expressed any interest in bidding, and (2) continually monitor the
local markets to update the lists. Property managers shall maintain these lists
supplied by the trade unions.
K.
Neutrality: CalSTRS recognizes the rights of employees to representation, and
supports and strongly encourages a position of neutrality, in the event there is
a legitimate attempt by a labor organization to organize workers employed in the
construction, maintenance, operation, and services at a CalSTRS owned property.

Resolution of any interjurisdictional trade disputes will be the responsibility
of the trades and the various state and national building trades councils. This
Policy does not call for any involvement by the advisors, property managers, or
contractors in interjurisdictional trade disputes.
L.
Enforcement: If Staff becomes aware of non-compliance, this System will place a
non-complying advisor or property manager on a probation watch list. If the
advisor or property manager does not modify this pattern of conduct even after
discussions with CalSTRS’ staff, the System will consider this pattern of
conduct along with other information when it reviews the advisor or property
manager contract for possible renewal. The key indicator is a pattern of conduct
that is inconsistent with the provisions of the Policy.

Staff will address Responsible Contractor Policy compliance as part of the Real
Estate Annual Review and Rating of Managers.

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INTRODUCTION: The California State Teachers’ Retirement System (“System”) has a
deep interest in the condition of workers employed by the System and its
advisors. The System, through the Responsible Contracting Policy, supports and
encourages fair wages and fair benefits for workers employed by its contractors
and subcontractors, subject to fiduciary principles concerning duties of loyalty
and prudence, both of which further require competitive returns on the System’s
real estate investments. The System endorses small business development, market
competition and control of operating costs. The System supports many of the
ideals espoused by labor unions and encourages participation by labor unions and
their signatory contractors in the development and management of the System’s
real estate investments. The System believes that an adequately compensated and
trained worker delivers a higher quality product and service. This policy is
intended to complement and in no manner detract from existing System policy
regarding service-disabled California veteran owned business enterprises.
DEFINITIONS:
Responsible Contractor: A contractor or subcontractor who pays workers a fair
wage and a fair benefit as evidenced by payroll and employee records. “Fair
Benefits” are defined as including, but not limited to, employer paid family
health care coverage, pension benefits, and apprenticeship programs. What
constitutes a “fair wage” and “fair benefit” depends on the wages and benefits
paid on comparable real estate projects based upon local market factors, that
include the nature of the project (e.g. residential or commercial, public or
private) comparable job or trade classifications, and the scope and complexity
of the services provided.

Page 12 of 12