Exhibit 10.3
 
PARTICIPATION AGREEMENT
 
THIS PARTICIPATION AGREEMENT (this “Participation Agreement”) is made as of
February 3, 2010, by and between SPT-LAKE ELSINORE HOLDING CO., LLC, a Delaware
limited liability company (“Seller”), and D. R. HORTON LOS ANGELES HOLDING
COMPANY, INC., a California corporation (“Buyer”), collectively the “Parties”.

Recitals:
 
A           Pursuant to that certain Purchase and Sale Agreement and Joint
Escrow Instructions, dated for reference purposes as of December 8, 2009, by and
between Seller and Buyer, as may be amended from time to time (collectively, the
“Purchase Agreement”), Buyer is acquiring from Seller 65 residential single
family lots, situated in Lake Elsinore, California (the “Property”).
 
B           As additional consideration for the purchase of the Property, and in
addition to the Purchase Price, Buyer has agreed to pay to Seller the
‘Participation Amount’ (as defined below), if any, that may be received by Buyer
from the sale of a Unit (as defined below), subject to the terms and conditions
set forth below.
 
NOW, THEREFORE, in consideration of the above and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
 
1.           Definitions. Capitalized terms used in this Participation Agreement
and not defined below or in Schedule “1” attached hereto shall have the meanings
set forth in the Purchase Agreement.
 
a.           “Escrow Agent” means the escrow agent for the sale of Units.
 
b.           “Home Closing Statement” means a written statement prepared by the
Escrow Agent identifying the homebuyer, the property address, the date of the
Unit closing and the Gross Sales Price of the home as reflected on the HUD-1
settlement statement, solely for the purpose of Seller verifying compliance with
Buyer's obligation to pay the Participation Amount.
 
c.           “Participation Amount” means those amounts payable by Buyer to
Seller pursuant to Section 2 below.
 
d.           “Gross Profit” is defined in Schedule “1” attached hereto.
 
e.           “Gross Profit Margin” is defined in Schedule “1” attached hereto.
 
f.           “Unit” means a Lot improved by Buyer with a single family dwelling
for sale to the home-buying public.
 
2.           Participation Amount. Seller shall be entitled to receive fifty
percent (50%) of any Gross Profit that exceeds a twenty-four percent (24%) Gross
Profit Margin on the sale of the Units to be developed by Buyer on the Lots (the
“Participation Amount”).
 
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3.           Payment of Participation Amount. Within ninety (90) days after the
sale of the last Unit constructed within the Property, Buyer shall deliver an
accounting to Seller together with a payment in an amount equal to the
Participation Amount, if any, for the residences.
 
4.           Financial Records and Statements of Buyer. Buyer shall keep and
maintain, or cause to be kept and maintained, accurate financial books and
records with respect to the development of the Property in accordance with
generally accepted accounting principles as modified by the provisions of this
Agreement.  Seller shall have the right at all reasonable times and upon at
least 5 business days prior written notice, to inspect Buyer’s books and records
for the purposes of verifying the retail purchase price received by Buyer for
Units, the Gross Profit Margin calculation, and the allowable deductions used in
calculating Gross Profit and any other deductions or credits claimed by Buyer in
determining the amount of the Participation Amount.  Any deficiency in amounts
due Seller for the Participation Amount determined based upon such review by
Seller shall be due and payable by Buyer to Seller within 15 days after receipt
of notice thereof from Seller.  If Seller’s audit discloses that Participation
Amount was less than the amounts previously paid to Seller, Seller shall pay to
Buyer an amount equal to the excess of such amounts received over the
Participation Amount within 15 days after Seller’s receipt of the
audit.  Notwithstanding any provision to the contrary in this Agreement,
including in any Exhibit or Schedule hereto, Seller shall not be entitled to a
copy of a homebuyer’s HUD-1 settlement statement or any other information that
Buyer or the escrow agent for the sale of Units would not be permitted by law to
disclose; in such event, Buyer shall provide to Seller such substitute
documentary information sufficient for Seller to enable Seller to verify the
terms of sale of each Unit. Seller shall have thirty (30) days from Buyer’s
delivery to Seller of the accounting and supporting data within which to make a
written objection regarding Buyer’s proposed Participation Amount.
 
5.           Default and Remedies.
 
a.           Default. A default shall be deemed to have occurred if the
breaching party has not effected or commenced to effect a cure within ten (10)
days after a written notice from the other party specifying the breach.
 
b.           Dispute Resolution. If there is a dispute between the parties
regarding the calculation and/or payment of the Participation Amount, then
either party may elect to have such dispute resolved pursuant to Section 32 of
the Purchase Agreement, the terms of which are incorporated herein by this
reference.
 
6.           Notice. Any notice authorized, required, or permitted to be given
hereunder shall be delivered to the parties at the addresses and in the manner
set forth in the Purchase Agreement.
 
7.           Miscellaneous Provisions.
 
a.           Governing Law. This Participation Agreement shall be governed and
interpreted under the laws of the State of California.
 
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b.           Section Headings. The section headings used in this Participation
Agreement are for reference and convenience purposes only, and shall not be used
in the interpretation of this Participation Agreement.
 
c.           Exhibits. All exhibits attached hereto are incorporated in this
Participation Agreement by reference and made a part of this Participation
Agreement.
 
d.           Integration; Amendment in Writing. This Participation Agreement
contains the entire agreement between the Parties relating to the payment of any
Participation Amount, and neither party shall be bound by any oral statement or
oral or written agreement made prior to or contemporaneous with this
Participation Agreement and not included within this Participation
Agreement.  The foregoing does not affect the validity of the Purchase
Agreement. This Participation Agreement cannot be amended except by written
agreement executed by the Parties.
 
e.           No Partnership or Joint Venture. Nothing contained in this
Participation Agreement is intended to create, nor shall it ever be construed to
make, Seller and Buyer partners or joint venturers.
 
f.           Severability. The provisions of this Participation Agreement are
severable, and if any provision or part hereof or the application thereof to any
person or circumstances shall ever be held by any court of competent
jurisdiction to be invalid or unconstitutional for any reason, the remainder of
this Participation Agreement and the application of such provisions or part
hereof to other persons or circumstances shall not be affected thereby.
 
g.           Effective Date. The effective date of this Participation Agreement
is the date the Initial Closing occurs.
 
h.           Dates for Performance. Should the date for the giving of any
notice, the performance of any act, or the beginning or end of any period
provided for in this Participation Agreement fall on a Saturday, Sunday or other
legal holiday, such date shall be extended to the next succeeding business day
which is not a Saturday, Sunday or legal holiday.
 
i.           Counterparts and Electronic Signatures. This Participation
Agreement may be executed in one or more counterparts, of each which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. In addition, if any party uses facsimile-transmitted signed
documents, or signed documents which have been electronically scanned and
transmitted by email, Escrow Agent, Escrow Holder and the other party are
authorized to rely upon such documents as if they bore original signatures.
 
[Signatures appear on the following page]
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement
to be executed as of the day and year first written above.
 
Seller:
SPT-LAKE ELSINORE HOLDING CO., LLC, a Delaware limited
liability company
       
By:
Shopoff Partners, L.P., a Delaware limited partnership, sole
member
         
By:
Shopoff General Partner, LLC, a Delaware
limited liability company, general partner
               
By:
Shopoff Properties Trust, Inc., a Maryland
corporation, manager
                   
By:
/s/ William A. Shopoff
         
William A. Shopoff,
         
President and CEO
           
Buyer:
D. R. HORTON LOS ANGELES HOLDING COMPANY, INC., a
California corporation                                                       
       
By:
/s/ Stephen Fitzpatrick
   
Stephen Fitzpatrick, Vice President

 
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SCHEDULE 1
 
Definition of “Gross Profit Margin”
 
IF:
         
A = Sales Revenue
 
Defined as the sum of the sales price of each residence pursuant to a sale to a
member of the home buying public as reflected on the Home Closing Statement for
such residence, including any premium for location, elevation, view or lot size,
but excluding prices for extras and options offered by Buyer in connection with
the sale of any residence, including special or upgraded amenities, floor plan
modifications, room options, appliance upgrades, cabinetry upgrades, countertop
upgrades, finish carpentry upgrades, electrical options, fireplace options and
all other options and upgrades, and minus sales incentives or concessions given
to the home buyer.
     
B = Land & Improvements
 
Defined as Purchase Price paid to Seller for the Property plus all escrow, title
and closing costs, costs of third parties in connection with due diligence
review of the Property, brokerage commissions and legal fees, incurred and paid
by Buyer in connection with the acquisition of title to the Property; additional
improvements by Buyer (see Schedule 1-B) including but not limited to, grading,
paving, curb, gutter and sidewalk, erosion control, landscaping, irrigation,
walls and fences, mailboxes, dirt hauling, and repairs to asphalt and concrete;
miscellaneous site specialties; soft costs including but not limited to civil,
soils, and structural engineering, architects, design professionals and other
consultants; meter deposits, mailboxes and pressure regulators, soils testing,
export of lot spoils, and lot re-certifications; any association fees; the costs
of non-recurring, capitalized indirect construction costs (which for the
purposes of this agreement shall be 1.50% of Sales Revenue); the costs of DRE
and HOA setup and administration (not including HOA dues); and permits and fees
paid by Buyer in connection with developing the Property, including plan check
and inspection fees, but excluding fees paid for obtaining building permits for
the residences.
     
C = Sticks and Bricks
 
Defined as hard construction cost items and fees paid at building permit (see
Schedule 1-A).
     
D = Other Costs
 
Defined as all costs paid by Buyer in connection with the close of escrow for
the sale of residences to members of the home-buying public, including, but not
limited to, closing costs, including normal escrow and title charges and
property taxes, documentary transfer tax, buyer referral fees, Homeowner
Association Fees, third party co-broker real estate commissions, and a warranty
expense accrual calculated at 1.0% of the sales price for detached product and
1.5% for attached product.

 
SCHEDULE 1
 

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E = Gross Profit =
 
A – (B + C + D)
     
GROSS PROFIT MARGIN =
  
E ÷ A

 
SCHEDULE 1
 
 
 

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SCHEDULE 1-A
 
Item
 
Building Permits
Temporary Power
Phase I Environmental
Area drains
Utility Connections
Lot Grade
Termite
Plumbing
Concrete Foundation
Concrete Flatwork
Windows
Fireplaces
Framing
Electric
Light Fixtures
Prewire Security
Heating & A/C
Sheet Metal
Gutters
Ornamental Iron
Stucco
Exterior Tiles
Roofing
Painting
Garage Doors
Insulation
Drywall
Finish Carpentry
Hardware
Cabinets
Ceramic Counter Tops
Marble Counter Tops
Shower Enclosure
Appliances
Flooring
Clean-Up
Grading
Utility Trenching
Fencing
Landscaping
Contingency
 
SCHEDULE 1-A
 
 
 

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SCHEDULE 1-B
 
Land Development Costs
 
DEVELOPMENT IMPROVEMENTS
Erosion Control
Grading
Storm Drain
Sewer
Water
Concrete
Paving
Utilities
Landscape and Irrigation
Walls
Misc. Specialties
Contingency

SITE FEES
Utility Fees
Development Fees
Water District Fees
Sewer District Fees
Bonds
School Fees

CONSULTANTS
Dry Utilities Engineer
Civil Engineer
Landscape Architect
Soils Engineer
Architect
Structural Engineer
Energy Consultant
Site Consultant

DEVELOPMENT IMPROVEMENTS
EROSION CONTROL
Sand Bags, Silt Fencing, Jute Mesh
Labor for storm clean-up of slopes and streets

GRADING
Rough Grade & Re-Grade
Spin Lots for House
Dirt Haul from Site
Labor and Equip. for Weed Control
 
SCHEDULE 1-B
 

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STORM DRAIN

SEWER

WATER

CONCRETE
Sidewalks & Approaches
Grading
Curb and Gutter
Repair of Same

PAVING
Pave Streets
Cap Streets
Parking Lot Grading
Repairs, Re-Seal

UTILITIES
Main & Laterals, Joint Trench, Street Lights

LANDSCAPE AND IRRIGATION
Slope Installation
Front yards & Street Trees
Water for Slopes
Landscape Maint. (common area & slopes)
Model Landscaping

WALLS/FENCING
Retaining Walls
Perimeter Walls
Property Line Walls (wood, wrought iron, concrete, etc.)
Model Trap Fence

MISC. SPECIALTIES
Mail Boxes
Street Signs
Street Sweeper
Water Truck
Electric Controllers & Temp. Power
Temporary Fences
Misc. Site Fees (Encroachment Permits, Variance)
Plans & Blueprints
Trailers
Toilets
Trash Bins
 
SCHEDULE 1-B
 

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CONTINGENCY

SITE FEES
UTILITY FEES
Gas, Electric, Telephone & Cable
DEVELOPMENT FEES
WATER DISTRICT FEES
SEWER DISTRICT FEES
BONDS

CONSULTANTS
DRY UTILITIES ENGINEER
CIVIL ENGINEER
LANDSCAPE ARCHITECT
SOILS ENGINEER
ARCHITECT
STRUCTURAL ENGINEER
ENERGY CONSULTANT
SITE CONSULTANT (independent inspector)
 
SCHEDULE 1-B
 
 
 

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