exv10w1



 





Exhibit 10.1




FOURTH AMENDMENT AND EXHIBIT ACKNOWLEDGEMENT TO MASTER

FORMATION AND CONTRIBUTION AGREEMENT




     This FOURTH AMENDMENT AND EXHIBIT ACKNOWLEDGEMENT TO MASTER FORMATION AND CONTRIBUTION
AGREEMENT (this “Amendment”), dated as of November 9, 2007, is entered into by and between, ARIZONA
LAND INCOME CORPORATION, an Arizona corporation (together with any successor by merger, “AZL”), and
POP VENTURE, LLC, a Delaware limited liability company (“POP”).



     A. The parties hereto have entered into that certain Master Formation and Contribution
Agreement, dated as of October 3, 2006, that certain Amendment and Exhibit Acknowledgement to
Master Formation and Contribution Agreement dated November 2, 2006, that certain Second Amendment
and Exhibit Acknowledgement to Master Formation and Contribution Agreement dated December 9, 2006
and that certain Third Amendment and Exhibit Acknowledgement to Master Formation and Contribution
Agreement dated March 27, 2007 (such agreement, as so amended, the “Master Agreement”).



     B. Capitalized terms used but not otherwise defined in this Amendment shall have the meanings
respectively ascribed to them in the Master Agreement.



     C. The parties hereto have agreed to certain changes in the composition of properties
contributed and consideration paid in the contemplated transactions and certain other material
changes.



     D. The parties hereto desire to amend and modify the Master Agreement in accordance with the
terms and subject to the conditions set forth in this Amendment. As amended and modified by this
Amendment, the Master Agreement may be referred to as the “Agreement.”



     NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:



     1. Amendment to Certain Terms in Section 2 of the Master Agreement. The following
terms contained in Section 2 of the Master Agreement are hereby deleted and replaced in their
entirety with the following, respectively:




““Contribution Agreements” shall mean all of the Contribution Agreements (each in a form
reasonably agreed among AZL, POP and the executing POP Members (if different than POP))
executed between AZL and POP, or the POP Members designated by POP, within thirty (30) days
after the execution of this Agreement, each as amended by the Master Amendment to
Contribution Agreements dated as of even date herewith; and each Contribution Agreement
shall relate to the particular POP Property that is owned, directly or indirectly, fully or
in part and whether in fee simple or through a ground lease, by the POP Affiliate in which
such POP Member(s) own membership interests. AZL shall be
an intended third party beneficiary to each Contribution Agreement.



 









 






“Contribution Agreement” shall mean any one (1) of the Contribution Agreements.




“Net Asset Value” shall mean, for each POP Property (or Contributed Interest, in the case
of any POP Property for which the Contributed Interests are less than one hundred percent
(100%) of the ownership interests in such POP Property), the amount equal to (a) the
difference between (i) Gross Asset Value minus (ii) the amount, including accrued and
unpaid interest, of the POP Properties Indebtedness encumbering such POP Property at
Closing, as adjusted by (b) the net adjustments for the closing costs that POP elects, at
its discretion pursuant to Section 23.4, not to settle in cash.




“POP Properties Indebtedness” shall mean, for any POP Property, either or both, as the case
may be, (a) the unpaid mortgage debt secured by such POP Property (it being understood,
however, that the collateral for such indebtedness may, depending on the POP Property in
question, be a lien encumbering fee simple title, a leasehold estate or an ownership
interest in a condominium) and (b) the unpaid mezzanine debt secured by a collateral
assignment of indirect ownership interests in such POP Property; provided that, in the case
of any POP Property for which the Contributed Interests are less than one hundred percent
(100%) of the ownership interests in such POP Property, such amount shall reflect only that
percentage of the indebtedness equal to the percentage ownership represented by such
Contributed Interests relating to such POP Property. By way of example, the POP Properties
Indebtedness would equal $10 million if the POP Property was encumbered with $100 million
of indebtedness and the interest of the POP Affiliate was ten percent (10%) of the
ownership interests in such POP Property.”




“Surviving Corporation Common Stock” shall mean the common stock of the Surviving
Corporation, which shall be listed on an Exchange.




“Title Insurance Company” shall mean First American Title Insurance Company or one or more
additional title insurance companies with national operations.”



     2. Amendment to Section 2 of the Master Agreement. Section 2 of the Master Agreement
is hereby amended by adding to the end of the current text therein:




““Aggregate Contribution Value” shall mean the sum of (a) the aggregate Net Asset Values
plus (b) the amount, if any, pursuant to Section 23.6 of Escrowed Loan Reserves plus (c)
the Capital Investment Value.




“Capital Investment” shall mean any costs or expenses incurred or funded in connection with
or relating to the leasing (including but not limited to the costs and expenses described
in Schedule 2D to the Master Agreement) or improvement of, in or on any portion of a POP
Property where the cost or expense
so incurred or funded is required or permitted in accordance with GAAP to be capitalized
and to be depreciated or amortized over its useful life.



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“Capital Investment Value” shall mean the aggregate of all Capital Investments incurred or
funded by, or on behalf of, the owner of a given POP Property from October 1, 2007 through
the Closing Date in connection with any Capital Investments at that POP Property.




“Exchange” shall mean any national securities exchange or any inter-dealer quotation system
of a registered national securities association within the meaning of the Exchange Act.




“GAAP” shall mean generally accepted accounting principles in the United States of America.




“Net Capital Investment Amount” shall mean the positive difference, if any, between (i)
the Aggregate Contribution Value minus (ii) $163,510,000. For the avoidance of doubt, the
difference shall be deemed to be zero if the difference between the Aggregate Contribution
Value minus $163,510,000 is a negative number.




“Second Special Dividend” shall mean a dividend with respect to AZL Common Stock in an
amount per share to be determined by AZL, in connection with, and subject to the approval
of POP, which amount shall not be less than the minimum amount necessary to enable AZL to
satisfy the requirements of Sections 857 and 4981 of the Code, and which dividend shall, to
the extent possible, constitute a “capital gain dividend” within the meaning of Section
857(b)(3)(C) of the Code.”



     3. Amendment to Section 4.3 of the Master Agreement. Section 4.3 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




“4.3 Agreed Value. AZL and POP have agreed that the aggregate Gross Asset Values,
including the value attributable to the Contributed Assets, is $562,955,000.”



     4. Amendment to Section 4.4 of the Master Agreement. Section 4.4 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




“4.4 Aggregate Consideration. As consideration for the contribution of the
Contributed Interests and the Contributed Assets to the UPREIT, POP shall receive, or
direct the issuance, in the aggregate, of the following:




	 	(x)	 	Common Units having a value equal to twenty five percent (25%), and Preferred
Units equal to seventy-five percent (75%), of an amount equal to the difference of (A)
the Aggregate Contribution Value minus (B) $12,000,000 minus (C) the Net Capital
Investment Amount, if any
	 
	 	(y)	 	a promissory note of the UPREIT (the “Principal Note”) in the principal
amount of $12,000,000 with the other material terms as set forth on Exhibit H
attached hereto and





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	 	(z)	 	if the Net Capital Investment Amount exceeds zero, promissory notes of the
UPREIT (the “Investment Notes”) in an aggregate principal amount equal to the Net
Capital Investment Amount and with the other material terms as set forth on
Exhibit H attached hereto.






The Investment Notes shall be in individual principal amounts and shall be allocated in
proportion to the Capital Investment Value for any POP Property relative to the aggregate
Capital Investment Values. For the purposes of this Section, Common Units shall have a per
unit value equal to the Adjusted Per Share Value. For the purposes of this Section,
Preferred Units shall have a per unit value of $25.00.”



     5. Deletion of Section 4.5 of the Master Agreement. Section 4.5 of the Master
Agreement is hereby deleted in its entirety.



     6. Amendment to Section 4.6 of the Master Agreement. Section 4.6 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




“4.6 General Partner’s Contribution. Pursuant to the terms of this Agreement, at
Closing, AZL shall contribute to the UPREIT all of its assets as of the Closing Date
(including any AZL Assets that have not been sold prior to the Closing Date) except for any
cash reserved for the payment of the Second Special Dividend or any accrued liabilities of
AZL. In consideration for such contribution, AZL shall acquire a general partner interest
in the UPREIT and become the sole general partner of the UPREIT and shall be deemed to have
made a contribution to the UPREIT in an amount equal to the book value of the assets so
contributed. Thereafter, AZL shall have the rights, duties, privileges and obligations as
the holder of the general partner interest and as the general partner of the UPREIT and be
subject to the terms and conditions of the UPREIT Certificate and the UPREIT Agreement.
AZL’s general partner interest at any particular time shall be equal to the quotient
obtained by dividing (i) the total number of shares of Surviving Corporation Common Stock
and Surviving Corporation Class B Common Stock outstanding as of such time, by (ii) the sum
of (A) the total number of shares of Surviving Corporation Common Stock and Surviving
Corporation Class B Common Stock outstanding as of such time, plus (B) the total number of
shares of Surviving Corporation Common Stock into which Common Units outstanding as of such
time are exchangeable.”



     7. Amendment to Section 6.1 of the Master Agreement. Section 6.1 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




          “6.1 Sale of Assets. AZL shall not sell any of its assets (“AZL Assets”) on
or before the Closing Date without the prior consent of POP.”



     8. Amendment to Section 6.3 of the Master Agreement. Section 6.3 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:



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          “6.3 Declaration of Special Dividend and Second Special Dividend.




	 	(a)	 	AZL, acting through its Board of Directors, shall, on December 1, 2006,
declare the Special Dividend of $1.00 per share in favor of and for the benefit of its
shareholders of record as of January 5, 2007, which Special Dividend shall (i) be paid
on January 26, 2007, (ii) constitute, to the extent possible, a “capital gain
dividend” within the meaning of Section 857(b)(3)(C) of the Code and (iii) be formally
designated in accordance with such section of the Code as being applicable to and
shall be first applied to entirely offset AZL’s net capital gain and other taxable
income (if any) arising from the Mortgage Prepayment and other taxable income for the
fiscal year ended December 31, 2006.






	 	(b)	 	AZL, acting through its Board of Directors, shall, on December 3, 2007,
declare the Second Special Dividend in favor of and for the benefit of its
shareholders of record as of December 28, 2007, which the Second Special Dividend
shall (i) be paid on January 15, 2008, (ii) constitute, to the extent possible, a
“capital gain dividend” within the meaning of Section 857(b)(3)(C) of the Code and
(iii) be formally designated in accordance with such section of the Code as being
applicable to and shall be first applied to entirely offset AZL’s net capital gain and
other taxable income (if any) for the fiscal year ended December 31, 2007.”





     9. Amendment to Section 6.4 of the Master Agreement. Section 6.4 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




          “6.4 Restrictions on Dividends. From and after the date hereof through the
Closing Date, other than the Special Dividend and the Second Special Dividend, AZL shall
not make, declare, pay or set aside for payment any dividend payable in cash, stock or
property on or in respect of, or declare or make any distribution on, any shares of its
capital stock, or directly or indirectly adjust, split, combine, reclassify, redeem,
purchase or otherwise acquire any shares of its capital stock.”



     10. Amendment to Section 9.1 of the Master Agreement. Section 9.1 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




          “9.1 Subscription. At the Closing, AZL shall sell to individual(s) or
entity(ies) designated by POP Common Units and Surviving Corporation
Common Stock, as elected by such individual(s) or entity(ies), for an aggregate
purchase price of $5,000,000 and a price per Common Unit or share of Surviving Corporation
Common Stock equal to $5.00; subject to adjustment in the event of the Reverse Stock Split
or any other change in the capitalization of AZL or the Surviving Corporation. The
purchase price shall be payable in immediately available funds at Closing.”



     11. Amendment to Section 9 of the Master Agreement. Section 9 of the Master Agreement
is hereby amended by adding to the end of the current subsections therein:



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          “9.3 Subscription. At the Closing, AZL shall sell to individual(s) or
entity(ies) designated by POP Surviving Corporation Common Stock for an aggregate purchase
price of $1,350,000 and a price per share of Surviving Corporation Common Stock equal to
$7.50; subject to adjustment in the event of the Reverse Stock Split or any other change in
the capitalization of AZL or the Surviving Corporation. The purchase price shall be
payable in immediately available funds at Closing.”



     12. Amendment to Section 12.3 of the Master Agreement. Section 12.3 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




          “12.3 Listing Application. POP shall use its commercially reasonable efforts
to cause the shares of Surviving Corporation Common Stock to be listed for trading on an
Exchange.”



     13. Amendment to Section 14.9 of the Master Agreement. Section 14.9 of the Master
Agreement is hereby deleted and replaced in its entirety with the following: 




          “14.9 Listing Application. AZL shall use its commercially reasonable efforts
to cause the shares of Surviving Corporation Common Stock to be listed for trading on an
Exchange.”



     14. Amendment to Section 18.4 of the Master Agreement. Section 18.4 of the Master
Agreement is hereby deleted and replaced in its entirety with the following: 




          “18.4 Exchange Listing. The Surviving Corporation Common Stock shall have
been approved for listing on an Exchange subject only to consummation of the
Reincorporation.”



     15. Amendment to Section 21(h) of the Master Agreement. Section 21(h) of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




“An option (a) granted by POP (and all affiliates of POP, which shall be referred
to as POP for the purposes of this Section 21(h)) and (b) exercisable by the UPREIT
to cause POP to contribute to the UPREIT those parcels of real property (i)
identified as of the Closing as being the subject matter of a prospective or
completed acquisition by POP and (ii) as to which the closing of such acquisition
shall have been completed prior to
or after the Closing, but not later than June 30, 2008 (collectively, the “Option
Properties”). The foregoing option granted by POP to the UPREIT shall provide the
UPREIT with the right to acquire the Option Properties by the payment to POP of an
“Option Properties Contribution Value” equal to the net investment incurred by POP
in the acquisition and, if applicable, the financing, joint venturing and sale of
the Option Properties in question, inclusive of all transaction fees, costs and
expenses and associated tax liabilities incurred by POP allocable to the Option
Properties. The Option Properties Contribution Value shall be paid to POP, at the
option of the UPREIT, in cash or Common Units or shares of AZL



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Common Stock (such
Common Units or Common Stock being each valued at an amount equal to the average
closing price per share of AZL Common Stock reported in the consolidated
transaction reporting system during the ninety (90) trading days immediately
preceding the applicable exercise of the option by the UPREIT). The remaining
terms of the contribution of any Option Property shall be substantially as set
forth in the Contribution Agreements, except that the UPREIT shall have thirty (30)
days following the exercise of its option with respect to any Option Property to
conduct a due diligence investigation and to terminate such agreement and option
without damages if the results of such due diligence investigation are not
satisfactory to the UPREIT in its sole discretion.




          The exercise by the UPREIT of its option as to any given Option Property
tendered by POP shall be made within a period of thirty (30) days following such
tender, and such tender shall be made by POP within thirty (30) days after the
later of (i) the date on which POP acquires the subject Option Property or (ii) the
Closing Date. In addition, prior to tendering any Option Property to the UPREIT,
POP shall be entitled to finance the Option Property with secured mortgage debt,
“sell-down” its equity position in the Option Property by forming a joint venture
with a financial partner, and/or sell or otherwise completely dispose of properties
acquired with Option Properties as a part of a portfolio acquisition (“Divested
Properties”). POP shall be entitled to tender its then existing equity ownership
interest in the Option Properties to the UPREIT subject to such mortgage financing
and/or such joint venture relationship and to tender Option Properties portfolios
to the UPREIT which have been diminished by the divestiture of Divested Properties.
Any net profit realized by POP on a cash basis in connection with an equity
sell-down of an Option Property or the sale of a Divested Property shall be
transferred to the UPREIT, in the form of a reduction of the contribution price.
Notwithstanding anything set forth above to the contrary, any exercise of the
option by the UPREIT shall require that the consummation of its acquisition of the
subject Option Property take place not later than sixty (60) days following such
exercise, unless and to the extent consummation is delayed through no fault of the
UPREIT. Notwithstanding anything herein contained or implied, any Option Property
that becomes subject to the option granted hereunder by virtue of having been
identified as of the Closing as a transaction in
process, but which has not actually been acquired by POP on or prior to June
30, 2008, shall, as of the close of business on June 30, 2008, cease to be subject
to the option described herein.”



     16. Amendment to Section 22 of the Master Agreement. Section 22 of the Master
Agreement is hereby amended by adding to the end of the current text therein:




	 	(l)	 	The Principal Note, executed by the UPREIT.
	 
	 	(m)	 	The Investment Notes, each executed by the UPREIT.




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	 	(n)	 	Options granted by AZL to individual(s) or
entity(ies) designated by POP, which shall be exercisable for a period
of three months following the Closing, to acquire up to 500,000 shares
of Surviving Corporation Common Stock in the aggregate at a price per
share of Surviving Corporation Common Stock equal to $7.50; subject to
adjustment in the event of the Reverse Stock Split or any other change
in the capitalization of AZL or the Surviving Corporation.





     17. Amendment of Section 23.6 of the Master Agreement. Section 23.6 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




          “23.6 The POP Members shall not be reimbursed for the balances remaining, as
of the Closing Date, in any escrows that exist, as of October 1, 2007, and are
maintained pursuant to the requirements of the POP Properties Indebtedness
(“Escrowed Loan Reserves”), and any Escrowed Loan Reserves shall be added to the
aggregate Net Asset Values; provided that the sum of Escrowed Loan Reserves and
Net Asset Values shall not exceed $163,510,000 in the aggregate and shall
otherwise be treated as Contributed Assets; provided further that, in the case of
any POP Property for which the Contributed Interests are less than one hundred
percent (100%) of the ownership interests in such POP Property, such amount shall
reflect only that percentage of the Escrowed Loan Reserves equal to the percentage
ownership represented by such Contributed Interests relating to such POP Property.
The Escrowed Loan Reserves are estimated by POP, to its knowledge, to have been
approximately $5,290,000 at September 30, 2007 in the aggregate for the eight
Contributed Properties the ownership interests in which are 100% owned by the POP
Members as of the date hereof.”




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     18. Amendment to Section 25 of the Master Agreement. Section 25 of the Master
Agreement is hereby deleted and replaced in its entirety with the following:




     “25. NOTICES. All notices and other communications under this
Agreement shall be addressed as follows, shall be sent by a reputable national
overnight delivery service, given in person or sent by facsimile and shall be
deemed given one (1) business day after delivery and acceptance by such reputable
national overnight delivery service and be deemed given upon receipt if (b) given
in person; or (c) sent by facsimile for which the transmitting facsimile machine
generates evidence of complete transmission in each case addressed as follows:



     If to AZL:


Arizona Land Income Corporation

2999 N. 44th Street

Suite 100

Phoenix, Arizona 85018

Attention: Mr. Thomas Hislop

Facsimile: (602) 952-0924



with a copy to:



Squire, Sanders & Dempsey LLP

40 N. Central Avenue

Suite 2700

Phoenix, Arizona 85004

Attention: Joseph Richardson, Esq.

Facsimile: (602) 253-8129




     If to POP:


POP Venture, LLC

c/o The Shidler Group

841 Bishop Street

Suite 1700

Honolulu, Hawaii 96813

Attention: Mr. Jay H. Shidler

Facsimile: (808) 533-4700



and



POP Venture, LLC

c/o The Shidler Group

9 West 57th Street

Suite 1670

New York, New York 10019

Attention: Mr. Robert Denton

Facsimile: (212) 688-3473




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with a copy to:



Barack Ferrazzano Kirschbaum

     & Nagelberg LLP

200 West Madison Street

Suite 3900

Chicago, Illinois 60606

Attention: Howard A. Nagelberg, Esq.

Facsimile: (312) 984-3150




     19. Amendments to Schedules 2A and 2B of the Master Agreement. Schedule 2A of the
Master Agreement is hereby amended to delete “POP / USB Partners, LLC, a Delaware LLC” from such
schedule. Schedule 2B of the Master Agreement is hereby amended to delete “U.S. Bank Center, 101
North First Avenue, Phoenix, Arizona 85003” from such schedule.



     20. Amendments to Exhibits and Schedules of the Master Agreement. The Exhibits and
Schedules of the Master Agreement are hereby amended to add Exhibit H of this Amendment as Exhibit
H of the Master Agreement and to add Schedule 2D of this Amendment as Schedule 2D of the Master
Agreement.



     21. Omnibus Amendment to Contribution Agreements. Each of the Contribution Agreements
is hereby amended, without the need for any further action by any party, to conform such agreements
to the provisions of this Agreement.



     22. Additional Terms.




     (i) The Agreement. All references in the Master Agreement to the term “Agreement”
shall be deemed to refer to the Agreement referenced in this Amendment.




     (ii) Amendment and the Master Agreement to be Read Together. This Amendment
supplements and is hereby made a part of the Master Agreement, and the Master Agreement and this
Amendment shall from and after the date hereof be read together and shall constitute the Agreement.
Except as otherwise set forth herein, the Master Agreement shall remain in full force and effect.




     (iii) Counterparts. This Amendment may be executed by facsimile and in one or more
counterparts, each of which shall be deemed an original and all of which taken together shall
constitute one and the same document.



*****




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     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date set forth
above.



	 	 	 	 	 
	 	POP VENTURE, LLC, a Delaware limited liability company

 	 
	 	By:  	POP FUNDING, its managing member
 	 
	 	 	 
	 	By:  	       JHS MANAGER, LLC, its manager
 	 
	 	 	 
	 	By:  	       /s/ Jay H. Shidler
 	 
	 	 	Jay H. Shidler 	 
	 	 	Sole Member 	 
	 
	 
	 	ARIZONA LAND INCOME CORPORATION,

an Arizona corporation

 	 
	 	By:  	/s/ Thomas R. Hislop
 	 
	 	 	Name:  	Thomas R. Hislop 	 
	 	 	Title:  	Chairman of the Board, Chief Executive Officer
and Chief Financial Officer 	 



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Exhibit H




Material Terms of the Principal Note





	1.	 	interest of 7% per annum;
	 
	2.	 	quarterly payments of interest;
	 
	3.	 	UPREIT right to accrue any interest payment;
	 
	4.	 	five year maturity;
	 
	5.	 	UPREIT right to extend maturity for one additional year;
	 
	6.	 	maturity accelerates upon the consummation of a public offering of Surviving Corporation
Common Stock in an amount equal to or greater than $75,000,000;
	 
	7.	 	unsecured, full recourse;
	 
	8.	 	negotiable; and
	 
	9.	 	prepayable at any time without a prepayment fee.




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Schedule 2D




Identified Capital Investment



All costs, expenses and reserves associated with the termination of the lease relating to the
Wallace Theater located at Waterfront Plaza.





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