DRS/A

CONFIDENTIAL TREATMENT REQUESTED

As submitted confidentially to the Securities and Exchange Commission on May 24, 2013 (Amendment No. 1)

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

The New Home Company LLC

(to be converted into The New Home Company Inc.)

(Exact name of registrant as specified in its charter)

Delaware	1531	27-0560089
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

95 Enterprise, Suite 325

Aliso Viejo, California 92656

(949) 382-7800

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

H. Lawrence Webb

Chief Executive Officer

The New Home Company LLC

95 Enterprise, Suite 325

Aliso Viejo, California 92656

(949) 382-7800

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Edward F. Petrosky, Esq. J. Gerard Cummins, Esq. Sidley Austin LLP 787 Seventh Avenue New York, New York 10019 Tel (212) 839-5300 Fax (212) 839-5599 Casey T. Fleck, Esq. Julian Kleindorfer, Esq. Latham & Watkins LLP 355 South Grand Avenue Los Angeles, California 90071 Tel (213) 485-1234 Fax (213) 891-8763

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

CALCULATION OF REGISTRATION FEE

Title of each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee(1)
Common Stock, $0.01 par value per share	$	$

(1) Estimated solely for purposes of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2) Includes shares of common stock that may be purchased by the underwriters pursuant to their option to purchase additional shares of common stock.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

SUBJECT TO COMPLETION, DATED             , 2013

The information in this preliminary prospectus is not complete and may be changed. Neither we, nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

Shares

The New Home Company Inc.

Common Stock

$             per share

This is the initial public offering of our common stock. We are selling             shares of our common stock. We currently expect the initial public offering price to be between $             and $             per share of our common stock.

Our non-management institutional investors have granted the underwriters an option to purchase up to                  additional shares of our common stock at the same price per share as the shares sold in this offering. We will not receive any proceeds from the shares sold pursuant to the exercise, if any, of such option.

We intend to apply to list the shares of our common stock on the New York Stock Exchange under the symbol “NWHM.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 24.

We are an “emerging growth company” under the federal securities laws and are eligible for certain reduced reporting requirements. See “Summary—Implications of Being an Emerging Growth Company.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds to us (before expenses)	$	$

The selling stockholders will receive proceeds from this offering only if the underwriters’ option to purchase additional shares is exercised. If such option is exercised in full, the total proceeds to the selling stockholders will be $             in the aggregate.

The underwriters expect to deliver the shares to purchasers on or about             , 2013 through the book-entry facilities of The Depository Trust Company.

Citigroup		J.P. Morgan
	Zelman Partners LLC

                    , 2013

We are responsible for the information contained in this prospectus and any free writing prospectus that we authorize for use in connection with this offering. You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize for use in connection with this offering. Neither we nor the underwriters have authorized anyone to provide you with different or additional information. Neither we nor the underwriters take any responsibility for, or can provide any assurance as to the reliability of, any other information others may give you. We and the underwriters are not offering to sell, or seeking offers to buy, these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus or any free writing prospectus that we authorize for use in connection with this offering is accurate as of any date other than its date. Our business, financial condition, results of operations and prospects may have changed since that date.

TABLE OF CONTENTS

	Page
Summary		1
Risk Factors		24
Cautionary Note Concerning Forward-Looking Statements		49
Use of Proceeds		50
Capitalization		51
Dilution		53
Dividend Policy		55
Selected Financial Data		56
Management’s Discussion and Analysis of Financial Conditions and Results of Operation		59
Market Opportunity		95
Our Business		134
Management		161
Executive and Director Compensation		168
Certain Relationships and Related Party Transactions		174
Principal and Selling Stockholders		176
Description of Capital Stock		179
Shares Eligible For Future Sale		183
Certain Material Federal Income Tax Considerations		186
Underwriting		191
Legal Matters		197
Experts		197
Where You Can Find More Information		197
Index to Consolidated Financial Statements		F-1

We use market data and industry forecasts and projections throughout this prospectus, and in particular in the sections entitled “Summary,” “Market Opportunity” and “Our Business.” We have obtained substantially all of this information from a market study prepared for us in connection with this offering by John Burns Real Estate Consulting, LLC or JBREC, an independent research provider and consulting firm. We have paid JBREC a fee of $41,000 for that market study, plus an amount charged at an hourly rate for additional information we may require from JBREC from time to time in connection with that market study. Such information is included in this prospectus in reliance on JBREC’s authority as an expert on such matters. Any forecasts prepared by JBREC are based on data (including third-party data), models and experience of various professionals, and are based on various assumptions (including the completeness and accuracy of third-party data), all of which are subject to change without notice. See “Experts.” In addition, certain market and industry data has been taken from publicly available industry publications. These sources generally state that the information they provide has

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been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. We have not independently verified the data obtained from these sources, and we cannot assure you of the accuracy or completeness of the data. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

Note Regarding Ownership of Shares Reflected in this Prospectus

As part of our formation transactions, the members of The New Home Company LLC (the entity that will be converted into a Delaware corporation and renamed The New Home Company Inc. as part of our formation transactions, which we refer to as TNHC LLC), will receive an aggregate of             shares of our common stock in connection with the exchange of their membership interests in TNHC LLC. The members of TNHC LLC consist of (i) an entity owned by our executive management team and (ii) three other non-management institutional investors. In accordance with the TNHC LLC operating agreement, the allocation of shares of our common stock to be received by the respective members of TNHC LLC as part of our formation transaction depends upon the initial public offering price per share of our common stock in this offering. The allocation of shares among the members of TNHC LLC reflected in this prospectus is for illustrative purposes and is based upon the midpoint of the price range set forth on the cover page of this prospectus. The actual allocation of shares among the members of TNHC LLC will be based upon the actual initial public offering price. Such allocation will not change the aggregate number of shares of common stock received by members of TNHC LLC as part of our formation transactions and only effects how many shares are allocated to each respective member. For a more detailed discussion regarding the shares of our common stock that will be received by the members of TNHC LLC, see “Principal and Selling Stockholders.”

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SUMMARY

This summary highlights information contained elsewhere in this prospectus, but it does not contain all of the information that you may consider important in making your investment decision. Therefore, you should read this entire prospectus carefully, including, in particular, the “Risk Factors” section beginning on page 24 of this prospectus. As used in this prospectus, unless the context otherwise requires or indicates, references to “the Company,” “our company,” “we,” “our” and “us” (1) for periods prior to the completion of our formation transactions, refer to The New Home Company LLC and its subsidiaries and affiliates, which we sometimes refer to as “TNHC LLC,” and (2) following the completion of our formation transactions, refer to The New Home Company Inc. and its subsidiaries.

Unless otherwise indicated, market data is derived from a market study prepared for us in connection with this offering by John Burns Real Estate Consulting, LLC or JBREC.

Unless the context otherwise requires, the information in this prospectus assumes that: (1) our formation transactions have been completed, (2) the shares of our common stock to be sold in this offering are sold at $          per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and (3) the underwriters’ option to purchase additional shares is not exercised.

Our Company

We are a new generation homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California, including coastal Southern California, the San Francisco Bay area and metro Sacramento. We also seek to create unique communities via our significant land development expertise, either stand-alone or within master-planned communities developed by third parties. As a new generation homebuilder, we are driven by:

• understanding our target homebuyer customers through extensive research and analytical methods;

• personalizing new home designs to fit our target homebuyers’ unique lifestyle needs;

• a tailored, contemporary and technology-enhanced approach to marketing our new homes;

• enhancing the homebuyer experience through high-touch customer service and care;

• selecting attractive investment opportunities, without burdensome legacy issues, that we believe are well-positioned to be developed in a manner that enhances the value of such opportunities; and

• hand-selecting talented employees that share our culture of continuous personal and professional innovation and development.

We were founded in August 2009, towards the end of an unprecedented downturn in the U.S. homebuilding industry, with a combined initial capital commitment of $10 million by our founders, who are also our four most senior executives. Our founders, Larry Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer, and Tom Redwitz, our Chief Operating Officer, have extensive and complementary construction, design, marketing, development and entitlement expertise as well as strong relationships with key land sellers within each of our local markets and have worked together for up to 25 years. Additionally, Messrs. Webb and Stelmar served in similar capacities together at John Laing Homes and oversaw the growth of that business, beginning with the merger of Watt Residential Partners with John Laing Homes in 1998, the leveraged buyout of John Laing Homes in 2001 for $190 million and, finally, orchestrating its timely sale in 2006 for $1.05 billion.

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Commencing with the $20 million capital commitment by IHP Capital Partners, or IHP, and Watt Residential LLC, or Watt, in August 2010, and the subsequent $10 million capital commitment by Tricon Capital Group, Inc., or Tricon, in January 2011, we began to rapidly deploy capital to acquire land and build homes on larger infill sites within established communities, where we could leverage the experience of our management team in land planning and development. In an effort to sustain a steep growth trajectory while retaining ownership control and generating attractive risk-adjusted returns for all stakeholders, we have employed a joint venture strategy, in which we contribute a minority share of the capital and receive distributions in excess of our percentage capital interest plus management fees. Our joint venture strategy has been instrumental in allowing us to leverage our entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets, such as Orange and Los Angeles counties in Southern California and Santa Clara, San Mateo, Marin and Yolo counties in Northern California. We intend to continue to use joint venture partnerships to access unique market opportunities, including land development opportunities. We intend to invest the proceeds of this offering primarily to accelerate the contribution from wholly owned projects for our own account.

We employ a local market, consumer-driven approach to designing differentiated homes that meet the unique lifestyle needs of homebuyers across a variety of demographics. Our deeply analytical approach to market research and construction expertise across an extensive product offering allow us the flexibility to pursue a wide array of land acquisition opportunities and appeal to a broad range of potential homebuyers, including entry-level, move-up, move-down and luxury-focused customers. The homes that we and our unconsolidated joint ventures are building range in price from approximately $280,000 to $2.2 million, with home sizes ranging from approximately 800 to 4,600 square feet. Customer-focused community creation and product development, as well as exemplary customer service, are key components of the lifestyle connection we seek to establish with each homebuyer.

Additionally, we strive to enhance the home-buying experience and buyers’ personal investment in their homes through actively engaging them in the selection of design options and upgrades. Our on-site design studios offer state-of-the-art amenities and a wide variety of structural and design options, allowing buyers to personalize any of our home types to meet their unique needs. We believe our design studios are a key source of competitive differentiation and contribute to greater profitability through the sale of higher margin options. In 2012 our cancellation rate was 10%, including unconsolidated joint ventures, which was below the average of approximately 18.5% for public homebuilders. In February 2013, we were awarded the Eliant Homebuyers’ Choice Award for Best Overall Customer Experience, Best Design Selection Experience and Best Construction Experience among mid-size builders. Our commitment to customer satisfaction is a key element of our company culture, which we believe fosters an environment where our team members can innovate. We believe our reputation for high quality, differentiated architecture and design as well as high customer satisfaction and company culture enhances our overall financial performance and generates increased customer loyalty. However, we face significant competition in our markets.

In addition to our award-winning home designs and customer service, an important element of our business strategy is leveraging our substantial land entitlement and development expertise to add value to the land we acquire. Collectively, our senior executive team as well as our deep bench of managerial talent have decades of experience acquiring land, creating masterplans, obtaining entitlements and completing projects on budget and on schedule. However, despite our management team’s experience, we were formed in 2009 and have a limited operating history. To increase returns and manage risks associated with larger projects, from time to time, we may seek to sell land at various stages of development to other homebuilders. We believe we have established a reputation as both successful land developers and high-quality homebuilders, and will continue to focus on optimal capital allocation and balance between these activities throughout the lives of our projects.

As of March 31, 2013, our homebuilding operations consisted of nine communities, three of which are actively selling, containing 377 lots under various stages of development. In addition, our unconsolidated joint venture homebuilding projects consisted of 13 communities, three of which are actively selling, containing 743

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lots, as described below, in Southern California, the San Francisco Bay area and metro Sacramento. Additionally, as of March 31, 2013, we operated five communities, three of which are actively selling, containing 189 lots under fee building projects in Southern California.

Lots and Communities as of March 31, 2013

	Total				Actively Selling
	Lots		Communities		Lots		Communities
Company		377		9		85		3
Unconsolidated Joint Ventures		743		13		104		3
Fee Building		189		5		171		3

Since August 2009, we have delivered 122 homes at Company projects, 65 homes through our unconsolidated joint ventures and 191 homes through our fee building projects. Our management team has long-standing relationships with leading masterplan community developers in each of our core markets and, through these relationships, we are generally invited to participate in new lot offerings. Home sales revenues from our and our unconsolidated joint venture activities were $25.6 million and $0, respectively, in 2011, $24.2 million and $56.0 million, respectively, in 2012, and $4.7 million and $30.8 million, respectively, for the quarter ended March 31, 2013, and our business mix has shifted away from fee building to projects in which we have a significant financial interest (either directly or in unconsolidated joint ventures). As of March 31, 2013, we owned or controlled 639 lots and our unconsolidated joint ventures owned or controlled 3,091 lots. We owned 377 lots and controlled 262 lots, our unconsolidated joint ventures owned 743 lots and controlled 2,348 lots, of which 32 lots were under non-binding letters of intent. In addition, at such date we had 189 additional lots under fee building contracts. Cumulatively, these lots represent supply to support our current growth plan over the next several years. We and our unconsolidated joint ventures currently own or control 100% of the lots needed for projected closings through 2015.

For the three months ended March 31, 2013 we had net income of $306,432, and for the years ended December 31, 2012 and 2011, we experienced net losses of $876,875 and $1.9 million, respectively.

In Southern California, we owned or controlled 326 lots as of March 31, 2013, and our unconsolidated joint ventures owned or controlled 618 lots. In addition, we controlled five fee building projects that contain a total of 189 homes remaining to be built in Irvine and Dana Point (Orange County) and Carlsbad (San Diego County).

In the San Francisco Bay area, we owned and controlled 106 lots as of March 31, 2013, and our unconsolidated joint ventures owned or controlled 728 lots. The lots owned by unconsolidated joint ventures consist of 85 lots in Larkspur (Marin County) and 239 lots in San Jose (Santa Clara County) intended for homebuilding activity. The lots controlled by unconsolidated joint ventures consist of 404 lots in Foster City (San Mateo County). Of these, approximately 200 lots are intended for homebuilding activity.

In metro Sacramento, we owned or controlled 207 lots located in established market areas in El Dorado, Placer and Sacramento counties. We expect to acquire and develop 513 lots in Davis (Yolo county), 870 lots in Russell Ranch (Sacramento County) and 330 lots in McKinley Village (Sacramento County) through unconsolidated joint ventures. We are in the process of creating a masterplan containing eight communities in Davis, under which we may acquire lots from the unconsolidated joint venture and build homes for our own account in addition to selling lots to other homebuilders. We expect to create a masterplan containing 12 communities in the Folsom community, under which we may acquire lots and build homes for our own account in addition to selling lots to other homebuilders. We anticipate that the Sacramento community will contain 330 homes in four product types.

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Owned and Controlled Lots as of March 31, 2013

	Company				Unconsolidated Joint Ventures
	Owned		Controlled		Owned		Controlled
Southern California		170		156		419		199
San Francisco Bay Area		—		106		324		404
Metro Sacramento		207		0		—		1,745
Total		377		262		743		2,348

Net new home orders for our projects for the quarter ended March 31, 2013 and the years ended December 31, 2012 and 2011 were 17 homes, 72 homes and 45 homes, respectively. Net new home orders for our unconsolidated joint venture projects for the quarter ended March 31, 2013 and the year ended December 31, 2012 were 28 homes and 96 homes, respectively. For the quarter ended March 31, 2013 and the year ended December 31, 2012, we delivered 12 homes and 53 homes, respectively, from our projects and 23 homes and 42 homes, respectively, from our unconsolidated joint venture projects. The dollar amount of our backlog of homes sold but not closed for our projects as of March 31, 2013 was approximately $13.7 million. The dollar amount of the backlog of homes sold but not closed for our unconsolidated joint venture projects as of March 31, 2013 was approximately $83.4 million.

Industry Overview

The following information is contained in the market study provided by JBREC:

National Housing Market

The U.S. housing market continues to improve from the cyclical low points reached during the 2008 to 2009 national recession. Between the 2005 market peak and 2011, new single-family housing sales declined 76%, according to data compiled by the U.S. Census Bureau, and median home prices declined 34%, as measured by the S&P Case-Shiller Index. In 2011, early signs of a recovery began to materialize in many markets around the country as a result of an improving macroeconomic backdrop and favorable housing affordability. In 2012, homebuilding permits increased 29% and the annual median single-family existing home price increased 6.6% year-over-year since 2011. Growth in new home sales has outpaced growth in existing home sales over the same period, increasing 20% versus 9% for existing homes, which rose, in part, due to foreclosure-related sales.

Historically, strong housing markets have been associated with very favorable affordability, a healthy domestic economy, positive demographic trends, such as population growth and household formation, falling mortgage rates, increases in renters that qualify as homebuyers and locally based dynamics such as housing demand relative to housing supply. Many markets across the United States are exhibiting most of these positive characteristics. Relative to long-term historical averages, the U.S. economy has recently created more jobs than homebuilding permits issued, the inventory of resale and new unsold homes is below average, and affordability is near its best level in more than 30 years, as measured by the ratio of homeownership costs to household income.

Despite recent momentum, the U.S. housing market has not fully recovered from the 2008 to 2009 recession, as consumer confidence remains below average levels, mortgage underwriting standards have tightened, and the number of delinquent homes remains elevated relative to historical averages. Additionally, real estate is a local industry and not all markets exhibit the same trends.

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Selected Housing Markets

The following table provides a summary of actual economic data and estimates, forecasts and projections for our current and expected markets as of March 2013, the date as of which the most recent data is available.

				2012 Data
Market	Forecasted 2013 Home Value Appreciation(1)			Job Growth		Permits		Job Growth / Permit Ratio		Months of Resale  Supply(2)
Orange County		12.2	%		31,600		6,109		5.2		2.1
San Diego		11.3	%		25,400		5,687		4.5		2.5
Ventura		9.7	%		4,000		526		7.6		2.6
Los Angeles		9.0	%		67,200		11,295		5.9		2.8
San Francisco		12.9	%		38,100		4,429		8.6		2.0
San Jose		13.3	%		28,800		5,661		5.1		1.4
Sacramento		12.7	%		13,900		3,420		4.1		0.9
Phoenix		18.0	%		41,500		15,882		2.6		2.2

⁽¹⁾  This information is contained in the market study provided to us by JBREC and is based upon various assumptions and forward-looking estimates. Actual results may differ materially from this forecast.

⁽²⁾  Estimated months of supply as of December 31, 2012.

Our Competitive Strengths

We believe the following strengths will provide us with a significant competitive advantage in implementing our business strategy:

Experienced and Proven Leadership Supported by a Talented Senior Management Team

Our founders have worked together for various periods of up to 25 years and have successful track records of managing and growing homebuilding companies. Their combined real estate industry experience includes land acquisition, entitlement, master-planned community creation, land development, home construction, financing, marketing and sales of single-family detached and attached homes in communities in a variety of markets. Prior to forming our company in 2009, Messrs. Webb and Stelmar worked together for 11 years at John Laing Homes and oversaw the growth of that business, beginning with the merger of Watt Residential Partners with John Laing Homes in 1998, the leveraged buyout of John Laing Homes in 2001 for $190 million and, finally, orchestrating the timely sale of John Laing Homes in 2006 for $1.05 billion. Mr. Redwitz joined John Laing Homes in 2002 as President of its Laing Luxury Division, having served previously as President of Taylor Woodrow’s Southern California division from 1999 to 2002. In addition, Mr. Davis brings over 40 years of land development and entitlement experience and served for eleven years as President of Irvine Community Development Corporation, a subsidiary of The Irvine Company and developer of the Irvine Ranch, a 125,000 lot master-planned community containing approximately 40 villages located in Orange County, California. However, despite our management team’s experience, we were formed in 2009 and have a limited operating history.

We believe that our founders’ extensive experience, relationships, local market knowledge and reputation provide us with a competitive advantage in being able to acquire land, create masterplans, obtain entitlements, build quality homes and complete projects on budget and on schedule. Our executives are supported by a talented senior management team that was assembled at a time of dislocation in the homebuilding industry and was hand-picked to build deep organizational strength designed to ensure execution of management’s business plan.

Our founders have made and continue to hold a significant investment in the Company. Collectively, Messrs. Webb, Stelmar, Redwitz and Davis have invested $12.5 million cumulatively since the Company’s formation in 2009.

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Significant Land Positions in Our Markets to Support Growth Plan

We believe that we have strong land positions strategically located within our core markets, many of which were acquired during the downturn and are controlled at favorable prices. The prior experience of our founders in the creation of thoughtful land plans and consumer-driven architecture provides us the ability to create unique communities, enhancing the value of our homes. Our Southern California assets are well located along key transportation corridors in major job centers in our submarkets. In the San Francisco Bay area, our assets are located within and around the Silicon Valley, a major employment center. In Sacramento, our assets are located in infill or existing master-planned communities, located near major employment centers, with a concentration of larger technology and medical companies and strong school districts.

As of March 31, 2013, in California we owned or controlled 639 lots, our unconsolidated joint ventures owned or controlled 3,091 lots, and we controlled 189 lots under fee building arrangements. We owned 126 lots, and our unconsolidated joint ventures owned 743 lots, on which we had commenced development. An additional 173 lots were under development and subject to fee building contracts. The remaining lots were owned or controlled and in various stages of pre-development activities with development expected to begin by March 31, 2014. However, there can be no assurance that we or our unconsolidated joint ventures will acquire any of the land parcels under contract on the timing anticipated or at all or that we or our unconsolidated joint ventures will proceed to build and sell homes on any of this land.

Focus on Attractive Growth Markets in California

We are currently focused on identifying unique sites and creating communities that allow us to design, construct and sell consumer-driven single-family detached and attached homes in major metropolitan areas in coastal Southern California, the San Francisco Bay area and metro Sacramento. Given our existing land positions, strong local relationships and reputation for quality building, we believe our business is well-positioned to capitalize on the housing market recovery underway in these markets. However, we face significant competition in our markets, and during the most recent downturn, the California housing market experienced a deeper and longer decline than many other markets. According to JBREC, these regions represent some of the largest single family housing markets in the country, as defined by sales, starts and building permits. Our markets are generally characterized as infill markets with barriers to entry, job growth and increasing populations, which can create growing demand for new housing. Moreover, our management team has deep local market knowledge of the California homebuilding and the land planning and development businesses. We believe this experience and strong relationships with local market participants uniquely enable our company to source site acquisitions and achieve land entitlements to fuel our growth.

History of Operational Discipline

Our management team possesses extensive and valuable expertise, including in the growth and operation of a much larger homebuilder controlled by a large public company. The perspective gained from leadership roles with companies such as John Laing Homes, Taylor Woodrow, the Irvine Company and others has helped shape the strict discipline and hands-on management approach that we believe has been a key component of our initial success. From weekly project activity performance management to semi-monthly operations reviews covering each project combined with financial accountability at the project level, our strict operating discipline is a key part of our strategy to increase returns while effectively managing risk. However, like other growing companies, we face challenges in expanding our operations while trying to manage risk and maintaining our disciplined and hands-on approach. Our management team has drawn upon the deep real estate knowledge base of IHP, Watt and Tricon personnel and their substantial experience in investing in real estate. Additionally, IHP and Tricon have made off-market opportunities available to us through affiliates and may make additional opportunities available to us in the future.

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Absence of Legacy Issues Allows Us to Focus on the Growth of Our Business

Our absence of legacy issues enables us to focus on the growth of our business, as opposed to diverting attention and resources to manage troubled assets or other legacy issues. Our land inventory was accumulated following the investment in us by IHP and Watt in August 2010 and by Tricon in January 2011, and we do not have any existing distressed assets or liabilities to manage, unlike many competitors that were affected by the unprecedented downturn in the real estate markets that resulted from the recession during 2008 and 2009. All of our real estate assets were acquired and are located in markets that we targeted after the downturn commenced. However, there can be no assurance that our land inventory will not decline in value from the prices that we paid.

Our Business Strategy

Our business strategy is focused on the design, construction and sale of consumer-driven new homes in planned communities in major metropolitan areas located in coastal Southern California, the San Francisco Bay area and metro Sacramento. Our business strategy is driven by the following:

Disciplined Acquisition of Attractive Land Positions

We believe that we have strong land positions strategically located within our core markets, many of which were acquired or that we acquired control over during the downturn in the market. We believe that our professional reputation and long-standing relationships with key land sellers including master plan community developers, brokers and other builders, as well as our institutional investors and joint venture partners, enable us to acquire well-positioned land parcels in our existing markets as well as new target markets. The strength of these relationships often provides us with a first look at acquisition opportunities and allows us to negotiate terms based on our reputation for delivering on our promises.

In addition, we plan to continue to leverage the strength of our land planning and land development expertise in each local market to position us to add value to our land, capture incremental profit opportunities and provide a steady supply of lots to support the significant planned growth of our homebuilding business. Land development and planning operations are overseen by Joseph Davis, one of our founders and our Chief Investment Officer, who has over 40 years of industry experience. Collectively, the five senior professionals in charge of our land acquisition and planning activities have over 90 years of experience and extensive relationships that help us to achieve entitlements in a timely manner in order to reduce market risk. We only seek to acquire land where we believe our development and entitlement skills can help us earn a risk-adjusted return that is accretive to our overall return on land or that is in excess of existing market opportunities.

We believe that our strategy of holding an inventory of land that will provide us with a two- to three-year supply of developed lots for our homebuilding operations and focusing on the entitlement and development of parcels, primarily in our land development joint ventures, that we can complete within approximately 24 to 48 months from the date the property is acquired allows us to control our exposure to land development and market cycle risk while pursuing attractive returns on our capital. Furthermore, we have stringent underwriting return criteria that measure entitlement, development, market and financing risks for each proposed acquisition. These risks are quantified and a numeric risk value is determined, which is used to set our minimum required unleveraged internal rate of return for the proposed acquisition.

We further seek to reduce our exposure to land risk through the use of land options, joint ventures and other flexible land acquisition arrangements. Our joint venture strategy has been instrumental in allowing us to leverage our entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets.

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Deliver a Diverse, Consumer-Driven Product Offering and a Superior Home Experience

We consider ourselves a local market, consumer-driven homebuilder with expertise across a wide variety of product types and customer segments, including the entry-level, move-up, move-down and luxury-focused customer segments. In addition to understanding the key economic drivers of demand in our markets, we focus on understanding the pool of potential buyers, the product types sought by those buyers and the proper price point for the product types in each market. We perform extensive consumer research that helps us create land plans and design homes that meet the needs and desires of our specific targeted buyers. Our homes are competitively priced, but are not designed to be the lowest cost option in the market. Our core operating philosophy is to provide a positive, memorable experience to our homeowners through active engagement in the building process, tailoring our product to the buyer’s lifestyle needs and enhancing communication, knowledge and satisfaction.

A key element of our strategy is to allow all buyers to personalize their homes regardless of the price point. Unlike many homebuilders with centralized locations to which buyers can travel to select options and upgrades, each of our communities has an on-site design center with a dedicated designer knowledgeable about the attributes of the homes offered in the community. The specific options and upgrades, both structural and finishes, available for the community are selected by our buyers as they navigate the buying process. These options and upgrades in many cases can form a substantial part of the total purchase price of a home and are typically priced with profit margins well in excess of the profit margins on the base home purchase before the options and upgrades. We also believe that the active participation of buyers in selecting options and upgrades results in buyers becoming more personally invested in their homes. In 2012 our cancellation rate was 10% (including unconsolidated joint ventures), which was below the average of approximately 18.5% for public homebuilders.

We spend extensive amount of time studying and designing our products through the selection of architects, consultants and homeowner focus groups for all levels and price points in our target markets. We believe our diversified product strategy enables us to better serve a wide range of buyers, adapt quickly to changing market conditions and improve performance and returns while strategically reducing portfolio risk. We believe these steps improve the selling process, lead to a more satisfied homeowner, increase the number of buyers referred to our communities and enhance our operating results.

Increase Active Community Count in Our Markets

Our belief that homebuilding is a local market business supports our strategy to pursue significant opportunities to expand our business in our existing markets. We continually review the allocation of capital among our markets, based on both aggregate demographic information and our own operating results. We use the results of these reviews to focus our investments on those markets where we believe we can increase our profitability and return on capital. Additionally, we engage in limited speculative building and proceed with community development in phases where we believe it is economically feasible to do so with the goal of optimizing community design and increasing profits. While our primary growth strategy will focus on increasing our market position in our existing markets, we are exploring expansion opportunities in Phoenix and the Pacific Northwest and may consider other markets, through organic growth or acquisitions.

Vigilant Focus on Cost Structure

Cost control throughout our business permeates our corporate culture. Our management team maintains its focus on controlling costs and in implementing measures designed to ensure that our organization is efficient. We competitively bid each phase of development while maintaining strong relationships with our trade partners. We manage production schedules closely and, while respecting our valued relationships, require accountability from our vendors and trade partners.

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We have made significant investments in systems in order to be responsive to the reporting and other needs of our institutional investors. These systems are designed to enable us to operate our business efficiently. We believe that our systems and infrastructure are designed to be scalable and will support the planned growth of our Company.

Prudent Use of Leverage to Enhance Shareholder Returns

Our seasoned management team has experienced many cycles in the housing market and our four most senior executives have made substantial personal investments in us. We seek to increase stockholder value over the long-term, and operate our business to mitigate risks from downturns in the market and position ourselves to capitalize on upturns. We intend to employ both debt and equity as part of our ongoing financing strategy, coupled with redeployment of cash flow from continuing operations, to provide us with the financial flexibility to access capital on favorable terms. In that regard, we expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. Upon completion of the offering, we expect to have leverage on a debt to book capitalization basis of less than 20%. Our existing indebtedness is both recourse and non-recourse to us and we anticipate that future indebtedness will be likewise. As of March 31, 2013, we had approximately $27.8 million of loan commitments, of which $18.2 million was outstanding. At that date, our aggregate loan commitments consisted primarily of a project-specific revolving loan and a loan from a land seller secured by the land.

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Project Sales by Market

The following table sets forth home sales revenue and units delivered by market for our projects in which we built and sold the homes for our account during the quarter ended March 31, 2013 and the years ended December 31, 2012, 2011 and 2010. In addition, the following table sets forth units delivered by market during that period for our unconsolidated joint ventures and our fee building projects, in which we built the homes for independent third-party property owners. In our fee building business, we receive management fees for homes we build for independent third-party property owners and do not record the home sales revenue from the homes sold.

	Three Months Ended				Year Ended December 31,
	March 31, 2013				2012				2011				2010
	Home Sales Revenue		Units Delivered		Home Sales Revenue		Units Delivered		Home Sales Revenue		Units Delivered		Home Sales Revenue		Units Delivered
									(dollars in thousands)
Southern California
Company Projects
Orange County:
Stonetree Manor, Irvine		—		—	$	—		—	$	9,916		14	$	674		1
Four Quartets, Irvine		—		—		980		2		5,146		11		—		—
Total—Southern California		—		—		980		2		15,062		25		674		1
Northern California
Company Projects
Sacramento County:
Madeira, Elk Grove		—		—		3,364		10		5,842		17		2,338		7
Marbella, Folsom		—		—		1,527		5		—		—		—		—
Folsom Trails, Folsom		3,535		9		3,303		9		—		—		—		—
Placer County:
Strada, Roseville		—		—		—		—		933		5		—		—
Lincoln, Roseville		1,131		3		4,326		14		627		2		—		—
Granite Bay, Granite Bay		—		—		10,698		13		—		—		—		—
Total—Northern California		4,666		12		23,218		51		7,402		24		2,338		7
Total—Company	$	4,666		12	$	24,198		53	$	22,464		49	$	3,012		8
Unconsolidated Joint Ventures (1)
Orange County:
Lambert Ranch-Field, Irvine		9,301		9		14,466		14		—		—		—		—
Lambert Ranch-Hill, Irvine		11,664		8		21,131		15		—		—		—		—
Lambert Ranch-Grove, Irvine		9,799		6		20,421		13		—		—		—		—
Total—Unconsolidated Joint Ventures	$	30,764		23	$	56,018		42		—		—		—		—
Fee Building Projects
Orange County:
Carmel, Irvine (2)				—				—				47				49
Toscana, Irvine (3)				31				41				—				—
San Marino, Irvine (3)				14				9				—				—
Total—Fee Building Projects				45				50				47				49

⁽¹⁾  Home sales revenue from unconsolidated joint ventures reflects the entire amount of home sales revenue of such joint ventures and not our share thereof. We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures. Revenue from unconsolidated joint ventures is not included in our revenue for GAAP purposes, but is recognized as a component of equity in net (income) loss of unconsolidated joint ventures. These figures are included here for informational purposes only.

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⁽²⁾  We entered into a fee building agreement to build, sell and market homes in this community for an independent third-party owner. This project was marketed under The New Home Company brand name.

⁽³⁾  We entered into a fee building agreement to only build homes in this community for an independent third-party property owner. This project is marketed under the independent third-party property owner’s name.

Description of Completed Projects and Communities under Development

Our homebuilding projects usually take approximately 24 to 36 months to complete from the initiation of homebuilding activity. The following table presents project information relating to each of our markets as of March 31, 2013 and includes information for all completed projects from our inception and current projects under development where we are building and selling homes for our own account or for our unconsolidated joint ventures, and all completed projects from our inception and current projects under development where we are acting as a fee builder.

County, Project, City	Year of First Delivery(1)		Total Number of Homes to Be Built at Completion(2)		Cumulative Units Delivered as of March 31, 2013		Backlog at March  31, 2013(3)		Lots as of March 31, 2013(4)		Sales Price Range (in thousands)(5)		Home Size Range (sq. ft.)(6)
Company Projects
Southern California
Los Angeles County:
Canyon Oaks, Calabasas		2015		150		—		—		150	$	620  -   $740		1,700  -  2,087
Orange County:
Four Quartets, Irvine		2011		13		13		—		—	$	372  -   $554		1,132  -  1,745
Stonetree Manor, Irvine		2011		15		15		—		—	$	635  -   $732		1,964  -  2,268
Ventura County:
Thousand Oaks, Thousand Oaks		2014		20		—		—		20	$	885  -   $965		2,900  -  4,016
Southern California Total				198		28		—		170
Northern California
El Dorado County:
Blackstone, El Dorado Hills		2014		71		—		—		71	$	350  -   $375		1,750  -  2,050
Placer County:
Lincoln Crossing, Lincoln		2011		27		19		8		8	$	303  -   $334		1,948  -  2,350
Strada, Roseville		2011		5		5		—		—	$	180  -   $197		1,271  -  1,462
Granite Bay, Granite Bay		2012		17		13		3		4	$	679  -  $1,150		2,809  -  3,680
Olive Ranch, Granite Bay		2013		12		—		1		12	$	850  -   $900		3,000  -  3,680
Sacramento County:
Madeira, Elk Grove		2010		34		34		—		—	$	273  -   $369		1,948  -  2,204
Marbella, Folsom		2012		5		5		—		—	$	343  -   $405		1,874  -  2,203
The Trails, Folsom		2012		79		18		19		61	$	345  -   $399		1,874  -  2,203
The Meadows, Folsom		2013		41		—		—		41	$	375  -   $395		1,950  -  2,200
Candela, Sacramento		2014		10		—		—		10	$	276  -   $304		1,541  -  1,801
Northern California Total				301		94		31		207
Total Company Projects				499		122		31		377

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County, Project, City	Year of First Delivery(1)		Total Number of Homes to Be Built at Completion(2)		Cumulative Units Delivered as of March 31, 2013		Backlog at March  31, 2013(3)		Lots as of March 31, 2013(4)		Sales Price Range (in thousands)(5)		Home Size Range (sq. ft.)(6)
Unconsolidated Joint Venture Projects (7)
Southern California
Los Angeles County:
Aqua, Villa Metro, Valencia		2013		95		—		—		95	$	284 - $348		1,105 -1,441
Terra, Villa Metro, Valencia		2013		99		—		—		99	$	330 - $379		1,420 -1,745
Sol, Villa Metro, Valencia		2013		99		—		—		99	$	363 - $414		1,610 -1,998
Viento, Villa Metro, Valencia		2013		22		—		—		22	$	354 - $447		1,764 -2,391
Orange County:
The Field, Lambert Ranch, Irvine		2012		66		23		21		43	$	934 - $1,300		2,673 -3,027
The Hill, Lambert Ranch, Irvine		2012		45		23		16		22	$	1,244 -$2,230		3,418 -3,792
The Grove, Lambert Ranch, Irvine		2012		58		19		22		39	$	1,401 -$1,940		4,273 -4,573
Southern California Total				484		65		59		419
Northern California
Marin County:
The Collection, Rose Lane, Larkspur		2014		29		—		—		29	$	1,700 - $2,600		1,649 -3,539
Garden House, Rose Lane, Larkspur (8)		2014		14		—		—		14	$	850 - $1,000		900 - 1,250
Terraces, Rose Lane, Larkspur (8)		2014		42		—		—		42	$	625 - $900		765 - 1,625
Santa Clara County:
Row Towns, Berryessa, San Jose		2014		107		—		—		107	$	560 - $668		1,592 -2,043
Court Towns, Berryessa, San Jose		2014		60		—		—		60	$	561 - $670		1,648 -2,185
Condo Flats, Berryessa, San Jose		2014		72		—		—		72	$	573 - $661		1,678 -2,017
Northern California Total				324		—		—		324
Total—Unconsolidated Joint Venture Projects				808		65		59		743
Fee Building Projects
Southern California
Orange County:
Carmel, Irvine		2011		96		96		—		—	$	899 - $1,206		2,616 -2,846
San Marino, Irvine (9)		2012		47		23		24		24	$	900 - $1,100		2,808 -3,761
Toscana, Irvine (9)		2011		86		72		14		14	$	1,000 -$1,300		2,806 -3,137
Mendocino, Irvine (9)		2013		133		—		36		133	$	800 - $950		2,221 -2,452
The Strand, Dana Point (9)		2014		2		—		—		2	$	5,000 -$5,700		6,436 -7,855
San Diego County:
Carlsbad, Carlsbad		2014		16		—		—		16	$	750 - $990		2,900 -3,750
Southern California Total				380		191		74		189
Total—Fee Building Projects				380		191		74		189

⁽¹⁾  Year of first delivery for future periods is based upon management’s estimates and is subject to change.

⁽²⁾  The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.

⁽³⁾  Backlog consists of homes under sales contracts that had not yet closed as of March 31, 2013, and there can be no assurance that closing of sold homes will occur. Backlog has not been reduced to reflect our historical cancellation rate.

⁽⁴⁾  Consists of owned or controlled lots, fee building lots and unconsolidated joint venture lots as of March 31, 2013, including owned or controlled lots, fee building lots and unconsolidated joint venture lots in backlog as of March 31, 2013. Of the foregoing lots, there were no completed and unsold homes other than those being used as model homes.

⁽⁵⁾  Sales price range reflects actual total price for homes already sold in the respective projects and, where sales have not yet commenced for a project, anticipated sales prices for homes to be sold. The actual prices at which our homes are sold in the future may differ.

⁽⁶⁾  Reflects actual home size range for homes already sold in the respective projects and, where sales have not yet commenced for a project, anticipated home size ranges for homes to be sold. The actual home size ranges may differ.

⁽⁷⁾  We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures.

⁽⁸⁾  Garden House and Terraces have nine and five below-market homes, respectively, as required by the Housing Authority of the County of Marin. The price range for these homes is $181,000 to $430,000 and is excluded from the sales price range.

⁽⁹⁾  We entered into a fee building agreement to only build homes in this community for an independent third-party property owner. The project is marketed under the third-party owner’s name.

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Pending Acquisitions

As of March 31, 2013, we and our unconsolidated joint ventures had options or were under contract to acquire land for aggregate purchase prices of approximately $30.0 million and $144.7 million, respectively, in each case net of deposits. As of March 31, 2013, we and our unconsolidated joint ventures had paid $1.0 million and $7.7 million, respectively, in non-refundable deposits relating to these pending acquisitions. The following table presents certain information with respect to each of these pending acquisitions as of March 31, 2013.

	Company						Unconsolidated Joint Ventures
Market	Total Lots Controlled(1)		Communities		Aggregate Purchase Price, Net(2)		Total Lots Controlled(3)		Communities		Aggregate Purchase Price, Net(4)
Southern California		156		2	$	17,500,000		199		3	$	53,865,000
San Francisco Bay Area		106		2		12,450,000		404		3		29,500,000
Metro Sacramento		—		—		—		1,745		25		61,379,000
Company Total		262		4	$	29,950,000		2,348		31	$	144,744,000

⁽¹⁾  All of the 262 lots controlled under Company projects are under purchase contracts. There can be no assurance that we will acquire any of these land parcels on the terms or timing anticipted or at all or that we will proceed to build and sell homes on any of this land.

⁽²⁾  Includes the estimated aggregate purchase price for pending acquisitions of all the lots per region, less aggregate deposits paid of $1.0 million as of March 31, 2013.

⁽³⁾ Includes 2,316 lots that are under purchase contracts and 32 lots under non-binding letters of intent. There can be no assurance that we will acquire any of these land parcels on the terms or timing anticipated or at all or that we will proceed to build and sell homes on any of this land.

⁽⁴⁾ Includes the estimated aggregate purchase price for pending acquisitions of all the lots per region, less aggregate deposits paid of $7.7 million as of March 31, 2013.

Owned and Controlled Lots

As of March 31, 2013, we and our unconsolidated joint ventures owned or controlled, pursuant to purchase and sale agreements, non-binding letters of intent or fee building contracts, an aggregate of 639 lots and 3,091 lots, respectively. In addition, we also controlled 189 lots under fee building arrangements. The following table presents certain information with respect to our owned and controlled lots as of March 31, 2013 and for the period from April 1 to June     , 2013.

	As of March 31, 2013						Activity from April 1 to June     , 2013
Market	Lots Owned		Lots Controlled(1)		Lots Owned and Controlled(1)		Project Location	Status			Lots Controlled		Commun- ities		Purchase Price, Net ($mm)		Total Lots Owned or Controlled
Company
Southern California		170		156		326						108		2	$	118.2		434
							Irvine		LOI	(2)		70		1		72.0
							Irvine		LOI	(2)		38		1		46.2
Northern California		207		106		313												313
Total — Company		377		262		639												747
Unconsolidated Joint Ventures(3)		743		2,348		3,091												3,091
Fee Building Projects		—		189		189												189

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⁽¹⁾  Includes (i) 262 lots and 2,348 lots that we and our unconsolidated joint ventures, respectively, have under purchase and sale agreements, (ii) 32 lots that our unconsolidated joint ventures have under non-binding letters of intent, and (iii) 189 lots that we control pursuant to fee building contracts. With respect to the lots under non-binding letters of intent, there can be no assurance that we will enter into binding agreements or as to the terms thereof.

⁽²⁾  Letter of Intent, or LOI, reflects executed non-binding letters of intent that are subject to customary conditions and have not yet closed, and there can be no assurance such closings will occur.

⁽³⁾  We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different unconsolidated joint ventures.

Recent Developments

In April 2013, each of the four members of TNHC LLC agreed to further increase its capital commitment by $2.5 million, which increased our aggregate capital commitment from $50 million to $60 million. The additional $10 million was called and funded in April 2013. Such amounts are to be used for investments in identified, specific projects.

In April 2013, our Newport Beach, California unconsolidated joint venture acquired 4.5 acres of land. Upon the acquisition, our aggregate investment in that unconsolidated joint venture was $10.3 million. In May 2013, we formed the McKinley unconsolidated joint venture to acquire a 48.7 acre site to develop 330 lots in Sacramento, California.

In May 2013, we formed our TNHC San Juan Capistrano unconsolidated joint venture and it acquired an 18 acre site to develop 33 lots in San Juan Capistrano, California. Upon acquisition, our aggregate investment in that unconsolidated joint venture was $2.3 million. We also formed our Russell Ranch unconsolidated joint venture in May 2013, which acquired a 431 acre site to develop 870 lots in Sacramento, California. Upon acquisition, our aggregate investment in that unconsolidated joint venture was $3.5 million.

Summary Risk Factors

An investment in shares of our common stock involves risks. You should consider carefully the risks discussed below and described more fully along with other risks under “Risk Factors” in this prospectus before investing in our common stock.

• The homebuilding and land development industry in the United States has recently undergone a significant downturn, and the likelihood of a continued recovery is uncertain in the current state of the economy.

• Our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us.

• Our geographic concentration could materially and adversely affect us if the homebuilding industry in our markets should decline.

• Because most of our homebuyers finance the purchase of their homes, the terms and availability of mortgage financing can affect the demand for and the ability to complete the purchase of a home, which could materially and adversely affect us.

• Interest rate increases or changes in federal lending programs or other regulations could lower demand for our homes, which could materially and adversely affect us.

• Our long-term growth depends, in part, upon our ability to successfully identify and acquire desirable land parcels for residential buildout.

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• The estimates, forecasts and projections relating to our markets prepared by JBREC are based upon numerous assumptions and may not prove to be accurate.

• Our business and results of operations are dependent on the availability and skill of subcontractors.

• Fluctuations in real estate values may require us to write-down the book value of our real estate assets.

• We expect to use leverage in executing our business strategy, which may adversely affect the return on our assets.

• Our current and future joint venture investments could be adversely affected by a lack of sole decision-making authority, disputes with our joint venture partners, and reliance on the financial condition and liquidity of our joint venture partners.

• We have a limited operating history and we may not be able to successfully operate our business.

• There is currently no public market for shares of our common stock, a trading market for our common stock may never develop following this offering and our common stock prices may be volatile and could decline substantially following this offering.

• The offering price per share of our common stock offered under this prospectus may not accurately reflect the value of your investment.

Formation Transaction

Immediately prior to the completion of this offering, TNHC LLC intends to convert into a Delaware corporation, The New Home Company Inc. As part of this conversion, all of the outstanding membership interests in TNHC LLC will be converted into an aggregate of                 shares of common stock in The New Home Company Inc. Subsequent to our conversion into a corporation we will be subject to taxation as a corporation under U.S. Federal and state income tax laws.

We carry out our business generally through a number of project-specific, wholly owned subsidiaries and joint ventures. Our fee building business is conducted primarily through our wholly owned subsidiary, TNHC Realty & Construction Inc., through which we also conduct real estate brokerage and contracting activities relating to our business.

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The following chart illustrates our expected ownership and structure immediately following the completion of this offering (assuming no exercise by the underwriters of their option to purchase additional shares):

⁽¹⁾  As part of our formation transactions, the members of The New Home Company LLC (the entity that will be converted into a Delaware corporation and renamed The New Home Company Inc. as part of our formation transactions) (“TNHC LLC”) will receive an aggregate of             shares of our common stock in connection with the exchange of their membership interests in TNHC LLC. The members of TNHC LLC include an entity owned by our executive management team and three other non-management institutional investors (Tricon, Watt and IHP). In accordance with the TNHC LLC operating agreement, the allocation of            shares of our common stock to be received by the respective members of TNHC LLC as part of our formation transaction depends upon the value per share of our common stock in this offering. The allocation of shares among the members of TNHC LLC reflected in this prospectus is for illustrative purposes and is based upon the midpoint of the price range set forth on the cover page of this prospectus. The actual allocation of shares among the members of TNHC LLC will be based upon the initial public offering price. Such allocation will not change the aggregate number of shares of common stock received by members of TNHC LLC as part of our formation transactions and only effects how many shares are allocated to each respective member. For a more detailed discussion regarding the shares of our common stock that will be received by the members of TNHC LLC, see “Principal and Selling Stockholders.”

⁽²⁾  Excludes: (i)            shares of our common stock issuable upon the vesting of restricted stock units to be granted to our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees and our director nominees upon the completion of this offering pursuant to our 2013 Long Term Incentive Plan; and (ii)            shares of our common stock issuable upon exercise of options to be granted to the members of our management team, other officers and employees upon the completion of this offering pursuant to our

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2013 Long Term Incentive Plan. The actual number of restricted stock units and the strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering.

Non-Management Institutional Investors

IHP, Watt, and Tricon are our current non-management institutional investors.

IHP Capital Partners was founded in 1992 and is one of the largest investment firms in the United States providing equity financing for residential development. The firm invests institutional capital in for-sale residential real estate projects, including land entitlement, land development and housing construction. IHP and its investment partners have created neighborhoods and communities valued at more than $19 billion, investing in over 235 projects with more than 50 builder and developer partners throughout the United States.

The Watt Companies offer comprehensive and diversified real estate services across the United States to investors and partners, homebuyers and commercial customers. Watt builds homes, offices and shopping centers.

Listed on the Toronto Stock Exchange (TCN:TSX), Tricon Capital Group Inc. is one of North America’s leading residential real estate companies with a focus on single-family land development, homebuilding, multi-family construction and single-family rental. Through its private fund business, Tricon currently manages in excess of $1 billion for primarily institutional investors and has funded approximately 150 development projects valued at more than $10 billion since its inception. Tricon is also a leading participant in the U.S. single-family rental sector and currently owns approximately 1,800 homes for its own account.

Our Offices

Our principal executive offices are located at 95 Enterprise, Suite 325, Aliso Viejo, California 92656. Our main telephone number is (949) 382-7800. Our internet website is thenewhomecompany.com. The information contained in, or that can be accessed through, our website is not incorporated by reference in and is not a part of this prospectus.

Implications of Being an Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to companies that are not “emerging growth companies.” These provisions include, among other matters:

• an exemption to provide fewer years of financial statements and other financial data in an initial public offering registration statement;

• an exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting;

• an exemption from new or revised financial accounting standards until they would apply to private companies with no pending registration statement and from compliance with any requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation;

• reduced disclosure about the emerging growth company’s executive compensation arrangements; and

• an exemption from the requirement to seek non-binding advisory votes on executive compensation and golden parachute arrangements.

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We have determined to opt out of the exemption from compliance with new or revised financial accounting standards. Our decision to opt out of this exemption is irrevocable.

We have elected to adopt the reduced disclosure requirements available to emerging growth companies. As a result of these elections, the information that we provide in this prospectus may be different than the information you may receive from other companies in which you hold equity interests. In addition, it is possible that some investors will find our common stock less attractive as a result of our elections, which may cause a less active trading market for our common stock and more volatility in our stock price.

We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means, among other things, that the market value of our common stock that is held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

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The Offering

Common stock offered by us	shares
Common stock to be outstanding immediately following this offering	shares(1)
Underwriters’ option to purchase additional shares	Up to            shares, any and all of which will be purchased from our non-management institutional investors
Use of proceeds	We expect to receive net proceeds from this offering of approximately $            million, assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.
	We intend to use the net proceeds from this offering primarily for the acquisition of land, including the land described above under “—Pending Acquisitions,” and for development of lots, home construction and other related purposes. See “Use of Proceeds.”
	We will not receive any of the net proceeds from the sale of shares, if any, of our common stock in this offering by our non-management institutional investors. See “Use of Proceeds.”
Dividend policy	We currently intend to retain our future earnings, if any, to finance the development and expansion of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments and such other factors as our board of directors deems relevant. See “Dividend Policy.”
New York Stock Exchange symbol	We intend to apply to list the shares of our common stock on the New York Stock Exchange under the symbol “NWHM.”
Directed share program	The underwriters have reserved for sale, at the initial public offering price, up to             shares of our common stock being offered to persons who are directors, officers or employees, or who are otherwise associated with us. See “Underwriting.”

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Risk factors Investing in our common stock involves a high degree of risk. For a discussion of factors you should consider in making an investment, see “Risk Factors” beginning on page 24 of this prospectus.

⁽¹⁾  Based on              shares to be outstanding immediately after the consummation of our formation transaction and excludes: (i)             shares of our common stock issuable upon the vesting of restricted stock units to be granted to our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees and our director nominees upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (assuming a public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus); (ii)             shares of our common stock issuable upon the exercise of options to be granted to the members of our management team, other officers and employees upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus); and (iii)             shares of our common stock reserved for future issuance under our 2013 Long-Term Incentive Plan. The actual number of restricted stock units and the strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering.

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Summary of Selected Financial Data

The following tables set forth our summary selected financial data and other operating information, including pro forma information. The selected financial data as of and for the years ended December 31, 2012 and 2011 and for the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010 are derived from our consolidated financial statements, which have been audited by Ernst & Young LLP, independent registered public accounting firm. The selected financial data as of and for the three months ended March 31, 2013 and for the three months ended March 31, 2012 are derived from unaudited financial statements. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the entire year ending December 2013. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

																Predecessor
	Three Months Ended March 31,						Year Ended December 31,						Period From August 18, 2010 (Inception) Through December 31,			Period From January 1, 2010 Through August 17,
	2013			2012			2012			2011			2010			2010
Statement of Operations Data:(1)
Home sales(2)	$	4,666,531		$	4,110,937		$	24,197,956		$	25,624,111		$	5,319,408		$	538,598
Cost of home sales(2)		3,729,627			3,417,550			20,779,338			21,774,199			4,423,236			399,995
Homebuilding gross profit		936,904			693,387			3,418,618			3,849,912			896,172			138,603
Fee building		13,472,550			2,719,748			28,268,675			16,522,946			11,494,347			12,941,110
Cost of fee building		12,938,813			2,652,779			26,505,042			16,762,666			11,331,286			12,764,497
Fee building gross profit		533,737			66,969			1,763,633			(239,720	)		163,061			176,613
Land sales gross margin		—			—			(321,791	)		—			—			—
Abandoned project costs		159,587			—			408,642			128,798			—			—
Equity in net (income) loss of unconsolidated joint ventures		(271,856	)		38,789			(349,445	)		38,916			—			—
Selling and marketing		277,020			323,262			1,677,058			1,748,430			453,799			134,002
General and administrative		963,104			934,299			3,999,949			3,522,617			689,781			328,295
Income (loss) from operations		342,786			(535,994	)		(875,744	)		(1,828,569	)		(84,347	)		(147,081	)
Guarantee fee income		28,391			—			85,172			—			—			—
Other income (expense), net		—			6,361			(15,048	)		(14,750	)		(10,596	)		(6,048	)
Income (loss) before taxes		371,177			(529,633	)		(805,620	)		(1,843,319	)		(94,943	)		(153,129	)
Provision for taxes		(64,745	)		—			(71,255	)		(10,149	)		—			—
Net income (loss)	$	306,432		$	(529,633	)	$	(876,875	)	$	(1,853,468	)	$	(94,943	)	$	(153,129	)
Unaudited pro forma income (loss) per share(3)
Basic
Diluted
Operating Data — Company Projects
Net new home orders		17			16			72			45			15			4
New homes delivered		12			9			53			49			8			—
Average sales price of homes delivered	$	389,000		$	457,000		$	457,000		$	523,000		$	665,000		$	—
Cancellation rate		11	%		24	%		16	%		25	%		10	%		0	%
Average selling communities		4			4			4			4			3			1
Selling communities at end of period		3			4			3			4			3			1
Backlog at end of period, number of homes		31			14			26			7			11			4
Backlog at end of period, aggregate sales value	$	13,724,000		$	7,418,000		$	10,593,000		$	5,074,000		$	3,982,000		$	1,177,000

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	As of March 31, 2013						As of December 31,
	Actual		Pro Forma(4)		Pro Forma as Adjusted(5)		2012		2011
Balance Sheet Data
Cash and restricted cash	$	5,231,707	$	9,231,707	$	—		6,152,068		5,523,851
Receivables		4,797,652		4,797,652				6,049,676		59,317
Real estate inventories		39,743,736		41,743,736				39,268,764		28,890,573
Investment in unconsolidated joint ventures		23,598,335		27,598,335				12,424,229		4,854,584
Other assets		1,421,300		1,421,300				615,999		433,465
Total assets		74,792,730		84,792,730		—		64,510,216		39,761,790
Notes payable to member		1,000,000		1,000,000				1,000,000		—
Notes payable		17,239,273		17,239,273				16,721,878		9,383,462
Accounts payable and accrued expenses		9,072,311		9,072,311				11,214,124		2,526,733
Total liabilities		27,311,584		27,311,584		—		28,936,002		11,910,201
Members’ equity		47,481,146		57,481,146		—		35,574,714		27,851,589
Total liabilities and members’ equity	$	74,792,730	$	84,792,730	$	—		64,510,716		39,761,790
Stockholders’ equity

															Predecessor
	Three Months Ended March 31,						Year Ended December 31,						Period From August 18, 2010 (Inception) Through December 31,		Period From January 1, 2010 Through August 17,
	2013			2012			2012			2011			2010		2010
Operating and Financial Data – Unconsolidated Joint Ventures(6)
Home sales	$	30,764,001		$	—		$	56,018,517		$	—		$	—	$	—
Cost of home sales		22,537,742			(606,826	)		41,548,236			—			—		—
Homebuilding gross profit		8,226,259			—		$	14,470,281		$	—		$	—	$	—
Net income (loss)	$	6,160,994			(606,826	)	$	8,652,751		$	(776,819	)	$	—	$	—
Management fees paid to the Company(7)	$	965,462		$	444,069		$	2,949,365		$	844,411		$	—	$	—
Net new home orders		28			n/a			96			—			—		—
New homes delivered		23			n/a			42			—			—		—
Cancellation rate		13	%		n/a			5	%		—			—		—
Average selling communities		3			n/a			3			—			—		—
Selling communities at end of period		3			n/a			3			—			—		—
Backlog at end of period, number of homes		59			n/a			54			—			—		—
Backlog at end of period, aggregate sales value	$	82,500,000			n/a		$	72,921,000		$	—		$	—	$	—

	As of March 31, 2013		As of December 31,
			2012		2011
Balance Sheet Data – Unconsolidated Joint Ventures
Total assets, primarily real estate inventories	$	205,336,221	$	173,255,773	$	92,622,144
Total liabilities, primarily accounts payable and notes payable	$	42,637,295	$	44,673,841	$	21,610,963
The Company’s equity	$	23,598,335		12,424,229		4,854,584
Other partners’ equity		139,100,591		116,157,703		66,156,597
Total equity	$	162,698,926		128,581,932		71,011,181
Total liabilities and equity	$	205,336,221	$	173,255,773	$	92,622,144

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											Predecessor
	Three Months Ended March 31,				Year Ended December 31,				Period From August 18, 2010 (Inception) Through December 31,		Period From January 1, 2010 Through August 17,
	2013		2012		2012		2011		2010		2010
	(unaudited)		(unaudited)
Operating Data – Fee Building Projects
Net new home orders		12		18		145		25		28		55
New homes delivered		45		2		50		47		37		12
Average sales price of homes delivered	$	1,150,000	$	1,100,000	$	1,153,000	$	1,234,000	$	1,125,000	$	1,429,000

⁽¹⁾  Immediately prior to the completion of this offering, we intend to convert into a Delaware corporation. Subsequent to our conversion into a corporation we will be subject to taxation as a corporation under U.S. Federal and state income tax laws.

⁽²⁾  During the years ended December 31, 2011 and 2010, the Company entered into a fee building services agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue for these option upgrades in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the years ended December 31, 2011 and 2010, we recognized revenue for these option upgrades of $3,159,988 and $2,846,472, respectively, which is included above in home sales. The cost of these option upgrades, included above in cost of home sales, was $2,325,037 and $2,089,694 during the years ended December 31, 2011 and 2010, respectively. These revenues and costs were for the delivery of option upgrades on 47 and 49 homes, respectively, which are included in the operating data for fee building services.

⁽³⁾  Pro forma for the conversion of the Company to a corporation and the conversion of member’s capital in TNHC LLC into shares of our common stock. For a more detailed description of our “Unaudited pro forma income (loss) per share,” please see note 15 of the notes to our consolidated financial statements included elsewhere in this prospectus.

⁽⁴⁾  This column gives effect to (i) our formation transactions and (ii) the additional $10 million of capital contributions made to TNHC LLC by its members subsequent to March 31, 2013 that are intended to be used for specific projects related to our homebuilding business. The use of these funds is not reflected in the table above.

⁽⁵⁾  This column gives further effect to the sale of shares of our common stock in this offering by us at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.

⁽⁶⁾  “Operating and Financial Data – Unconsolidated Joint Ventures” reflects the data for the ventures and not our share thereof. We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures. Such financial data is not included in our financial data for GAAP purposes, but is recognized in our results of operations as a component of equity in net (income) loss of unconsolidated joint ventures. We have investments in several unconsolidated joint ventures and this information has been included to provide additional information about the operations and financial condition of our unconsolidated joint ventures. This data is included for informational purposes only.

⁽⁷⁾  The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to the underlying projects. Pursuant to the agreements, the Company receives a management fee based on each project’s revenues. During the three months ended March 31, 2013 and 2012 and the years ended December 31, 2012 and 2011, the Company earned and received $965,462, $444,069, $2,949,365 and $844,411, respectively, in management fees, which have been recorded as fee building services revenue.

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RISK FACTORS

An investment in our common stock involves a high degree of risk and should be considered highly speculative. Before making an investment decision, you should carefully consider the following risk factors, which address the material risks concerning our business and an investment in our common stock, together with the other information contained in this prospectus. If any of the risks discussed in this prospectus occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Concerning Forward-Looking Statements.”

Risks Related to Our Business

The homebuilding and land development industry in the United States has recently undergone a significant downturn, and the likelihood of a continued recovery is uncertain in the current state of the economy.

The homebuilding and land development industry experienced substantial losses in connection with the recent downturn in the U.S. housing market and, in particular, in California. Although the housing markets in the U.S. and the California markets have begun to recover, we cannot predict whether and to what extent this recovery will continue or its timing. While some of the many negative factors that contributed to the housing downturn may have moderated in 2012, several remain, and they could return or intensify to inhibit any future improvement in housing market conditions. These negative factors include but are not limited to the following:

• weak general economic and employment growth that, among other things, restrains consumer incomes, consumer confidence and demand for homes;

• elevated levels of mortgage loan delinquencies, defaults and foreclosures that could add to a “shadow inventory” of lender-owned homes that may be sold in competition with new and other resale homes at low “distressed” prices or that generate short sales activity at such price levels;

• a significant number of homeowners whose outstanding principal balance on their mortgage loan exceeds the market value of their home, which undermines their ability to purchase another home that they otherwise might desire and be able to afford;

• volatility and uncertainty in domestic and international financial, credit and consumer lending markets amid slow growth or recessionary conditions in various regions around the world; and

• tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums or other fees, required down payment amounts, more conservative appraisals, higher loan-to-value ratios and extensive buyer income and asset documentation requirements.

Additional headwinds may come from the efforts and proposals of lawmakers to reduce the debt of the federal government through tax increases or spending cuts, and financial markets’ and businesses’ reactions to those efforts and proposals, which could impair economic growth. Given these factors, we may not be successful in implementing our business strategy and may not operate profitably.

Our industry is cyclical, and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us.

The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer confidence and income, availability of financing for acquisitions, construction and permanent mortgages, interest rate levels, inflation and demand for housing. The

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health of the residential homebuilding industry may also be significantly affected by “shadow inventory” levels during recessionary and recovery periods. “Shadow inventory” refers to the number of homes with mortgages that are in some form of distress but that have not yet been listed for sale. Shadow inventory can occur when lenders put properties that have been foreclosed or forfeited to lenders on the market gradually, rather than all at once, or delay the foreclosure process. A significant shadow inventory in our markets could, were it to be released into our markets, adversely impact home and land prices and demand for our homes and land, which would have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. In addition, an important segment of our end-purchaser and customer base consists of first time and second time “move-up” buyers, who often purchase homes subject to contingencies related to the sale of their existing homes. The difficulties facing these buyers in selling their homes during recessionary periods may adversely affect our sales. Moreover, during such periods, we may need to reduce our sales prices and offer greater incentives to buyers to compete for sales, which may reduce our margins.

Furthermore, we are subject to additional market exposure risk because it can take years from the time we acquire control of a property to the time we make our first home sale on the site. A project that we initially expect to be profitable may become less profitable or unprofitable due to changes in the global and local economic conditions that occur after we acquire control of the property and before we sell the homes we build on them.

Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets declines.

Our business strategy is focused on the design, construction and sale of innovative single-family detached and attached homes in planned communities in major metropolitan areas in coastal Southern California, the San Francisco Bay area and metro Sacramento and the potential entry into other Southwestern and Pacific Northwest markets. In Southern California, we principally operate in the counties of Orange, Los Angeles, Ventura and San Diego, and in Northern California, we principally operate in the counties of El Dorado, Placer, Sacramento, Yolo Marin, San Mateo and Santa Clara. Because our operations are concentrated in these areas, a prolonged economic downturn in one or more of these areas could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with more diversified operations. During the downturn from 2008 to 2010, land values, the demand for new homes and home prices declined substantially in California. In addition, the state of California recently experienced severe budget shortfalls and has raised taxes and increased fees to offset the deficit. If these conditions in California persist or worsen, our business, prospects, liquidity, financial condition and results of operations could materially suffer. If the current, relatively weak buyer demand for new homes in California continues or worsens, home prices could stagnate or continue to decline, which would have a material adverse effect on us.

Because most of our homebuyers finance the purchase of their homes, the terms and availability of mortgage financing can affect the demand for and the ability to complete the purchase of a home, which could materially and adversely affect us.

Our business depends on the ability of our homebuyers to obtain financing for the purchase of their homes. Many of our homebuyers must sell their existing homes in order to buy a home from us. Since 2009, the U.S. residential mortgage market as a whole has experienced significant instability due to, among other things, defaults on subprime and other loans, resulting in the declining market value of such loans. In light of these developments, lenders, investors, regulators and other third parties questioned the adequacy of lending standards and other credit requirements for several loan programs made available to borrowers in recent years. This has led to tightened credit requirements and an increase in indemnity claims for mortgages. Deterioration in credit quality among subprime and other nonconforming loans has caused most lenders to eliminate subprime mortgages and most other loan products that do not conform to Federal National Mortgage Association, or Fannie Mae, Federal Home Loan Mortgage Corporation, or Freddie Mac, Federal Housing Administration, or FHA, or Veterans Administration, or the VA, standards. Fewer loan products and tighter loan qualifications, in

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turn, make it more difficult for a borrower to finance the purchase of a new home or the purchase of an existing home from a potential “move-up” buyer who wishes to purchase one of our homes. In general, these developments have delayed any general improvement in the housing market. If our potential homebuyers or the buyers of our homebuyers’ existing homes cannot obtain suitable financing, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected.

Interest rate increases or changes in federal lending programs or other regulations could lower demand for our homes, which could materially and adversely affect us.

Substantially all purchasers of our homes finance their acquisitions with mortgage financing. Rising interest rates, decreased availability of mortgage financing or of certain mortgage programs, higher down payment requirements or increased monthly mortgage costs may lead to reduced demand for our homes and mortgage loans. Increased interest rates can also hinder our ability to realize our backlog because our home purchase contracts provide customers with a financing contingency. Financing contingencies allow customers to cancel their home purchase contracts in the event that they cannot arrange for adequate financing. As a result, rising interest rates can decrease our home sales and mortgage originations. Any of these factors could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

In addition, as a result of the turbulence in the credit markets and mortgage finance industry, the federal government has taken on a significant role in supporting mortgage lending through its conservatorship of Fannie Mae and Freddie Mac, both of which purchase home mortgages and mortgage-backed securities originated by mortgage lenders, and its insurance of mortgages originated by lenders through the FHA and the VA. The availability and affordability of mortgage loans, including interest rates for such loans, could be adversely affected by a curtailment or cessation of the federal government’s mortgage-related programs or policies. The FHA may continue to impose stricter loan qualification standards, raise minimum down payment requirements, impose higher mortgage insurance premiums and other costs, or limit the number of mortgages it insures. Due to federal budget deficits, the U.S. Treasury may not be able to continue supporting the mortgage-related activities of Fannie Mae, Freddie Mac, the FHA and the VA at present levels, or it may revise significantly the federal government’s participation in and support of the residential mortgage market. Because the availability of Fannie Mae, Freddie Mac, FHA and VA-backed mortgage financing is an important factor in marketing and selling many of our homes, any limitations, restrictions or changes in the availability of such government-backed financing could reduce our home sales, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Furthermore, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. This legislation provides for a number of new requirements relating to residential mortgages and mortgage lending practices, many of which are to be developed further by implementing rules. These include, among others, minimum standards for mortgages and lender practices in making mortgages, limitations on certain fees and incentive arrangements, retention of credit risk and remedies for borrowers in foreclosure proceedings. The effect of such provisions on lending institutions will depend on the rules that are ultimately enacted. However, these requirements, as and when implemented, are expected to reduce the availability of loans to borrowers or increase the costs to borrowers to obtain such loans. Any such reduction could result in a decline of our home sales, which could materially and adversely affect us.

Because of the seasonal nature of our business, our quarterly operating results fluctuate.

As discussed under “Management’s Discussion and Analysis of Financial Condition—Liquidity and Capital Resources—Seasonality” we have experienced seasonal fluctuations in our quarterly operating results and capital requirements that can have a material impact on our results and our consolidated financial statements. We typically experience the highest new home order activity in spring and summer, although this activity also highly depends on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home

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starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur during the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry. We expect the traditional seasonality cycle and its impact on our results to become more prominent if and as the present housing recovery progresses and the homebuilding industry returns to a more normal operating environment, but we can make no assurances as to the degree to which our historical seasonal patterns will occur in 2013 and beyond, if at all.

Our business and long-term growth would suffer if we are unable to successfully identify and acquire desirable land parcels for residential buildout.

Our future growth depends, in part, upon our ability to successfully identify and acquire attractive land parcels for development of our single-family homes at reasonable prices and with terms that meet our underwriting criteria. Our ability to acquire land parcels for new single-family homes may be adversely affected by changes in the general availability of land parcels, the willingness of land sellers to sell land parcels at reasonable prices, competition for available land parcels, availability of financing to acquire land parcels, zoning and other market conditions. If the supply of land parcels appropriate for development of single-family homes is limited because of these factors, or for any other reason, our ability to grow could be significantly limited, and our revenue, gross margins and the number of homes that we build and sell could decline. Additionally, our ability to begin new projects could be impacted if we elect not to purchase land parcels under option contracts. To the extent that we are unable to purchase land parcels timely or enter into new contracts for the purchase of land parcels at reasonable prices, our home sales revenue and results of operations could be negatively impacted.

The estimates, forecasts and projections relating to our markets prepared by JBREC are based upon numerous assumptions and may not prove to be accurate.

This prospectus contains estimates, forecasts and projections relating to our markets that were prepared for us for use in connection with this offering by JBREC, an independent research provider and consulting firm focused on the housing industry. See “Market Opportunity.” We have paid JBREC a fee of $41,000 for its services, plus an amount charged at an hourly rate for additional information we may require from JBREC from time to time in connection with its services. The estimates, forecasts and projections relate to, among other things, employment, demographics, household income, home sales prices and affordability. These estimates may not be, and the forecasts and projections may not prove to be, accurate. These estimates, forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of JBREC. In many cases, a particular estimate forecast or projection may be extremely sensitive to small changes in the underlying assumptions, judgments and methodologies, which may prove to be inaccurate or inappropriate. Accordingly, the application of alternative assumptions, judgments or methodologies could result in materially less favorable estimates, forecasts and projections than those contained in this prospectus. Other real estate experts have different views regarding these forecasts and projections that may be more positive or negative, including in terms of the timing, magnitude and direction of future changes.

The forecasts and projections in this prospectus are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. JBREC has made these forecasts and projections based on studying the historical and current performance of the residential housing market and applying JBREC’s qualitative knowledge and subjective estimates, assumptions and judgments about the residential housing market. The future is difficult to predict, particularly given that the economy and housing markets are cyclical, subject to changing consumer and market psychology and governmental policies related to mortgage regulations and interest rates. There will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. Accordingly, the forecasts and projections included in this prospectus might not occur or might occur to a different extent or at a different time. For the foregoing reasons, neither we nor JBREC can provide any assurance that the estimates, forecasts and projections contained in this prospectus are accurate, actual outcomes

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may vary significantly from those contained or implied by the forecasts and projections, and you should not place undue reliance on these estimates, forecasts and projections. Except as required by law, we are not obligated to, and do not intend to, update the statements in this prospectus to conform to actual outcomes or changes in our or JBREC’s expectations.

We may not achieve projected goals and objectives in the time periods that we anticipate or announce publicly, which could have an adverse effect on our business and could cause the price of our common stock to decline.

We set goals and objectives for the timing of certain accomplishments and milestones regarding our business. We have included some of these goals and objectives in this prospectus and may make similar future public statements. For example, this prospectus includes forecasts regarding the timelines for opening sales locations, or beginning development, in various communities or markets and the number of homes in planned future communities. These projections are based on our current expectations and may not accurately reflect specific uncertainties or uncertainties inherent in all forecasts. More specifically, the actual timing of these events can vary dramatically due to a number of factors, including currently unforeseen matters and matters beyond our control. You should not unduly rely on these forecasts in deciding whether to invest in our common stock.

If the market value of our land inventory decreases, our results of operations could be adversely affected by impairments and write-downs.

The market value of our land and housing inventories depends on market conditions. We acquire land for expansion into new markets and for replacement of land inventory and expansion within our current markets. There is an inherent risk that the value of the land owned or controlled by us may decline after purchase. The valuation of property is inherently subjective and based on the individual characteristics of each property. We may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. In addition, our deposits for lots controlled under option or similar contracts may be put at risk. Factors such as changes in regulatory requirements and applicable laws (including in relation to building regulations, taxation and planning), political conditions, the condition of financial markets, both local and national economic conditions, the financial condition of customers, potentially adverse tax consequences, and interest and inflation rate fluctuations subject valuations to uncertainty. Moreover, all valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. If housing demand decreases below what we anticipated when we acquired our inventory, our results of operations and financial conditions may be adversely affected and we may not be able to recover our costs when we sell and build houses. We regularly review the value of our land holdings and continue to review our holdings on a periodic basis. Material write-downs and impairments in the value of our inventory may be required, and we may in the future sell land or homes at a loss, which could adversely affect our results of operations and financial condition.

Any limitation on, or reduction or elimination of, tax benefits associated with owning a home would decrease the demand for our home products and land, which could be material to our business.

Changes in federal income tax laws may affect the demand for new homes and land suitable for residential development. Current tax laws generally permit significant expenses associated with owning a home, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individual’s federal, and in many cases, state, taxable income. Various proposals have been publicly discussed to limit mortgage interest deductions and to limit the exclusion of gains from the sale of a principal residence. For instance, under the American Taxpayer Relief Act of 2012, which was signed into law in January 2013, the federal government enacted higher income tax rates and limits on the value of tax deductions for certain high-income individuals and households. If the federal government or a state government changes or further changes its income tax laws, as some lawmakers have proposed, by eliminating, limiting or substantially reducing these income tax benefits without offsetting provisions, the after-tax cost of owning a new home would increase for many of our potential customers. Enactment of any such proposal may have an adverse effect on the homebuilding industry in general, as the loss or reduction of homeowner tax deductions could decrease the demand for new homes.

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Difficulty in obtaining sufficient capital could prevent us from acquiring land for our developments or increase costs and delays in the completion of our development projects.

The homebuilding and land development industry is capital-intensive and requires significant up-front expenditures to acquire land parcels and begin development. If internally generated funds are not sufficient, we may seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financings or securities offerings. The availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. The credit and capital markets have recently experienced significant volatility. If we are required to seek additional financing to fund our operations, continued volatility in these markets may restrict our flexibility to access such financing. If we are not successful in obtaining sufficient capital to fund our planned capital and other expenditures, we may be unable to acquire land for our housing developments or to develop housing. Additionally, if we cannot obtain additional financing to fund the purchase of land under our option contracts or purchase contracts, we may incur contractual penalties and fees. Any difficulty in obtaining sufficient capital for planned development expenditures could also cause project delays, which could increase our costs. Any one or more of the foregoing events could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

We face potentially substantial risk with respect to our land and lot inventory.

We intend to acquire land parcels for replacement and expansion of land inventory within our current and any new markets. The risks inherent in purchasing and developing land parcels increase as consumer demand for housing decreases. As a result, we may buy and develop land parcels on which homes cannot be profitably built and sold. The market value of land parcels, building lots and housing inventories can fluctuate significantly as a result of changing market conditions, and the measures we employ to manage inventory risk may not be adequate to insulate our operations from a severe drop in inventory values. When market conditions drive land values down, option agreements we have previously entered into may become less desirable, at which time we may elect to forego deposits and pre-acquisition costs and terminate the agreements. Land parcels, building lots and housing inventories are illiquid assets, and we may not be able to dispose of them efficiently or at all if we are in financial distress. In addition, inventory carrying costs can be significant and can result in losses in a poorly performing project or market. In the event of significant changes in economic or market conditions, we may have to sell homes at significantly lower margins or at a loss, if we are able to sell them at all.

Adverse weather and geological conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which could materially and adversely affect us.

As a homebuilder and land developer, we are subject to the risks associated with numerous weather-related and geologic events, many of which are beyond our control. These weather-related and geologic events include but are limited to droughts, floods, wildfires, landslides, soil subsidence and earthquakes. The occurrence of any of these events could damage our land parcels and projects, cause delays in the completion of our projects, reduce consumer demand for housing and cause shortages and price increases in labor or raw materials, any of which could harm our sales and profitability. Our California markets are in areas which have historically experienced significant earthquake activity and seasonal wildfires. In addition to directly damaging our land or projects, earthquakes, wildfires or other geologic events could damage roads and highways providing access to those projects, thereby adversely affecting our ability to market homes in those areas and possibly increasing the costs of completion.

There are some risks of loss for which we may be unable to purchase insurance coverage. For example, losses associated with landslides, earthquakes and other geologic events may not be insurable, and other losses, such as those arising from terrorism, may not be economically insurable. A sizeable uninsured loss could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

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Our business and results of operations depend on the availability and skill of trade partners.

Substantially all of our construction work is done by third-party trade partners with us acting as the general contractor. Accordingly, the timing and quality of our construction depend on the availability and skill of our trade partners. We do not have long-term contractual commitments with any trade partners, and there can be no assurance that skilled subcontractors will continue to be available at reasonable rates and in the areas in which we conduct our operations. Certain of the trade partners engaged by us are represented by labor unions or are subject to collective bargaining arrangements that require the payment of prevailing wages that are higher than normally expected on a residential construction site. A strike or other work stoppage involving any of our subcontractors could also make it difficult for us to retain subcontractors for our construction work. In addition, union activity could result in higher costs to retain our subcontractors. The inability to contract with skilled trade partners at reasonable costs on a timely basis could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

In addition, despite our quality control efforts, we may discover that our trade partners were engaging in improper construction practices or installing defective materials in our homes. When we discover these issues, we, generally through our trade partners, repair the homes in accordance with our new home warranty and as required by law. We reserve 1% of the sales price of each home we sell to satisfy warranty and other legal obligations to our homebuyers. These reserves are established based on market practices, our historical experiences and our judgment of the qualitative risks associated with the types of homes built. However, the cost of satisfying our warranty and other legal obligations in these instances may be significantly higher than our reserves, and we may be unable to recover the cost of repair from such trade partners. Regardless of the steps we take, we can in some instances be subject to fines or other penalties, and our reputation may be adversely affected.

Labor and raw material shortages and price fluctuations could delay or increase the cost of home construction, which could materially and adversely affect us.

The residential construction industry experiences serious labor and raw material shortages from time to time, including shortages in qualified tradespeople, and supplies of insulation, drywall, cement, steel and lumber. These labor and raw material shortages can be more severe during periods of strong demand for housing or during periods where the regions in which we operate experience natural disasters that have a significant impact on existing residential and commercial structures. The cost of labor and raw materials may also increase during periods of shortage or high inflation. During the recent economic downturn, a large number of qualified trade partners went out of business or otherwise exited the market. A reduction in available trade partners will likely exacerbate labor shortages when demand for new housing increases. Shortages and price increases could cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

New and existing laws and regulations or other governmental actions may increase our expenses, limit the number of homes that we can build or delay the completion of our projects.

We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters which impose restrictive zoning and density requirements, which can limit the number of homes that can be built within the boundaries of a particular area. Projects that are not entitled may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to government regulations. We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future. Local governments also have broad discretion regarding the imposition of development fees and exactions for projects in their jurisdiction. Projects for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety and welfare issues, which can further delay these projects or prevent their development. As a result, home sales could decline and costs could increase, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

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Our current and future joint venture investments could be adversely affected by a lack of sole decision-making authority and reliance on the financial condition and liquidity of our joint venture partners.

Upon completion of this offering and our formation transactions, we will own interests in projects through              joint ventures, all of which are unconsolidated joint ventures, representing approximately              homes. We may enter into additional joint ventures in the future, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth. Such joint venture investments involve risks not otherwise present in wholly owned projects, including the following:

• we do not have exclusive control over the development, financing, management and other aspects of the project or joint venture, which may prevent us from taking actions that are in our best interest but opposed by our partners;

• joint venture agreements often restrict the transfer of a partner’s interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;

• our existing joint venture agreements contain, and any future joint venture agreements may contain, buy-sell provisions pursuant to which one partner may initiate procedures requiring the other partner to choose

between buying the other partner’s interest or selling its interest to that partner; we may not have the capital to purchase our joint venture parties’ interest under these circumstances even if we believe it would be beneficial to do so;

• we cannot exercise sole decision-making authority regarding the project or joint venture, which could create the potential risk of creating impasses on decisions, such as acquisitions or sales;

• a partner may, at any time, have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals;

• a partner may fail to fund its share of required capital contributions or may become bankrupt, which generally would cause us and any other remaining partners to remain liable for the joint venture’s liabilities;

• our relationships with our partners are contractual in nature and may be terminated or dissolved under the terms of the applicable joint venture agreements, and, in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at a premium to the market price to continue ownership;

• disputes between us and our partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and efforts on our business and could result in subjecting the projects owned by the joint venture to additional risk; or

• we may be liable for joint venture obligations where the joint venture is a partnership and we serve as a general partner.

Any of the above might subject a project to liabilities in excess of those contemplated and adversely affect the value of our current and future joint venture investments.

We may be unable to obtain suitable bonding for the development of our housing projects.

We are often required to provide bonds to governmental authorities and others to ensure the completion of our projects. As a result of market conditions, surety providers have been reluctant to issue new bonds and some providers are requesting credit enhancements (such as cash deposits or letters of credit) in order to maintain existing bonds or to issue new bonds. If we are unable to obtain required bonds in the future for our projects, or if we are required to provide credit enhancements with respect to our current or future bonds, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected.

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We are subject to environmental laws and regulations, which may increase our costs, limit the areas in which we can build homes and delay completion of our projects.

We are subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment. The particular environmental laws which apply to any given property vary according to multiple factors, including the property’s location, its environmental conditions, the present and former uses of the property, the presence or absence of endangered plants or animals or sensitive habitats, as well as conditions at nearby properties. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs and can prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or areas. In addition, in those cases where an endangered or threatened species is involved and agency rulemaking and litigation are ongoing, the outcome of such rulemaking and litigation can be unpredictable, and at any time can result in unplanned or unforeseeable restrictions on or even the prohibition of development in identified environmentally sensitive areas. From time to time, the United States Environmental Protection Agency, or the EPA, and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws, including those applicable to control or storm water discharges during construction, or impose additional requirements for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs and result in project delays. We expect that increasingly stringent requirements will be imposed on land developers and homebuilders in the future. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber, and on other building materials.

California is especially susceptible to restrictive government regulations and environmental laws. For example, California imposes notification obligations respecting environmental conditions, sometimes recorded on deeds, and also those required to be delivered to persons accessing property or to home buyers or renters, which may cause some persons, or their financing sources, to view the subject parcels as less valuable or as impaired. California has also enacted so-called “climate change” legislation, which could result in additional costs to achieve energy use or energy efficiency mandates, alter community layouts, meet “green building” standards and impose carbon or other greenhouse gas reductions or offset obligations, and could result in other costs or obligations as well.

Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held liable to a governmental entity or to third parties for related damages, including for bodily injury, and for investigation and clean-up costs incurred by such parties in connection with the contamination. A mitigation system may be installed during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition such as methane. Some buyers may not want to purchase a home with a mitigation system.

Ownership, leasing or occupation of land and the use of hazardous materials carries potential environmental risks and liabilities.

We are subject to a variety of local, state and federal statutes, rules and regulations concerning land use and the protection of health and the environment, including those governing discharge of pollutants to soil, water and air, including asbestos, the handling of hazardous materials and the cleanup of contaminated sites. We may be liable for the costs of removal, investigation or remediation of man-made or natural hazardous or toxic substances located on, under or in a property currently or formerly owned, leased or occupied by us, whether or not we caused or knew of the pollution. The costs of any required removal, investigation or remediation of such substances or the costs of defending against environmental claims may be substantial. The presence of such substances, or the failure to remediate such substances adequately, may also adversely affect our ability to sell the land or to borrow using the land as security. Environmental impacts from historical activities have been identified at some of the projects we have developed in the past and additional projects are located on land that was contaminated by previous use.

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The particular impact and requirements of environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former uses of the site. We expect that increasingly stringent requirements may be imposed on land developers and homebuilders in the future. Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas, such as wetlands. We also may not identify all of these concerns during any pre-acquisition or pre-development review of project sites, and concerns could arise due to post-acquisition changes in laws or agency policies, or the interpretation thereof. Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. In addition, under environmental laws and regulations, third-parties, such as by environmental groups or neighborhood associations, may challenge the permits and other approvals required for our projects and operations. These matters could adversely affect our business, prospects, liquidity, financial condition and results of operations.

We may be liable for claims for damages as a result of use of hazardous materials.

As a land development and homebuilding business with a wide variety of historic ownership, development, homebuilding and construction activities, we could be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials or fixtures known or suspected to be hazardous or to contain hazardous materials or due to use of building materials or fixtures which are associated with elevated mold. Any such claims may adversely affect our business, prospects, financial condition and results of operations. Insurance coverage for such claims may be limited or non-existent.

We may become subject to litigation, which could materially and adversely affect us.

In the future we may become subject to litigation, including claims relating to our operations, joint ventures, securities offerings and otherwise in the ordinary course of business or otherwise. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves. However, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract directors and officers. Furthermore, any litigation, regardless of its outcome, can divert the attention of our management from operating our core business and can harm our reputation, each of which could harm our business.

We may suffer uninsured losses or material losses in excess of insurance limits, and increased insurance costs and reduced insurance coverage may affect our results of operations and increase our potential exposure to liability.

Material losses or liabilities in excess of insurance proceeds may occur in the future. We could suffer physical damage to property and liabilities resulting in losses that may not be fully recoverable by insurance. In addition, certain types of risks, such as personal injury claims, may be, or may become in the future, either uninsurable or not economically insurable, or may not be currently or in the future covered by our insurance policies. In addition, the costs of insuring against construction defect, product liability and director and officer claims are substantial, and the cost of insurance for our operations may rise, deductibles and retentions may increase and the availability of insurance my diminish. Should an uninsured loss or a loss in excess of insured limits occur, we could sustain financial loss or lose capital invested in the affected property as well as anticipated future income from that property. Significant increases in the cost of insurance coverage could also have a material adverse effect on our results of operations and financial condition. In addition, we could be liable to repair damage or meet liabilities caused by uninsured risks.

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We may not be able to compete effectively against competitors in the homebuilding industry.

We operate in a very competitive environment which is characterized by competition from a number of other homebuilders in each market in which we operate. Additionally, there are relatively low barriers to entry into our business. We compete with numerous large national and regional homebuilding companies and with smaller local homebuilders and land developers for, among other things, home buyers, desirable land parcels, financing, raw materials and skilled management and labor resources. Our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. Increased competition could hurt our business, as it could prevent us from acquiring attractive land parcels on which to build homes or make such acquisitions more expensive, hinder our market share expansion and cause us to increase our selling incentives and reduce our prices. An oversupply of homes available for sale and the heavy discounting of home prices by some of our competitors have adversely affected demand for homes in the market as a whole and could do so again in the future. We also compete with the resale, or “previously owned,” home market which has increased significantly due to the large number of homes that have been foreclosed on or could be foreclosed on due to the recent economic downturn. If we are unable to compete effectively in our markets, our business could decline disproportionately to our competitors, and our results of operations and financial condition could be adversely affected.

We may be at a competitive disadvantage with regard to certain of our large national and regional homebuilding competitors whose operations are more geographically diversified than ours, as these competitors may be better able to withstand any future regional downturn in the housing market. We compete directly with a number of large national and regional homebuilders that may have longer operating histories and greater financial and operational resources than we do. Many of these competitors also have longstanding relationships with subcontractors and suppliers in the markets in which we operate. This may give our competitors an advantage in securing materials and labor at lower prices, marketing their products and allowing their homes to be delivered to customers more quickly and at more favorable prices. This competition could reduce our market share and limit our ability to expand our business as we have planned.

If we are unable to develop our communities successfully or within expected timeframes, our results of operations could be adversely affected.

Before a community generates any revenue, time and material expenditures are required to acquire land, obtain development approvals and construct significant portions of project infrastructure, amenities, model homes and sales facilities. It can take several years from the time we acquire control of a property to the time we make our first home sale on the site. Delays in the development of communities expose us to the risk of changes in market conditions for homes. A decline in our ability to develop and market our communities successfully and to generate positive cash flow from these operations in a timely manner could have a material adverse effect on our business and results of operations and on our ability to service our debt and to meet our working capital requirements.

Increases in our cancellation rate could have a negative impact on our home sales revenue and homebuilding margins.

The cancellation rate of buyers for our owned projects who contracted to buy a home but did not close escrow (as a percentage of overall orders) was approximately 11% and 24%, respectively, for the three months ended March 31, 2013 and 2012. Our cancellation rate for our unconsolidated joint venture projects was 13% and 5% for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively. Home order cancellations negatively impact the number of closed homes, net new home orders, home sales revenue and results of operations, as well as the number of homes in backlog. Home order cancellations can result from a number of factors, including declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, homebuyers’ inability to sell their existing homes, homebuyers’ inability to obtain suitable financing, including providing sufficient down payments, and adverse changes in economic conditions. Upon a home order cancellation, the homebuyer’s escrow deposit is returned to the homebuyer (other than with respect to certain design-related deposits, which we retain). An increase in the level of our home order cancellations could have a negative impact on our business, prospects, liquidity, financial condition and results of operations.

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We are subject to product liability and warranty claims arising in the ordinary course of business.

As a homebuilder, we are subject to construction defect, product liability and home warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business or otherwise. While we maintain general liability insurance and generally seek to require our subcontractors and design professionals to indemnify us for some portion of the liabilities arising from their work, there can be no assurance that these insurance rights and indemnities will be collectable or adequate to cover any or all construction defect and warranty claims for which we may be liable. For example, contractual indemnities can be difficult to enforce, we are often responsible for applicable self-insured retentions (particularly in markets where we include our subcontractors on our general liability insurance and our ability to seek indemnity for insured claims is significantly limited), certain claims may not be covered by insurance or may exceed applicable coverage limits, and one or more of our insurance carriers could become insolvent. Further, in the United States, and California in particular, the coverage offered and the availability of general liability insurance for construction defects is currently limited and is costly. As a result, an increasing number of our subcontractors may be unable to obtain insurance, particularly in California where we have instituted an “owner controlled insurance program,” under which subcontractors are effectively insured by us. If we cannot effectively recover construction defect liabilities and defense costs from our subcontractors or their insurers, or if we are self-insured, we may suffer losses. Coverage may be further restricted and become even more costly. Such circumstances could adversely affect our business, prospects, liquidity, financial condition and results of operations.

In addition, we conduct all of our business in California, one of the most highly regulated and litigious jurisdictions in the United States, which imposes a ten year, strict liability tail on many construction liability claims. As a result, our potential losses and expenses due to litigation, new laws and regulations may be greater than those of our competitors who have smaller California operations.

We have incurred annual losses since our inception and may have difficulty achieving or maintaining profitability in the future.

We generated net losses of $0.9 million in 2012 and $1.9 million in 2011 and may never achieve profitability on an annual basis. Even if we achieve profitability, we may not be able to sustain or increase profitability on a annual basis going forward. If our revenue grows more slowly than we anticipate, or if our operating expenses exceed our expectations and cannot be adjusted accordingly, our business will be harmed. As a result, the price of our shares of common stock may decline, and you may lose a portion or all of your investment.

Our operating performance is subject to risks associated with the real estate industry.

Real estate investments are subject to various risks, fluctuations and cycles in value and demand, many of which are beyond our control. Certain events may decrease cash available for operations, as well as the value of our real estate assets. These events include, but are not limited to:

• adverse changes in international, national or local economic and demographic conditions;

• adverse changes in financial conditions of buyers and sellers of properties, particularly residential homes and land suitable for development of residential homes;

• competition from other real estate investors with significant capital, including other real estate operating companies and developers and institutional investment funds;

• reductions in the level of demand for and increases in the supply of land suitable for development;

• fluctuations in interest rates, which could adversely affect our ability, or the ability of homebuyers, to obtain financing on favorable terms or at all;

• unanticipated increases in expenses, including, without limitation, insurance costs, development costs, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies; and

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• changes in enforcement of laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in the purchase of homes or an increased incidence of home order cancellations. If we cannot successfully implement our business strategy, our business, prospects, liquidity, financial condition and results of operations will be adversely affected.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties for reasonable prices in response to changing economic, financial and investment conditions may be limited and we may be forced to hold non-income producing properties for extended periods of time.

Real estate investments are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in response to changing economic, financial and investment conditions is limited and we may be forced to hold non-income producing assets for an extended period of time. We cannot predict whether we will be able to sell any property for the price or on the terms that we set or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

Fluctuations in real estate values may require us to write-down the book value of our real estate assets.

The homebuilding and land development industries are subject to significant variability and fluctuations in real estate values. As a result, we may be required to write-down the book value of our real estate assets in accordance with U.S. generally accepted accounting principles, or GAAP, and some of those write-downs could be material. Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Inflation could adversely affect our business and financial results.

Inflation could adversely affect us by increasing the costs of land, raw materials and labor needed to operate our business. If our markets have an oversupply of homes relative to demand, we may be unable to offset any such increases in costs with corresponding higher sales prices for our homes. Inflation typically also accompanies higher interests rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms, thereby further decreasing demand. If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could decrease. Furthermore, if we need to lower the price of our homes to meet demand, the value of our land inventory may decrease. Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business.

A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.

Building sites are inherently dangerous, and operating in the homebuilding industry poses certain inherent health and safety risks. Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business. Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result. Such a failure could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies, governmental authorities and local communities, and our ability to win new business, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

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Acts of war or terrorism may seriously harm our business.

Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power or acts of terrorism may cause disruption to the U.S. economy, or the local economies of the markets in which we operate, cause shortages of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate. Each of these events could reduce demand for our homes and adversely impact our business, prospects, liquidity, financial condition and results of operations.

An information systems interruption or breach in security could adversely affect us.

We rely on accounting, financial and operational management information systems to conduct our operations. Any disruption in these systems could adversely affect our ability to conduct our business. Furthermore, any security breach of information systems or data could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation and a loss of confidence in our security measures, which could harm our business.

Poor relations with the residents of our communities could negatively impact sales, which could cause our revenues or results of operations to decline.

Residents of communities we develop rely on us to resolve issues or disputes that may arise in connection with the operation or development of their communities. Efforts made by us to resolve these issues or disputes could be deemed unsatisfactory by the affected residents, and subsequent actions by these residents could adversely affect sales or our reputation. In addition, we could be required to make material expenditures related to the settlement of such issues or disputes or to modify our community development plans, which could adversely affect our results of operations.

We may incur a variety of costs to engage in future growth or expansion of our operations or acquisitions or disposals of businesses, and the anticipated benefits may never be realized.

As a part of our business strategy, we may make acquisitions, or significant investments in or disposals of businesses. We may also expand our operations to new markets. Any future acquisitions, investments, disposals or entry into a new market would be accompanied by risks such as:

• difficulties in assimilating the operations and personnel of acquired companies or businesses;

• potential loss of key employees of the acquired companies or business;

• diversion of our management’s attention from ongoing business concerns;

• our potential inability to maximize our financial and strategic position through the successful incorporation or disposition of operations;

• difficulty in maintaining of uniform standards, controls, procedures and policies;

• impairment of existing relationships with employees, contractors, suppliers and customers as a result of the integration of new management personnel and cost-saving initiatives; and

• risks associated with entering markets in which we have limited or no direct experience.

The magnitude, timing and nature of any future acquisition or expansion will depend on a number of factors, including our ability to identify suitable additional markets or acquisition candidates. We cannot guarantee that we will be able to successfully integrate any company or business that we might acquire in the future, or that any expansion into a new market will be successfully executed, and our failure to do so could harm our current business.

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In addition, we may not realize the anticipated benefits of these transactions or expansions, and there may be other unanticipated or unidentified effects. While we would seek protection, for example, through warranties and indemnities in the case of acquisitions, significant liabilities may not be identified in due diligence or may come to light after the expiry of warranty or indemnity periods. Additionally, while we would seek to limit our ongoing exposure, for example, through liability caps and period limits on warranties and indemnities in the case of disposals, some warranties and indemnities may give rise to unexpected and significant liabilities. Any claims arising in the future may adversely affect our business, prospects, liquidity, financial condition and results of operations and could lead to a decline in the price of our common stock.

We have broad discretion to use the offering proceeds and our investment of those proceeds may not yield a favorable return.

Our management has broad discretion to spend the proceeds from this offering in ways with which you may not agree. The failure of our management to apply these funds effectively could result in unfavorable returns. This could harm our business and could cause the price of our common stock to decline.

Utility shortages or price increases could adversely impact our operations.

Certain of the areas in which we operate, particularly in Southern and Northern California, have experienced power shortages, including mandatory periods without electrical power, as well as significant increases in utility costs. We may incur additional costs and may not be able to complete construction on a timely basis if such power shortages and utility rate increases continue. In addition, power shortages and rate increases may adversely affect the local economies in which we operate, which may reduce demand for housing in our markets.

We are an early-stage company and will rely on significant growth to achieve and sustain profitability. Our business strategy will fail if we are unable to manage our expected growth.

Our predecessor began operations in the third quarter of 2009, and we sold our first home in 2010. Through March 31, 2013, we delivered 122 homes and our unconsolidated joint ventures delivered 65 homes (and there were 191 homes delivered in fee building projects marketed under a third-party owner’s name), and we have only recently begun to significantly expand our operations. Our business plan requires us to continue to expand our operations over a relatively short period of time. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. In order to manage our continued growth, we may be required to raise significant amounts of capital, improve existing and implement new operational and financial systems, procedures and controls and expand, train and manage a growing employee base. Our current and planned personnel, systems, procedures and controls may not be adequate, and we may be unable to obtain the necessary capital, to support our anticipated growth. If we are unable to manage our growth effectively, our business will suffer and we may never reach profitability.

Risks Related to Our Indebtedness

We expect to use leverage in executing our business strategy, which may adversely affect the return on our assets.

We expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. Our existing indebtedness is recourse to us, and we anticipate that future indebtedness will likewise be recourse. As of March 31, 2013, we had approximately $27.8 million loan commitments, of which $18.2 million was outstanding. We will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service costs. As a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized. However, subsequent to the completion of the offering to which this Prospectus relates, our board of directors may change our target debt levels at any time without the approval of our stockholders.

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Incurring substantial debt could subject us to many risks that, if realized, would adversely affect us, including the risk that:

• our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt, which is likely to result in acceleration of the maturity of such debt;

• our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs;

• we may be required to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations and capital expenditures, future investment opportunities or other purposes; and

• the terms of any refinancing may not be as favorable as the terms of the debt being refinanced.

If we do not have sufficient funds to repay our debt at maturity, it may be necessary to refinance the debt through additional debt or additional equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancings, increases in interest expense could adversely affect our cash flows and results of operations. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms, potentially resulting in losses. To the extent we cannot meet any future debt service obligations, we may lose some or all of our assets that may be pledged to secure our obligations to foreclosure. Also, debt agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some circumstances. Defaults under our debt agreements could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Access to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could adversely affect our ability to increase our returns.

Our growth strategy requires significant additional capital. Our access to additional third-party sources of financing will depend, in part, on:

• general market conditions;

• the market’s perception of our growth potential;

• with respect to acquisition or development financing, the market’s perception of the value of the land parcels to be acquired or developed;

• our debt levels;

• any credit rating assigned to us or our existing debt by a rating agency or any indication that those ratings may be lowered;

• our expected results of operations;

• our cash flow; and

• the market price of our common stock.

Recently, domestic financial markets have experienced unusual volatility, uncertainty and a tightening of liquidity in both the investment grade debt and equity capital markets. Credit spreads for major sources of capital widened significantly during the U.S. credit crisis as investors demanded a higher risk premium. Given the current volatility and weakness in the capital and credit markets, potential lenders may be unwilling or unable to provide us with financing that is attractive to us or may charge us prohibitively high fees in order to obtain financing. Consequently, there is greater uncertainty regarding our ability to access the credit market in order to attract financing on reasonable terms. Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure additional financing on reasonable terms, if at all.

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Depending on market conditions at the relevant time, we may have to rely more heavily on additional equity financings or on less efficient forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities and other purposes. We may not have access to such equity or debt capital on favorable terms at the desired times, or at all.

Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants relating to our operations.

Our current financing arrangements contain, and the financing arrangements we enter into in the future likely will contain, covenants (financial and otherwise) affecting our ability to incur additional debt, make certain investments, reduce liquidity below certain levels, make distributions to our stockholders and otherwise affect our operating policies. If we fail to meet or satisfy any of these covenants in our debt agreements, we would be in default under these agreements, which could result in a cross-default under other debt agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral. A default also could limit significantly our financing alternatives, which could cause us to curtail our investment activities or dispose of assets when we otherwise would not choose to do so. A default on any of our debt agreements could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

Secured indebtedness exposes us to the possibility of foreclosure on our ownership interests in our land parcels.

Incurring mortgage and other secured indebtedness increases our risk of loss of our ownership interests in our land parcels or other assets because defaults thereunder, and the inability to refinance such indebtedness, may result in foreclosure action initiated by lenders.

Interest expense on debt we incur may limit our cash available to fund our growth strategies.

As of March 31, 2013, we had approximately $27.8 million loan commitments, of which $18.2 million was outstanding. As part of our financing strategy, we may incur a significant amount of additional debt. Our current debt has, and any additional debt we subsequently incur may have, a floating rate of interest. Higher interest rates could increase debt service requirements on our current floating rate debt and on any floating rate debt we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes. If we need to repay existing debt during periods of rising interest rates, we could be required to refinance our then-existing debt on unfavorable terms or liquidate one or more of our assets to repay such debt at times which may not permit realization of a favorable return on such assets and could result in a loss. The occurrence of either such event or both could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

Failure to hedge effectively against interest rate changes may adversely affect us.

We may obtain in the future one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or similar agreements—to hedge against the possible negative effects of interest rate fluctuations on our indebtedness that bears interest at floating rates. However, we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate increases or that counterparties under these hedging agreements will honor their obligations thereunder. In addition, we may be subject to risks of default by hedging counterparties. Increased interest expenses on our floating rate indebtedness that we have not hedged will harm our financial position and results of operations.

Risks Related to Our Organization and Structure

We have a limited operating history and we may not be able to successfully operate our business.

Our company was founded in August 2009, and we have incurred losses since our inception. Prior to the completion of this offering, TNHC LLC will be converted from a Delaware limited liability company into a

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Delaware corporation and renamed The New Home Company Inc. Given our limited operating history, you have limited historical information upon which to evaluate our prospects, including our ability to acquire desirable land parcels, develop such land and market our homes. In addition, we cannot assure you that our past experience will be sufficient to enable us to operate our business successfully or implement our operating policies and business strategies as described in this prospectus. Furthermore, we may not be able to generate sufficient operating cash flows to pay our operating expenses or service our indebtedness. You should not rely upon the past performance of our management team, as past performance may not be indicative of our future results.

We depend on key personnel.

Our success depends to a significant degree upon the contributions of certain key personnel including, but not limited to, H. Lawrence Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer, and Thomas Redwitz, our Chief Operating Officer, each of whom would be difficult to replace. Although we will enter into employment agreements with Messrs. Webb, Stelmar, Davis and Redwitz upon the completion of this offering, there is no guarantee that these executives will remain employed with us. If any of our key personnel were to cease employment with us, our operating results could suffer. Our ability to retain our key personnel or to attract suitable replacements should any members of our management team leave depends on the competitive nature of the employment market. The loss of services from key personnel or a limitation in their availability could materially and adversely impact our business, prospects, liquidity, financial condition and results of operations. Further, such a loss could be negatively perceived in the capital markets. Although we are currently considering our coverages, we have not obtained key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel.

Termination of the employment agreements with the members of our management team could be costly and prevent a change in control of our company.

The employment agreements we will enter into with H. Lawrence Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer, and Thomas Redwitz, our Chief Operating Officer, upon the completion of this offering each provide that if their employment with us terminates under certain circumstances, we may be required to pay them significant amounts of severance compensation, thereby making it costly to terminate their employment. Furthermore, these provisions could delay or prevent a transaction or a change in control of our company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our stockholders, which could adversely affect the market price of our common stock.

Certain anti-takeover defenses and applicable law may limit the ability of a third-party to acquire control of us.

Our charter and bylaws and Delaware law contain provisions that may delay or prevent a transaction or a change in control of our company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our stockholders, which could adversely affect the market price of our common stock. Certain of these provisions are described below.

Selected provisions of our charter and bylaws.

Our charter and/or bylaws contain anti-takeover provisions that:

• divide our directors into three classes, with the term of one class expiring each year, which could delay a change in our control;

• authorize our board of directors, without further action by the stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series, and with respect to each series, to fix the number of shares constituting that series and establish the rights and other terms of that series;

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• require that actions to be taken by our stockholders may be taken only at an annual or special meeting of our stockholders and not by written consent;

• specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors or our chief executive officer;

• establish advance notice procedures for stockholders to submit nominations of candidates for election to our board of directors and other proposals to be brought before a stockholders meeting;

• provide that our bylaws may be amended by our board of directors without stockholder approval;

• allow our directors to establish the size of our board of directors by action of our board of directors, subject to a minimum of three members;

• provide that vacancies on our board of directors or newly created directorships resulting from an increase in the number of our directors may be filled only by a majority of directors then in office, even though less than a quorum;

• do not give the holders of our common stock cumulative voting rights with respect to the election of directors; and

• prohibit us from engaging in certain business combinations with any “interested stockholder” unless specified conditions are satisfied as described below under “—Selected provisions of Delaware law.”

Selected provisions of Delaware law. We have opted out of Section 203 of the Delaware General Corporation Law, or the DGCL, which regulates corporate takeovers. However, our charter contains provisions that are similar to Section 203 of the DGCL. Specifically, our charter provides that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the person became an interested stockholder, unless:

• prior to the time that person became an interested stockholder, our board of directors approved either the business combination or the transaction which resulted in the person becoming an interested stockholder;

• upon consummation of the transaction which resulted in the person becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding certain shares; or

• at or subsequent to the time the person became an interested stockholder, the business combination is approved by our board of directors and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.

Generally, a business combination includes a merger, consolidation, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an interested stockholder is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our voting stock. This provision could prohibit or delay mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us.

We may change our operational policies, investment guidelines and our business and growth strategies without stockholder consent, which may subject us to different and more significant risks in the future.

Our board of directors will determine our operational policies, investment guidelines and our business and growth strategies. Our board of directors may make changes to, or approve transactions that deviate from, those policies, guidelines and strategies without a vote of, or notice to, our stockholders. This could result in us conducting operational matters, making investments or pursuing different business or growth strategies than those contemplated in this prospectus. Under any of these circumstances, we may expose ourselves to different and more significant risks in the future, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

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We will be subject to taxation as a corporation.

Immediately prior to the completion of this offering, we intend to convert into a Delaware corporation. Subsequent to our conversion into a corporation, we will be subject to taxation as a corporation under U.S. Federal and state income tax laws.

The obligations associated with being a public company will require significant resources and management attention.

As a public company with listed equity securities, we will need to comply with new laws, regulations and requirements, including the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, related regulations of the Securities and Exchange Commission, or the SEC, and requirements of the New York Stock Exchange, with which we were not required to comply as a private company. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and proxy statements with respect to the solicitation of votes. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting and effective disclosure controls and procedures for making required filings with the SEC.

Section 404 of the Sarbanes-Oxley Act requires our management and independent auditors to report annually on the effectiveness of our internal control over financial reporting. However, we are an “emerging growth company,” as defined in the JOBS Act, and, so for as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, exemptions from the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent auditors on the effectiveness of our internal control over financial reporting.

These reporting and other obligations will place significant demands on our management, administrative, operational and accounting resources and will cause us to incur significant expenses. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, create or outsource an internal audit function, and hire additional accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

If we fail to implement and maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could materially and adversely affect us.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. We cannot be certain that we will be successful in implementing or maintaining adequate internal control over our financial reporting and financial processes. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weakness or significant deficiency, and management may not be able to remediate any such material weakness or significant deficiency in a timely manner. The existence of any material weakness or significant deficiency in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us.

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We are an “emerging growth company”, and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements. We have elected to adopt these reduced disclosure requirements. We could be an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of this offering, although a variety of circumstances could cause us to lose that status earlier. We cannot predict whether investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised financial accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have determined to opt out of such extended transition period, and, as a result, we will comply with new or revised financial accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised financial accounting standards is irrevocable.

Changes in accounting rules, assumptions or judgments could materially and adversely affect us.

Accounting rules and interpretations for certain aspects of our operations are highly complex and involve significant assumptions and judgment. These complexities could lead to a delay in the preparation and dissemination of our financial statements. Furthermore, changes in accounting rules and interpretations or in our accounting assumptions or judgments, such as asset impairments, could significantly impact our financial statements. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Any of these circumstances could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Risks Related to this Offering and Ownership of Our Common Stock

There is currently no public market for shares of our common stock, a trading market for our common stock may never develop following this offering and our common stock prices may be volatile and could decline substantially following this offering.

Prior to this offering there has been no market for shares of our common stock. An active trading market for the shares of our common stock may never develop, or if one develops, it may not be sustained following this offering. Accordingly, no assurance can be given as to the following:

• the likelihood that an active trading market for shares of our common stock will develop or be sustained;

• the liquidity of any such market;

• the ability of our stockholders to sell their shares of common stock; or

• the price that our stockholders may obtain for their common stock.

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If an active market does not develop or is not maintained, the market price of our common stock may decline and you may not be able to sell your shares. Even if an active trading market develops for our common stock subsequent to this offering, the market price of our common stock may be highly volatile and subject to wide fluctuations.

Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include:

• actual or anticipated variations in our quarterly operating results;

• changes in market valuations of similar companies;

• changes in interest rates, mortgage regulations or land and home prices in the areas in which we operate;

• adverse market reaction to the level of our indebtedness;

• additions or departures of key personnel;

• actions by stockholders;

• speculation in the press or investment community;

• general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets and in California in particular;

• our operating performance and the performance of other similar companies;

• changes in accounting principles and tax laws; and

• passage of legislation or other regulatory developments that adversely affect us or the homebuilding and land development industry.

If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, our stock price and trading volume could decline.

If a trading market for our common stock develops, the trading market will be influenced by whether industry or securities analysts publish research and reports about us, our business, our market or our competitors and, if any analysts do publish such reports, what they publish in those reports. We may not obtain analyst coverage in the future. Any analysts who do cover us may make adverse recommendations regarding our common stock, adversely change their recommendations from time to time or provide more favorable relative recommendations about our competitors. If any analyst who may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could lose, or never gain, visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

The offering price per share of our common stock offered by this prospectus may not accurately reflect the value of your investment.

Prior to this offering there has been no market for our common stock. The offering price per share of our common stock offered by this prospectus was negotiated among us, our non-management institutional investors and the underwriters. Factors considered in determining the price of our common stock include:

• the history and prospects of companies whose principal business is the acquisition and development of land, and the design, construction and sale of single-family homes;

• prior offerings of those companies;

• our prospects for acquiring land parcels for development at attractive values;

• our capital structure;

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• an assessment of our management and its experience in acquiring land parcels and designing, constructing and selling homes;

• general conditions of the securities markets at the time of this offering; and

• other factors we deemed relevant.

If you purchase common stock in this offering, you will experience immediate dilution.

The offering price of our common stock is higher than the pro forma as adjusted net tangible book value per share of our common stock outstanding upon the completion of this offering. Accordingly, if you purchase common stock in this offering, you will experience immediate dilution of approximately $         per share of our common stock, based upon the midpoint of the price range set forth on the cover page of this prospectus. This means that investors that purchase shares of our common stock in this offering will pay a price per share that exceeds the pro forma as adjusted per share net tangible book value of our assets. See “Dilution.”

We do not intend to pay dividends on our common stock for the foreseeable future.

We currently intend to retain our future earnings, if any, to finance the development and expansion of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments and such other factors as our board of directors deems relevant. Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.

Future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution of your shares.

Our board of directors is authorized, without your approval, to cause us to issue additional shares of our common stock or to raise capital through the issuance of preferred stock, securities (including debt securities) convertible into common stock, options, warrants and other rights, on terms and for consideration as our board of directors in its sole discretion may determine. Sales of substantial amounts of our common stock could cause the market price of our common stock to decrease significantly. We cannot predict the effect, if any, of future sales of our common stock, or other securities on the value of our common stock. Sales of substantial amounts of our common stock by the a large stockholder or otherwise, or the perception that such sales could occur, may adversely affect the market price of our common stock.

We are offering             shares of our common stock as described in this prospectus (excluding the underwriters’ option to purchase up to an additional             shares, any and all of which will be purchased from our non-management institutional investors). Upon the completion of this offering, the members of our management team will collectively beneficially own             shares of our common stock (excluding grants of restricted stock units and options to purchase shares of our common stock), which will represent             % of our common stock outstanding immediately after this offering. See “Principal and Selling Stockholders.” In addition, our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees will be granted an aggregate of                     restricted stock units (based upon the midpoint of the price range set forth on the cover page of this prospectus), and the members of our management team, other officers and employees will be granted options to purchase an aggregate of             shares of our common stock (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus), in each case upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan, and our director nominees will be granted an aggregate of         restricted stock units upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual number of restricted stock units and the strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering. In connection with this offering,

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we, our officers and directors, TNHC Partners LLC and our non-management institutional investors and others have agreed that for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Citigroup Global Markets Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock, subject to certain exceptions. Citigroup Global Markets Inc. in its sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. If the restrictions under the lock-up agreements are waived, shares of our common stock may become available for resale into the market, subject to applicable law, which could reduce the market price for our common stock.

We will enter into a registration rights agreement with the members of TNHC LLC, including the members of our management team and the institutional investors in TNHC LLC, with respect to the shares of our common stock that they will receive as part of our formation transactions. We refer to these shares collectively as the “registrable shares.” Pursuant to the registration rights agreement, we will grant the members of TNHC LLC and their direct and indirect transferees shelf registration rights requiring us to file a shelf registration statement and to maintain the effectiveness of such registration statement so as to allow sales thereunder from time to time, demand registration rights to have the registrable shares registered for resale, and, in certain circumstances, the right to “piggy-back” the registrable shares in registration statements we might file in connection with any future public offering.

In connection with this offering, we intend to file a registration statement on Form S-8 to register the offer and sale of the total number of shares of our common stock that may be issued under our 2013 Long-Term Incentive Plan, including the restricted stock units to be granted to the members of our management team, other officers and employees and our director nominees, as well as the options to purchase shares of our common stock to be granted to the members of our management team, in each case upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan.

Future offerings of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.

In the future, we may attempt to increase our capital resources by conducting offerings of debt securities or additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our common stock in this offering bear the risk of our future offerings reducing the market price of our common stock and diluting their ownership interest in our company.

Non-U.S. holders may be subject to U.S. federal income tax on gain realized on the sale or disposition of shares of our common stock.

Because of our anticipated holdings in United States real property interests following the completion of our formation transactions, we believe we will be and will remain a “United States real property holding corporation”, or USRPHC, for U.S. federal income tax purposes. As a result, a non-U.S. holder (as defined in “Certain Material Federal Income Tax Considerations”) may be subject to U.S. federal income tax on any gain realized on a sale or disposition of shares of our common stock if (i) our common stock is not regularly traded on an established securities market, or (ii) our common stock is regularly traded on an established securities market (such as the New York Stock Exchange) and such non-U.S. holder holds more than 5% of our common stock at any time during the shorter of the five-year

47

period preceding the date of the sale or disposition and the non-U.S. holder’s holding period in such stock. A non-U.S. holder also will be required to file a U.S. federal income tax return for any taxable year in which it realizes a gain from the disposition of our common stock that is subject to U.S. federal income tax under these rules. In addition, if our stock is not treated as publicly traded for purposes of these rules, a purchaser of the stock may be required to withhold and remit to the Internal Revenue Service, or the IRS, 10% of the purchase price, unless an exception applies.

We anticipate that our common stock will be regularly traded on an established securities market following this offering. However, no assurance can be given in this regard and no assurance can be given that our common stock will remain regularly traded in the future. Non-U.S. holders should consult their tax advisors concerning the consequences of disposing of shares of our common stock.

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Various statements contained in this prospectus, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “forecast,” “would,” “should,” “could,” “may,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this prospectus speak only as of the date of this prospectus, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements:

• economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation;

• continued or increased downturn in the homebuilding industry;

• continued volatility and uncertainty in the credit markets and broader financial markets;

• our future operating results and financial condition;

• our business operations;

• changes in our business and investment strategy;

• availability of land to acquire and our ability to acquire such land on favorable terms or at all;

• availability, terms and deployment of capital;

• continued or increased disruption in the availability of mortgage financing or the number of foreclosures in the market;

• shortages of or increased prices for labor, land or raw materials used in housing construction;

• delays in land development or home construction resulting from adverse weather conditions or other events outside our control;

• issues concerning our joint venture partnerships;

• the cost and availability of insurance and surety bonds;

• changes in, or the failure or inability to comply with, governmental laws and regulations;

• the timing of receipt of regulatory approvals and the opening of projects;

• the degree and nature of our competition;

• our leverage and debt service obligations;

• availability of qualified personnel and our ability to retain our key personnel; and

• additional factors discussed under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business.”

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USE OF PROCEEDS

We expect to receive net proceeds from this offering of approximately $            million, assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering primarily for the acquisition of land, including the land described under “Our Business—Pending Acquisitions,” and for development of lots, home construction and other related purposes.

Pending these uses, we intend to invest the net proceeds from this offering in a variety of capital preservation investments, including short-term, interest-bearing investment grade securities, money market accounts, certificates of deposit and direct or guaranteed obligations of the U.S. government.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming the initial public offering price per share remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, together with a concomitant $1.00 increase in the assumed initial public offering price of $             per share, would increase the net proceeds to us from this offering by approximately $             million, after deducting the underwriting discount and estimated offering expenses payable by us. Conversely, a decrease of 1,000,000 shares in the number of shares offered by us, together with a concomitant $1.00 decrease in the assumed initial public offering price of $             per share, would decrease the net proceeds to us from this offering by approximately $             million, after deducting the underwriting discount and estimated offering expenses payable by us. The information discussed above is illustrative only.

We will not receive any of the net proceeds from the sale of shares of our common stock, if any, in this offering by our non-management institutional investors, if the underwriters exercise their option to purchase additional shares.

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2013:

• on an actual basis;

• on a pro forma basis to give effect to:

• the additional $10 million of capital contributions made to TNHC LLC by its members subsequent to March 31, 2013 that were called in April 2013 and are to be used for investments in identified, specific projects of ours and our joint ventures (the use of these funds is not reflected in the table below);

• our conversion from a limited liability company to a corporation and the adoption of our certificate of incorporation as part of our formation transactions; and

• the issuance of             shares of our common stock to TNHC LLC’s members in exchange for, and the cancellation of, their respective membership interests in TNHC LLC as part of our formation transactions; and

• on a pro forma as adjusted basis to give further effect to the sale of             shares of our common stock that we are offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.

This table should be read in conjunction with the sections captioned “Use of Proceeds,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes thereto included elsewhere in this prospectus.

	As of March 31, 2013
	Actual		Pro Forma		Pro Forma  as Adjusted(1)
			(unaudited)		(unaudited)
Debt:
Notes payable to member	$	1,000,000	$	1,000,000		1,000,000
Notes payable		17,239,273		17,239,273		17,239,273
Members’ equity and stockholders’ equity:
Members’ equity		47,481,146		—		—
Common stock, $0.01 par value per share; no shares authorized and no shares issued and outstanding, actual; 500,000,000 shares authorized and             shares issued and outstanding, pro forma; 500,000,000 and             shares issued and outstanding, pro forma as adjusted(2)		—
Preferred Stock, $0.01 par value per share, no shares authorized and no shares issued and outstanding, actual; 50,000,000 shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted		—		—		—
Additional paid-in capital(1)		—
Total members’ equity		47,481,146		—		—
Total stockholders’ equity(1)		—		57,481,146
Total capitalization(1)	$	65,720,419	$	75,720,419	$

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⁽¹⁾  Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted additional paid in capital, total stockholders’ equity and total capitalization by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) each of additional paid in capital, total stockholders’ equity and total capitalization by approximately $             million, assuming the initial public offering price per share remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, together with a concomitant $1.00 increase in the assumed initial public offering price of $             per share, would increase each of additional paid in capital, total stockholders’ equity and total capitalization by approximately $             million. Conversely, a decrease of 1,000,000 shares in the number of shares offered by us, together with a concomitant $1.00 decrease in the assumed initial public offering price of $             per share, would decrease each of additional paid in capital, total stockholders’ equity and total capitalization by approximately $             million. The information discussed above is illustrative only.

⁽²⁾  The number of outstanding shares does not include: (i)            shares of our common stock issuable upon the vesting of restricted stock units to be granted to our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees and our director nominees upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (assuming a public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus); (ii)            shares of our common stock issuable upon exercise of options to be granted to the members of our management team, other officers and employees upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus); and (iii)            shares of our common stock reserved for future issuance under our 2013 Long-Term Incentive Plan. The actual number of restricted stock units and the strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering.

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DILUTION

Purchasers of shares of our common stock in this offering will incur an immediate and substantial dilution to the extent of the difference between the public offering price per share that you pay in this offering and the net tangible book value per share of our common stock immediately after this offering.

Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities, by the number of outstanding shares of our common stock.

As of March 31, 2013, our pro forma net tangible book value was approximately $             million, or $             per share of our common stock after giving effect to:

• the additional $10 million of capital contributions to TNHC LLC by its members subsequent to March 31, 2013 that were called in April 2013 and are to be used for investments in identified, specific projects of ours and our joint ventures (the use of these funds is not reflected in the pro forma figures presented here);

• our conversion from a limited liability company to a corporation and the adoption of our certificate of incorporation as part of our formation transactions; and

• the issuance of             shares of our common stock to TNHC LLC’s members in exchange for, and the cancellation of, their respective membership interests in TNHC LLC as part of our formation transactions.

After giving further effect to the sale of shares of our common stock that we are offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2013 would have been approximately $            , or $             per share of our common stock. This amount represents an immediate increase in net tangible book value of approximately $             per share of our common stock to our existing stockholders and an immediate dilution in net tangible book value of approximately $             per share of our common stock, and an immediate dilution of approximately $             per share to purchasers in this offering.

The following table illustrates the dilution to purchasers in this offering on a per share basis:

Assumed initial public offering price per share		$
Net tangible book value per share as of March 31, 2013	$
Increase in net tangible book value per share, after giving effect to the pro forma adjustments described above
Pro forma net tangible book value per share immediately before this offering
Increase per share attributable to the offering
Pro forma as adjusted net tangible book value per share after this offering
Dilution per share to purchasers in this offering		$

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share by $             per share and the dilution by $             per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 shares in the number of shares of our common stock offered by us, together with a concomitant $1.00 increase in the

53

assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share and the dilution per share to purchasers in this offering by $             and $            , respectively, after deducting the underwriting discount and estimated offering expenses payable by us. Conversely, a decrease of 1,000,000 shares in the number of shares of our common stock offered by us, together with a concomitant $1.00 decrease in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share and the dilution per share to purchasers in this offering by $             and $             respectively, after deducting the underwriting discount and estimated offering expenses payable by us.

The following table sets forth, as of March 31, 2013, on the pro forma as adjusted basis as described above, the differences between the number of shares of our common stock purchased from us, the total consideration paid to us and the average price per share paid to us by existing stockholders and by purchasers in this offering, before deducting the underwriting discount and estimated offering expenses payable by us, at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

	Shares Purchased			Total Consideration
	Number	Percent		Amount	Percent		Average Price Per Share
Existing stockholders			%	$		%	$
Purchasers in this offering						%
Total			%	$		%	$

If the underwriters’ option to purchase additional shares from our non-management institutional investors is exercised in full, the following will occur:

• the number of shares of our common stock held by our existing stockholders will decrease to         shares, or approximately     % of the total number of shares of our common stock outstanding;

• number of shares of our common stock held by purchasers in this offering will increase to         shares, or approximately     % of the total number of shares of our common stock outstanding; and

• the pro forma as adjusted net tangible book value per share will be the same amounts as described above and the immediate dilution experienced by purchasers in this offering will be the same amounts as described above.

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DIVIDEND POLICY

We currently intend to retain our future earnings, if any, to finance the development and expansion of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments and such other factors as our board of directors deems relevant. Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—We do not intend to pay dividends on our common stock for the foreseeable future.”

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SELECTED FINANCIAL DATA

The following tables set forth our selected financial data and other operating information, including pro forma information. The selected financial data as of and for the years ended December 31, 2012 and 2011 and for the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010 are derived from our consolidated financial statements, which have been audited by Ernst & Young LLP, independent registered public accounting firm. The selected financial data as of and for the three months ended March 31, 2013 and for the three months ended March 31, 2012 are derived from unaudited financial statements. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the entire year ending December 2013. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

																	Period From August 18, 2010 (Inception) Through December 31, 2010				Predecessor
	Three Months Ended March 31,								Year Ended December 31,												Period From January 1, 2010 Through August 17, 2010
	2013				2012				2012				2011
Statement of Operations Data:(1)
Home sales(2)		$	4,666,531			$	4,110,937			$	24,197,956			$	25,624,111			$	5,319,408			$	538,598
Cost of home sales(2)			3,729,627				3,417,550				20,779,338				21,774,199				4,423,236				399,995
Homebuilding gross profit			936,904				693,387				3,418,618				3,849,912				896,172				138,603
Fee building			13,472,550				2,719,748				28,268,675				16,522,946				11,494,347				12,941,110
Cost of fee building			12,938,813				2,652,779				26,505,042				16,762,666				11,331,286				12,764,497
Fee building gross profit			533,737				66,969				1,763,633				(239,720	)			163,061				176,613
Land sales gross margin			—				—				(321,791	)			—				—				—
Abandoned project costs			159,587				—				408,642				128,798				—				—
Equity in net (income) loss of unconsolidated joint ventures			(271,856	)			38,789				(349,445	)			38,916				—				—
Selling and marketing			277,020				323,262				1,677,058				1,748,430				453,799				134,002
General and administrative			963,104				934,299				3,999,949				3,522,617				689,781				328,295
Income (loss) from operations			342,786				(535,994	)			(875,744	)			(1,828,569	)			(84,347	)			(147,081	)
Guarantee fee income			28,391				—				85,172				—				—				—
Other income (expense), net			—				6,361				(15,048	)			(14,750	)			(10,596	)			(6,048	)
Income (loss) before taxes			371,177				(529,633	)			(805,620	)			(1,843,319	)			(94,943	)			(153,129	)
Provision for taxes			(64,745	)			—				(71,255	)			(10,149	)			—				—
Net income (loss)		$	306,432			$	(529,633	)		$	(876,875	)		$	(1,853,468	)		$	(94,943	)		$	(153,129	)
Unaudited pro forma income (loss) per share(3)
Basic
Diluted
Operating Data – Company Projects
Net new home orders			17				16				72				45				15				4
New homes delivered			12				9				53				49				8				—
Average sales price of homes delivered		$	389,000			$	457,000			$	457,000			$	523,000			$	665,000			$	—
Cancellation rate			11	%			24	%			16	%			25	%			10	%			0	%
Average selling communities			4				4				4				4				3				1
Selling communities at end of period			3				4				3				4				3				1
Backlog at end of period, number of homes			31				14				26				7				11				4
Backlog at end of period, aggregate sales value		$	13,724,000			$	7,418,000			$	10,593,000			$	5,074,000			$	3,982,000			$	1,177,000

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	As of March 31, 2013						As of December 31,
	Actual		Pro Forma(4)		Adjusted(5)		2012		2011
Balance Sheet Data
Cash and restricted cash	$	5,231,707	$	9,231,707	$	—		6,152,068		5,523,851
Receivables		4,797,652		4,797,652				6,049,676		59,317
Real estate inventories		39,743,736		41,743,736				39,268,764		28,890,573
Investment in unconsolidated joint ventures		23,598,335		27,598,335				12,424,229		4,854,584
Other assets		1,421,300		1,421,300				615,999		433,465
Total assets		74,792,730		84,792,730		—		64,510,216		39,761,790
Notes payable to member		1,000,000		1,000,000				1,000,000		—
Notes payable		17,239,273		17,239,273				16,721,878		9,383,462
Accounts payable and accrued expenses		9,072,311		9,072,311				11,214,124		2,526,733
Total liabilities		27,311,584		27,311,584		—		28,936,002		11,910,201
Members’ equity		47,481,146		57,481,146		—		35,574,714		27,851,589
Total liabilities and members’ equity	$	74,792,730	$	84,792,730	$	—		64,510,716		39,761,790

													Period From August 18, 2010 (Inception) Through December 31, 2010		Predecessor
	Three Months Ended March 31,						Year Ended December 31,								Period From January 1, 2010 Through August 17, 2010
	2013			2012			2012			2011
Operating and Financial Data – Unconsolidated Joint Ventures(6)
Home sales	$	30,764,001		$	—		$	56,018,517		$	—		$	—	$	—
Cost of home sales		22,537,742			(606,826	)		41,548,236		$	—			—		—
Homebuilding gross profit		8,226,259			(606,826	)	$	14,470,281		$	—		$	—	$	—
Net income (loss)	$	6,160,994					$	8,652,751		$	(776,819	)	$	—	$	—
Management fees paid to the Company(7)	$	965,462		$	444,069		$	2,949,365		$	844,411			—		—
Net new home orders		28			n/a			96			—			—		—
New homes delivered		23			n/a			42			—			—		—
Cancellation rate		13	%		n/a			5	%		—			—		—
Average selling communities		3			n/a			3			—			—		—
Selling communities at end of period		3			n/a			3			—			—		—
Backlog at end of period, number of homes		59			n/a			54			—			—		—
Backlog at end of period, aggregate sales value	$	83,379,000			n/a		$	72,921,000		$	—		$	—	$	—

	As of March 31, 2013		As of December 31,
			2012		2011
Balance Sheet Data-Unconsolidated Joint Ventures
Total assets, primarily real estate inventories	$	205,336,221	$	173,255,773	$	92,622,144
Total liabilities, primarily accounts payable and notes payable	$	42,637,295	$	44,673,841	$	21,610,963
The Company’s equity	$	23,598,335		12,424,229		4,854,584
Other partners’ equity		139,100,591		116,157,703		66,156,597
Total equity	$	162,698,926		128,581,932		71,011,181
Total liabilities and equity	$	205,336,221	$	173,255,773	$	92,622,144

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													Period From August 18, 2010 (Inception) Through December 31, 2010			Predecessor
	Three Months Ended March 31,						Year Ended December 31,									Period From January 1, 2010 Through August 17, 2010
	2013			2012			2012			2011
Operating Data – Fee Building Projects
Net new home orders			12			18			145			25			28			55
New homes delivered			45			2			50			47			37			12
Average sales price of homes delivered		$	1,150,000		$	1,100,000		$	1,153,000		$	1,234,000		$	1,125,000		$	1,429,000

⁽¹⁾  Immediately prior to the completion of this offering, we intend to convert into a Delaware corporation. Subsequent to our conversion into a corporation, we will be subject to taxation as a corporation under U.S. Federal and state income tax laws.

⁽²⁾  During the years ended December 31, 2011 and 2010, the Company entered into a fee building services agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue for these option upgrades in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the years ended December 31, 2011 and 2010, we recognized revenue for these option upgrades of $3.2 million and $2.8 million, respectively, which is included above in home sales. The cost of these option upgrades, included above in cost of home sales, was $2.4 million and $2.1 million during the years ended December 31, 2011 and 2010, respectively. These revenues and costs were for the delivery of option upgrades on 47 and 49 homes, respectively, which are included in the operating data for fee building services.

⁽³⁾  Pro forma for the conversion of the Company to a corporation and the conversion of member’s capital in TNHC LLC into shares of our common stock. For a more detailed description of our “Unaudited pro forma income (loss) per share,” please see note 15 of the notes to our consolidated financial statements included elsewhere in this prospectus.

⁽⁴⁾  This column gives effect to (i) our formation transactions and (ii) the additional $10 million of capital contributions made to TNHC LLC by its members subsequent to March 31, 2013 that were used for specific projects related to our homebuilding business. The use of these funds is not reflected in the table above.

⁽⁵⁾  This column gives further effect to the sale of shares of our common stock in this offering by us at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.

⁽⁶⁾  “Operating and Financial Data – Unconsolidated Joint Ventures” reflects the data for the ventures and not our share thereof. We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures. Such financial data is not included in our financial data for GAAP purposes, but is recognized in our results of operations as a component of equity in net (income) loss of unconsolidated joint ventures. We have interests in several unconsolidated joint ventures and this information has been included to provide additional information about the operations and financial condition of our unconsolidated joint ventures. This data is included for informational purposes only.

⁽⁷⁾  The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to the underlying projects. Pursuant to the agreements, the Company receives a management fee based on each project’s revenues. During the three months ended March 31, 2013 and 2012 and the years ended December 31, 2012 and 2011, the Company earned and received $965,462, $444,069, $2,949,365 and $844,411, respectively, in management fees, which have been recorded as fee building services revenue.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION

You should read the following in conjunction with the sections of this prospectus entitled “Risk Factors,” “Cautionary Note Concerning Forward-Looking Statements,” “Selected Financial Data” and “Our Business” and our historical financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this prospectus.

We are a new generation homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California, including coastal Southern California, the San Francisco Bay area and metro Sacramento. We also seek to create unique communities via our significant land development expertise, either stand-alone or within master-planned communities developed by third parties.

We were founded in August 2009, towards the end of an unprecedented downturn in the U.S. homebuilding industry, with a combined initial capital commitment of $10 million by our founders, who are also our four most senior executives. Our business initially focused on fee building projects in Southern California, in which we built, marketed and sold homes for independent third-party land owners in prestigious master planned communities. Fee-building represented a capital-efficient method of establishing operations and strengthening relationships with key land owners and developers. Commencing with the $20 million capital commitment by Institutional Housing Partners, or IHP, and Watt Residential LLC, or Watt, in August 2010, and the subsequent $10 million capital commitment by Tricon Capital, or Tricon, in January 2011, we began to rapidly deploy capital to acquire land and build homes for our own account on larger infill sites within established communities, where we could leverage the experience of our management team in land planning and development. In an effort to sustain a steep growth trajectory while retaining ownership control and generating attractive risk-adjusted returns for all stakeholders, we have employed a joint venture strategy, in which we contribute a minority share of the capital and receive distributions in excess of our percentage capital interest plus management fees from the joint ventures. Our joint venture strategy has been instrumental in allowing us to leverage our entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets, such as Orange and Los Angeles counties in Southern California and San Mateo, Santa Clara, Marin and Yolo counties in Northern California.

Overview and Outlook

During the year ended December 31, 2012 and continuing through the quarter ended March 31, 2013, the overall housing market continued to show signs of improvement largely driven by increasing consumer confidence levels related to the homebuilding industry, continued favorable housing affordability based on historical metrics, decreasing home inventory levels in many markets, and more positive consumer sentiment for the overall economy. Individual markets continue to experience varying results as local economic and employment situations strongly influence the local market demand and home buying abilities. However, our markets have shown positive indicators of a sustainable recovery. We improved on several key operating metrics during the year and three months ended December 31, 2012 and March 31, 2013, respectively, as compared to the year and three months ended December 31, 2011 and March 31, 2012, respectively, including increased net new home orders, home deliveries, fee building revenue, backlog units, backlog value and equity in net income from unconsolidated joint ventures.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated upon consolidation. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, as contained within the Financial Accounting Standards Board, or FASB, Accounting

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Standards Codification, or ASC. Operating results for the periods presented are not necessarily indicative of the results to be expected for any subsequent period.

Results of Operations

Our primary goal in 2012 was to acquire land or lots in targeted market areas to generate deliveries beginning in 2013 and beyond. We are currently in the process of acquiring and developing lots in California to increase our lot supply and community count. Our communities are strategically located in major metropolitan areas within select California growth markets, including coastal Southern California, the San Francisco Bay area and metro Sacramento. While our primary growth strategy will focus on increasing our market position in these markets, we are exploring expansion opportunities in Phoenix and the Pacific Northwest and may consider other markets, through organic growth or acquisitions. During the three months ended March 31, 2013 and the year ended December 31, 2012, we acquired 20 and 150 lots, respectively, in California. As of March 31, 2013, we owned or controlled 377 lots and had begun development on 126 of those lots. We were under contract to acquire 381 lots in our existing markets as of March 31, 2013 (including 32 lots under a non-binding letter of intent). With respect to the non-binding letter of intent, there can be no assurance that we will enter into a binding agreement or that we will complete this acquisition as planned.

We are also focused on increasing our number of active selling locations, which we expect will contribute to our new home order growth, homes in backlog and ultimately new home deliveries. During the three months ended March 31, 2013 and 2012, our cancellation rate decreased 56% from 24% to 11%. Our backlog units increased 121% from 14 to 31 as of March 31, 2013 as compared to March 31, 2012. Backlog value also increased $6.3 million, or 85%, to $13.7 million as of March 31, 2013 as compared to March 31, 2012. We opened one new community and increased our net new home orders by 60% during the year ended December 31, 2012. Our backlog units increased from seven to 26, a 271% increase, and the backlog value increased 109% from $5.1 million to $10.6 million as of December 31, 2012, as compared to December 31, 2011.

Our equity in net income (loss) from unconsolidated joint ventures increased $310,645 from a loss of ($38,789) to income of $271,856 for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. We experienced our first net new home orders and new home deliveries from an unconsolidated joint venture during the year ended December 31, 2012, which were 96 and 42, respectively. During the three months ended March 31, 2013, net new home orders and new home deliveries from unconsolidated joint ventures were 28 and 23, respectively.

In addition, during the year ended December 31, 2012, we added three new fee building contracts for the construction of 182 homes in Southern California.

We refer to our financial statement line items in the explanation of our period-over-period changes in results of operations. Below are general definitions of what those line items include and represent.

Revenues

Revenues are derived primarily from home deliveries and fee building services provided to independent third-party property owners. Fee building services also include management fees received from our unconsolidated joint ventures. Homes sales revenue is recorded at close of escrow of the homes. Revenue for fee building services is recognized either over a cost-to-cost approach in applying the percentage-of-completion method or in proportion to total efforts expected to be provided net of estimated warranty costs.

Expenses

Expenses primarily relate to cost of home sales and fee building cost of sales provided to independent third-party property owners. Cost of home sales includes the cost of land, land development, home construction, capitalized interest, indirect costs of construction, estimated warranty costs, real estate taxes and direct overhead

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costs incurred during development and home construction that benefit the entire project. Cost of fee building includes direct labor, subcontractor costs, and other indirect costs. Selling and marketing expense is comprised of direct selling expenses, including internal and external commissions, related selling and marketing expenses, such as advertising and model operations, and sales office costs, and is recorded in the period incurred. General and administrative expenses represent parent and subsidiary overhead expenses, such as salaries, benefits, office expenses, outside professional services, insurance and travel expenses, and are recorded in the period incurred.

Investments in Unconsolidated Joint Ventures

Investments in our unconsolidated joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses generated by the joint venture upon the delivery of lots or homes to third parties. Our ownership interests in our unconsolidated joint ventures vary, but are generally less than or equal to 50%.

Other Income (Expense), Net

Other income (expense), net, consists of miscellaneous fees paid to state regulatory agencies offset partially by interest income and national contract rebates.

The historical financial data presented below is not necessarily indicative of the results to be expected for any future period. Immediately prior to the completion of this offering, we intend to convert into a Delaware corporation. Subsequent to our conversion into a corporation, we will be subject to taxation as a corporation under U.S. Federal and state income tax laws.

Consolidated Financial Data:

													Period From August 18, 2010  (Inception) Through December  31, 2010			Predecessor
	Three Months Ended March 31,						Year Ended December 31,									Period From January  1, 2010 Through August  17, 2010
	2013			2012			2012			2011
Revenue:
Home sales	$	4,666,531		$	4,110,937		$	24,197,956		$	25,624,111		$	5,319,408		$	538,598
Fee building		13,472,550			2,719,748			28,268,675			16,522,946			11,494,347			12,941,110
Land sales		—			—			2,940,100			—			—			—
		18,139,081			6,830,685			55,406,731			42,147,057			16,813,755			13,479,708
Expenses:
Cost of home sales		3,729,627			3,417,550			20,779,338			21,774,199			4,423,236			399,995
Fee building		12,938,813			2,652,779			26,505,042			16,762,666			11,331,286			12,764,497
Cost of land sales		—			—			3,261,891			—			—			—
Abandoned project costs		159,587			—			408,642			128,798			—			—
Equity in net (income) loss of unconsolidated joint ventures		(271,856	)		38,789			(349,445	)		38,916			—			—
Selling and marketing		277,020			323,262			1,677,058			1,748,430			453,799			134,002
General and administrative		963,104			934,299			3,999,949			3,522,617			689,781			328,295
		17,796,295			7,366,679			56,282,475			43,975,626			16,898,102			13,626,789
Income (loss) from operations		342,786			(535,994	)		(875,744	)		(1,828,569	)		(84,347	)		(147,081	)
Guarantee fee income		28,391			—			85,172			—			—			—
Other income (expense), net		—			6,361			(15,048	)		(14,750	)		(10,596	)		(6,048	)
		371,177			(529,633	)		(805,620	)		(1,843,319	)		(94,943	)		(153,129	)
Provision for taxes		(64,745	)		—			(71,255	)		(10,149	)		—			—
Net income (loss)	$	306,432		$	(529,633	)	$	(876,875	)	$	(1,853,468	)	$	(94,943	)	$	(153,129	)

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Matters Affecting the Comparability of Our Financial Results

The New Home Company LLC was formed in August 2009, and on August 18, 2010, Watt and IHP were admitted as members, increasing our total capital commitment to $30 million. Prior to the admission of Watt and IHP, most of our operations consisted of “fee building projects” in which we built, marketed and sold homes for independent third-party property owners with whom we have revenue sharing agreements on projects typically marketed under The New Home Company brand name.

For the periods prior to August 18, 2010, we were wholly owned by our founders. References to our “Predecessor” in this prospectus are references to us prior to August 18, 2010. As a result of the foregoing, the financial and operational data for 2010 that is presented and discussed in this prospectus is generally bifurcated between the period during 2010 that our business was conducted through our Predecessor (January 1, 2010 through August 17, 2010) and subsequent thereto (August 18, 2010 through December 31, 2010). The historical operational results of our Predecessor may not be comparable to the results of operations of us because each of our Predecessor and us used a different basis of accounting and our homebuilding operations have been our strategic focus since August 18, 2010 compared to our Predecessor’s focus on fee building services prior to such date.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Net New Home Orders and Backlog

	Three Months Ended March 31,						Increase (Decrease)
	2013			2012			Amount			%
Net new home orders		17			16			1			6	%
Cancellation rate		11	%		24	%		(13	)%		(56	)%
Average selling communities		4			4			—			0	%
Selling communities at end of period		3			3			—			0	%
Backlog (dollar value)	$	13,724,000		$	7,418,000		$	6,306,000			85	%
Backlog (units)		31			14			17			121	%
Average sales price of backlog	$	443,000		$	530,000		$	(87,000	)		(16	)%

Net new home orders for the three months ended March 31, 2013 increased 6% to 17, compared to 16 during the same period in 2012. Our overall “absorption rate” (the rate at which home orders are contracted, net of cancellations) for the three months ended March 31, 2013 was 4.3 per average selling community (1.4 monthly), compared to 4 per average selling community (1.3 monthly) during the same period in 2012.

Our cancellation rate of buyers who contracted to buy a home, but did not close escrow (as a percentage of overall orders), was approximately 11% for the three months ended March 31, 2013 as compared to 24% for the same period in 2012. Our average number of selling communities remained unchanged for the three months ended March 31, 2013, but reflected the opening of two new communities, offset by the final closeout of two selling communities, compared to the same period in 2012.

Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer, but for which we have not yet delivered the home. Backlog has not been reduced to reflect our historical cancellation rate. Homes in backlog are generally closed within three to six months, although we may experience cancellations of sales contracts prior to closing. An increase in net new home orders during the year ended December 31, 2012 positively impacted our number of homes in backlog as of March 31, 2013, which are homes we expect to close in future periods. We expect that our net new home orders and backlog increases will have a positive impact on revenues and cash flow in future periods. The dollar value of backlog increased $6.3 million, or 85% as of March 31, 2013, compared to March 31, 2012. The increase in dollar amount of backlog reflects an increase in the number of homes in backlog of 17. The average sales price of backlog decreased by $87,000, or 16%, during the three months ended March 31, 2013 primarily

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due to a different product mix, driven by the introduction of sales in a lower priced community during the same period.

Home Sales Revenue and New Homes Delivered

	Three Months Ended March 31,				Increase (Decrease)
	2013		2012		Amount			%
New homes delivered		12		9		3			33	%
Home sales revenue	$	4,666,531	$	4,110,937	$	555,594			14	%
Average sales price of homes delivered	$	389,000	$	457,000	$	(68,000	)		(15	)%

New home deliveries increased by three, or 33%, during the three months ended March 31, 2013 compared to the same period in 2012. The increase in new home deliveries was primarily attributable to the increase in net new home orders and units in backlog.

During the three months ended March 31, 2013, average sales price of homes delivered decreased $68,000, or 15%, from the same period in 2012. This decrease is primarily due to a different product mix and geographical location of homes delivered.

Homebuilding

	Three Months Ended March 31,
	2013			%			2012			%
Home sales	$	4,666,531			100.0	%	$	4,110,937			100.0	%
Cost of home sales		3,729,627			79.9	%		3,417,550			83.1	%
Homebuilding gross margin		936,904			20.1	%		693,387			16.9	%
Add: interest in cost of home sales		73,427			1.6	%		57,743			1.4	%
Adjusted homebuilding gross margin(1)	$	1,010,331			21.7	%	$	751,130			18.3	%
Homebuilding gross margin percentage		20.1	%					16.9	%
Adjusted homebuilding gross margin percentage(1)		21.7	%					18.3	%

⁽¹⁾  Non-GAAP financial measure (as discussed below).

Homebuilding gross margin represents home sales revenue less cost of home sales. Our homebuilding gross margin increased to 20.1% for the three months ended March 31, 2013 as compared to 16.9% for the same period in 2012 primarily due to a shift in product mix to more deliveries from higher margin communities and improved overall market conditions.

Excluding interest in cost of home sales, adjusted homebuilding gross margin percentage was 21.7% for the three months ended March 31, 2013, compared to 18.3% for the same period in 2012. Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe that by adding interest in cost of home sales back to homebuilding gross margin investors are able to assess the performance of our homebuilding business excluding our interest cost, allowing a focus on the performance of the underlying homebuilding operations. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

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Fee Building

	Three Months Ended March 31,
	2013		%			2012		%
Fee building revenues	$	13,472,550		100.0	%	$	2,719,748		100.0	%
Cost of fee building		12,938,813		96.0	%		2,652,779		97.5	%
Fee building gross margin	$	533,737		4.0	%	$	66,969		2.5	%

As of March 31, 2013 and 2012, the Company had five and two, respectively, fee building agreements with independent third-party land owners and six and two, respectively, construction management agreements with our unconsolidated joint ventures to provide construction management services. Fee building revenue increased to $13.5 million for the three months ended March 31, 2013 compared to $2.7 million for the same period during 2012. Cost of fee building increased to $12.9 million for the three months ended March 31, 2013 compared to $2.7 million for the same period during 2012. The increase in fee building revenue and cost is due to three new fee building agreements as of March 31, 2013 and the increase in management fees from three communities contained within one unconsolidated joint venture during the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

The Company collects management fees from its unconsolidated joint ventures during the life of the project that increase as new homes are delivered. These management fees were $836,462 and $444,069, for the three months ended March 31, 2013 and 2012, respectively, and are included in fee building revenues. The 88% increase in management fees from unconsolidated joint ventures caused fee building gross margin to increase 1.5%.

Abandoned Project Costs

Pre-acquisition costs, which primarily are non-refundable deposits for specific projects, are expensed to abandoned project costs when we determine continuation of the respective project is not probable. During the three months ended March 31, 2013, abandoned project costs increased to $159,587 from $0 during the three months ended March 31, 2012, primarily due to the increase in project investigation activity.

Equity in Net Income (Loss) of Unconsolidated Joint Ventures

As of March 31, 2013 and 2012, the Company had ownership interests in six and two, respectively, unconsolidated joint ventures, with ownership percentages ranging from 5% to 50%. The unconsolidated joint ventures produced $6.2 million in net income during the three months ended March 31, 2013 and a net loss of $606,826 for the same period in 2012. The Company’s equity in net income (loss) from unconsolidated joint ventures was $0.3 million for the three months ended March 31, 2013, compared to ($0.1 million) for the same period in 2012. The increase was primarily due to the 23 and 0 new home deliveries during the three months ended March 31, 2013 and 2012, respectively, offset by losses in unconsolidated joint ventures entered into that were not yet generating income.

The following sets forth supplemental information about our unconsolidated joint ventures. We have investments in several unconsolidated joint ventures and this information has been included to provide additional information about the operations and financial condition of our unconsolidated joint ventures. We own capital interests in our unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures. Dollar amounts and other data reflect the entire amounts attributable to our unconsolidated joint ventures and not our share thereof. Such information is not included in our financial data for GAAP purposes, but is recognized in our results of operations as a component of equity in net income (loss) of unconsolidated joint ventures. This data is included for informational purposes only.

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	Three Months Ended March 31,					Increase (Decrease)
	2013			2012		Amount		%
Unconsolidated Joint Ventures—Net New Home Orders, Backlog, Revenues and Deliveries
Net new home orders		28			—		28		n/a
Cancellation rate		13	%		n/a		n/a		n/a
Average selling communities		3			—		3		n/a
Selling communities at end of period		3			—		3		n/a
Backlog (dollar value)	$	82,500,000		$	—	$	82,500,000		n/a
Backlog (units)		59			—		59		n/a
Average sales price of backlog	$	1,398,000		$	—	$	1,398,000		n/a
New homes delivered		23			—		23		n/a
Home sales revenue	$	30,764,001		$	—	$	30,764,001		n/a
Average sales price of homes delivered	$	1,338,000			n/a		n/a		n/a

	Three months ended March 31,
	2013			%			2012		%
Unconsolidated Joint Ventures—Homebuilding
Unconsolidated joint ventures home sales	$	30,764,001			100.0	%	$	—		n/a
Cost of unconsolidated joint ventures home sales		22,537,742			73.3	%		—		n/a
Unconsolidated joint ventures gross margin		8,226,259			26.7	%		—		n/a
Add: interest in cost of unconsolidated joint venture home sales		744,580			2.4	%		—		n/a
Adjusted unconsolidated joint ventures gross margin(1)	$	8,970,839			29.2	%	$	—		n/a
Unconsolidated joint ventures home sales gross margin percentage		26.7	%					—
Adjusted unconsolidated joint ventures home sales gross margin percentage(1)		29.2	%					—

⁽¹⁾ Non-GAAP financial measure (as discussed below).

The table below summarizes lots owned and controlled by our unconsolidated joint ventures as of the dates presented:

	March 31,				Increase
	2013		2012		Amount		%
Unconsolidated Joint Ventures—Lots Owned and Controlled
Lots owned		743		254		489		192	%
Lots controlled(1)		2,348		394		1,954		496	%
Total		3,091		648		2,443		377	%

⁽¹⁾  Includes 2,348 lots and 394 lots that are under purchase and sale agreements, as of March 31, 2013 and 2012, respectively.

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Selling, General and Administrative Expense

	Three Months Ended March 31,				As a Percentage of     Home Sales Revenue
	2013		2012		2013			2012
Selling and marketing expenses	$	277,020	$	323,262		5.9	%		7.9	%
General and administrative expenses (“G&A”)		963,104		934,299		20.6	%		22.7	%
Total selling, marketing and G&A	$	1,240,124	$	1,257,561		26.6	%		30.6	%

Sales and marketing expense incurred during the three months ended March 31, 2013 decreased to 5.9% of home sales revenue compared to 7.9% for the same period in 2012. The decrease in sales and marketing expense is primarily due to less home deliveries from Company projects during the three months ended March 31, 2013 having associated co-brokers as compared to the same period in 2012.

General and administrative expenses decreased to 20.6% of home sales revenue for the three months ended March 31, 2013 compared to 22.7% for the same period in 2012. The slight decrease in general and administrative expenses as a percentage of home sales revenue is primarily due to a 14% increase in home sales revenue offset partially by a slight increase in G&A expenses for the three months ended March 31, 2013 as compared to the same period in 2012.

Other Income (Expense), Net

Other income (expense), net decreased slightly during the three months ended March 31, 2013 compared to the same period in 2012 due to a reduction in national contract rebates.

Provision For Taxes

The Company is a limited liability company which is treated as a partnership for income tax purposes and is subject to certain minimal taxes and fees; however, income taxes on taxable income or losses realized by the Company are the obligation of the members. The Company has a subsidiary that is treated as a C Corporation and Federal and state income taxes are provided for this entity.

Provision for income taxes increased to $64,745 for the three months ended March 31, 2013 compared to $0 for the three months ended March 31, 2012. The increase in provision for income taxes is primarily due to the increase in fee building gross margin during the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

Other Items

Interest, which was incurred principally to finance land acquisition, land development and home construction, totaled $273,999 and $94,649 for the three months ended March 31, 2013 and 2012, respectively, all of which was capitalized to real estate inventory. The increase in interest incurred during the three months ended March 31, 2013 compared to the same period in 2012 was primarily attributable to our increase in outstanding debt, which was the result of the increase in the number of projects and the growth in our real estate inventory.

Net Income (Loss)

As a result of the foregoing factors, net income during the three months ended March 31, 2013 was $0.3 million compared to a net loss during the same period in 2012 of ($0.5 million).

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Lots Owned and Controlled

	March 31,				Increase (Decrease)
	2013		2012		Amount			%
Lots Owned
Southern California		170		—		170			—
Northern California		207		333		(126	)		(38	)%
Total		377		333		44			13	%
Lots Controlled(1)
Southern California		156		20		136			680	%
Northern California		106		—		106			—
Fee Building Projects		189		95		94			99	%
Total		451		115		336			292	%
Total Lots Owned and Controlled		828		448		380			85	%

(1) Includes 262 and 20 lots as of March 31, 2013 and 2012, respectively, that are under purchase contracts.

Our lots owned increased by 13% to 377 as of March 31, 2013 due to the acquisition of 170 lots in two communities in Southern California, offset by the closeout of one community in Northern California and increase in new home deliveries.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net New Home Orders and Backlog

	Year Ended December 31,						Increase (Decrease)
	2012			2011			Amount			%
Net new home orders		72			45			27			60	%
Cancellation rate		16	%		25	%		(9	)%		(35	)%
Average selling communities		4			4			—			0	%
Selling communities at end of period		3			4			(1	)		(25	)%
Backlog (dollar value)	$	10,593,000		$	5,074,000		$	5,519,000			109	%
Backlog (units)		26			7			19			271	%
Average sales price of backlog	$	407,000		$	725,000		$	(318,000	)		(44	)%

Net new home orders for the year ended December 31, 2012 increased 60% to 72, compared to 45 during the the year ended December 31, 2011. Our overall “absorption rate” (the rate at which home orders are contracted, net of cancellations) for the year ended December 31, 2012 was 18 per average selling community (1.7 monthly), compared to 11.25 per average selling community (0.8 monthly) during the year ended December 31, 2011. Our cancellation rate of buyers who contracted to buy a home, but did not close escrow (as a percentage of overall orders), was approximately 16% for the year ended December 31, 2012 as compared to 25% for the year ended December 31, 2011. The growth during the year ended December 31, 2012 was primarily due to the opening of one new community and increased absorption rates at our selling communities. Our average number of selling communities decreased by one during the year ended December 31, 2012 due to opening one new community, offset by the final closeout of two selling communities. The increase in net new home orders positively impacted our number of homes in backlog, which are homes we expect to close in future periods. We expect that our net new home orders and backlog increases will have a positive impact on revenues and cash flow in future periods.

Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer, but for which we have not yet delivered the home. Backlog has not been reduced to reflect our historical cancellation rate. Homes in backlog are generally closed within

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three to six months, although we may experience cancellations of sales contracts prior to closing. The increase in backlog units of 19 homes was driven by the 60% increase in net new home orders during the year ended December 31, 2012 as compared to the previous year. The dollar value of backlog increased $5.5 million, or 109% as of December 31, 2012. The increase in dollar amount of backlog reflects an increase in the number of homes in backlog of 19. We experienced a decrease in average sales price of backlog of $318,000 during the year ended December 31, 2012 compared to the year ended December 31, 2011 due to the introduction of sales in a lower priced community during the same period. The increase in the dollar amount of backlog of homes sold, but not closed, as described above generally results in an increase in operating revenues in subsequent periods.

Home Sales Revenue and New Homes Delivered

	Year Ended December 31,					Increase (Decrease)
	2012		2011			Amount			%
New homes delivered		53		49			4			8	%
Home sales revenue	$	24,197,956	$	25,624,111	(1)	$	(1,426,155	)		(6	%)
Average sales price of homes delivered	$	457,000	$	523,000	(1)	$	(66,000	)		(13	%)

⁽¹⁾  We entered into a fee building services agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue only for these option upgrades, and not the related homes delivered, in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the years ended December 31, 2012 and 2011, we recognized revenue for these option upgrades of $0 and $3.2 million, respectively, which is included above in home sales revenue. These option revenues were for the delivery of 0 and 47 homes in 2012 and 2011, respectively, which are not included above as new homes delivered. Excluding these option upgrade revenues, home sales revenue and the average sales price of homes delivered in the year ended December 31, 2011 would have been $22.5 million and $458,000 million, respectively.

New home deliveries increased by four, or 8%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase in new home deliveries was primarily attributable to the increase in net new home orders and units in backlog.

Home sales revenue decreased by $1.4 million, or 6%, during the year ended December 31, 2012 primarily due to the closeout of a fee building project during the year ended December 31, 2011, which generated $3.2 million in home sales revenue during the year ended December 31, 2011 and none during the year ended December 31, 2012 (see note 1 above).

Homebuilding

	Year Ended December 31,
	2012			%			2011			%
Home sales(1)	$	24,197,956			100.0	%	$	25,624,111			100.00	%
Cost of home sales(1)		20,779,338			85.9	%		21,774,199			85.0	%
Homebuilding gross margin		3,418,618			14.1	%		3,849,912			15.0	%
Add: interest in cost of home sales		328,245			1.4	%		425,704			1.7	%
Adjusted homebuilding gross margin(2)	$	3,746,863			15.5	%	$	4,275,616			16.7	%
Homebuilding gross margin percentage		14.1	%					15.0	%
Adjusted homebuilding gross margin percentage(2)		15.5	%					16.7	%

⁽¹⁾  We entered into a fee building services agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue only for these

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option upgrades, and not for the related new homes delivered, in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the years ended December 31, 2012 and 2011, we recognized revenue for these option upgrades of $0 and $3.2 million, respectively, which is included above in homebuilding home sales. The cost of these option upgrades, included above in homebuilding cost of home sales, was $0 and $2.4 million during the years ended December 31, 2012 and 2011, respectively. Excluding these option upgrades revenues, homebuilding home sales during the years ended December 31, 2012 and 2011 would have been $24.2 million and $22.5 million, respectively, and homebuilding cost of home sales would have been $20.8 million and $19.4 million respectively. Homebuilding gross margins would have been 14.1% for both years ended December 31, 2012 and 2011 and did not materially change on a per unit basis.

⁽²⁾ Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe that by adding interest in cost of homesales back to homebuilding gross margin investors are able to assess the performance of our homebuilding business excluding our interest cost, allowing a focus on the performance of the underlying homebuilding operations. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

Homebuilding gross margin represents home sales revenue less cost of home sales. Our homebuilding gross margin decreased to 14.1% for the year ended December 31, 2012 as compared to 15.0% for the year ended December 31, 2011 primarily due to option revenue related to the delivery of options and upgrades at one of our fee building projects that was completed during the year ended December 31, 2011 (see note 1 above). Excluding the additional options and upgrades deliveries during the year ended December 31, 2011, homebuilding gross margins would have remained the same (see note 1 above) and did not materially change on a per unit basis.

Excluding interest in cost of home sales, adjusted homebuilding gross margin percentage was 15.5% for the year ended December 31, 2012, compared to 16.7% for the year ended December 31, 2011. Excluding the additional options and upgrades deliveries during the year ended December 31, 2011, adjusted homebuilding gross margins would have remained the same (see note 1 above). Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe that by adding interest in cost of homesales back to homebuilding gross margin investors are able to assess the performance of our homebuilding business excluding our interest cost, allowing a focus on the performance of the underlying homebuilding operations. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

Fee Building

	Year Ended December 31,
	2012		%			2011			%
Fee building revenue	$	28,268,675		100.0	%	$	16,522,946			100.0	%
Cost of fee building		26,505,042		93.8	%		16,762,666			101.5	%
Fee building gross margin	$	1,763,633		6.2	%	$	(239,720	)		(1.5	)%

As of December 31, 2012 and 2011, we had five and two fee building agreements, respectively, with independent third-party land owners and four and two construction management agreements, respectively, with our unconsolidated joint ventures to provide construction management services. Fee building revenue increased to $28.3 million for the year ended December 31, 2012 compared to $16.5 million for the year ended December 31, 2011. The increase in fee building revenue and cost is due to three new fee building agreements entered during the year ended December 31, 2012 and the increase in new home deliveries from three

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communities contained within one unconsolidated joint venture. We collect management fees from unconsolidated joint ventures during the life of the project, which increase as new homes are delivered. These management fees were $2.9 million and $0.8 million, for the years ended December 31, 2012 and 2011, respectively, and are included in fee building revenues. During the year ended December 31, 2012 and 2011, there were 42 and 0, respectively, new home deliveries from unconsolidated joint ventures which was the primary reason management fees from unconsolidated joint ventures increased. Cost of fee building for the year ended December 31, 2012 and 2011 included the contract intangible amortization expense of $0 and $0.4 million, respectively. As a result of the additional contract intangible amortization expense during the year ended December 31, 2011 and the additional management fees from unconsolidated joint ventures during the year ended December 31, 2012, fee building gross margin increased from (1.5%) to 6.2%, or 7.7%.

Land Sale

For the year ended December 31, 2012, we recognized $2.9 million in land sales revenue and $3.3 million in cost of land sales related to the sale of 42 finished lots contained within one of our communities. During April 2012, we made a decision to redeploy capital from a project in Sacramento to a project in San Jose. In connection therewith, we entered into an agreement with a single purchaser to sell 42 finished lots. As a result, we recognized an impairment charge of $350,000 on the sale during June 2012. The sale closed in July 2012, resulting in a gross margin of $28,209. For the year ended December 31, 2012, the net result of this transaction was a land sales gross margin of ($321,791).

Abandoned Project Costs

Pre-acquisition costs, which primarily are non-refundable deposits for specific projects, are expensed to abandoned project costs when we determine continuation of the respective project is not probable. During the year ended December 31, 2012, abandoned project costs increased to $0.4 million from $0.1 million during the year ended December 31, 2011, primarily due to the increase in project investigation activity.

Equity in Net (Income) Loss of Unconsolidated Joint Ventures

As of December 31, 2012 and 2011, we had ownership interests in five and two unconsolidated joint ventures, respectively, with percentage capital interest ranging from 5% to 50%. The unconsolidated joint ventures produced $8.7 million in net income during the year ended December 31, 2012 and a net loss of $0.3 million for the year ended December 31,2011. Our equity in net (income) loss from unconsolidated joint ventures was ($0.3 million) for the year ended December 31, 2012, compared to $39,000 for the year ended December 31, 2011. The increase was primarily due to the 42 new home deliveries during the year ended December 31, 2012 and no new home deliveries during the year ended December 31, 2011.

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The following sets forth supplemental information about our unconsolidated joint ventures. We have              investments in several unconsolidated joint ventures and this information has been included to provide additional information about the operations and financial condition of our unconsolidated joint ventures. We own capital interests in our unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the unconsolidated joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures. Dollar amounts and other data reflect the entire amounts attributable to our unconsolidated joint ventures and not our share thereof. This data is included for informational purposes only.

	Year Ended December 31,
	2012			%			2011		%
Unconsolidated Joint Ventures—Homebuilding
Unconsolidated joint ventures home sales	$	56,018,517			100.0	%	$	—		n/a
Cost of unconsolidated joint ventures home sales		41,548,236			74.2	%		—		n/a
Unconsolidated joint ventures gross margin		14,470,281			25.8	%		—		n/a
Add: interest in cost of unconsolidated joint venture home sales		1,358,380			2.4	%		—		n/a
Adjusted unconsolidated joint ventures gross margin(1)	$	15,828,661			28.3	%	$	—		n/a
Unconsolidated joint ventures home sales gross margin percentage		25.8	%					—
Adjusted unconsolidated joint ventures home sales gross margin percentage(1)		28.3	%					—

⁽¹⁾  Non-GAAP financial measure (as discussed below).

	Year Ended December 31,					Increase (Decrease)
	2012			2011		Amount		%
Unconsolidated Joint Ventures—Net New Home Orders, Backlog and Deliveries
Net new home orders		96			—		96		n/a
Cancellation rate		5	%		n/a		n/a		n/a
Average selling communities		3			—		3		n/a
Selling communities at end of period		3			—		3		n/a
Backlog (dollar value)	$	72,921,000		$	—	$	72,921,000		n/a
Backlog (units)		54			—		54		n/a
Average sales price per unit of backlog	$	1,350,000		$	—	$	1,350,000		n/a
New homes delivered		42			—		42		n/a
Average sales price of homes delivered	$	1,334,000			n/a		n/a		n/a

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The table below summarizes lots owned and controlled by our unconsolidated joint ventures as of the dates presented:

	December 31,				Increase
	2012		2011		Amount		%
Unconsolidated Joint Ventures—Lots Owned and Controlled
Lots owned		766		254		512		302	%
Lots controlled(1)		1,042		394		648		264	%
Total		1,808		648		1,160		279	%

⁽¹⁾  Includes 1,042 lots and 394 lots that are under purchase and sale agreements, as of December 31, 2012 and 2011, respectively.

Selling, General and Administrative Expense

	Year Ended December 31,				As a Percentage of  Home Sales Revenue
	2012		2011		2012			2011
Sales and marketing	$	1,677,058	$	1,748,430		6.9	%		6.8	%
General and administrative (“G&A”)		3,999,949		3,522,617		16.5	%		13.7	%
Total sales and marketing and G&A	$	5,677,007	$	5,271,047		23.5	%		20.6	%

Sales and marketing expense incurred during the year ended December 31, 2012 and 2011 was consistent as the average number of selling communities remained the same.

General and administrative expenses increased to 16.5% of home sales revenue for the year ended December 31, 2012 compared to 13.7% for the year ended December 31, 2011. The increase in G&A is primarily due to a 36% increase in office staff during the year ended December 31, 2012 as a result of the increase in, and level of activity, of the projects in our pipeline. We expect that our G&A expense as a percentage of home sales revenue will decrease as our new home deliveries and related revenue increase from growth in our community count.

Guarantee Fee Income

During the year ended December 31, 2012, we received $113,563 from one of our unconsolidated joint venture for certain loan guaranties provided over a 12-month period by us on behalf of the unconsolidated joint venture, of which $28,391 was deferred. As a result, guarantee fee income was $85,172 for the year ended December 31, 2012. We did not receive any guarantee fees during the year ended December 31, 2011.

Other Income (Expense), Net

Other income (expense), net, increased slightly during the year ended December 31, 2012 due to an increase in miscellaneous fees paid to state regulatory agencies.

Provision For Taxes

The Company, (and the Predecessor) is a limited liability company which is treated as a partnership for income tax purposes and is subject to certain minimal taxes and fees; however, income taxes on taxable income or losses realized by the Company are the obligation of the members. The Company, and the Predecessor, have a subsidiary that is treated as a C Coporation and Federal and state income taxes are provided for this entity. Provision for income taxes increased to $71,255 for the year ended December 31, 2012 compared to $10,149 for the year ended December 31, 2011. The increase in provision for income taxes is primarily due to the increase in fee building gross margin during the year ended December 31, 2012 compared to the year ended December 31, 2011. In addition, the

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federal statutory tax rate of the Company’s sole taxable subsidiary increased from 15% to 34% because its income on a separate company basis increased to over $100,000 for the year ended December 31, 2012 but was at or under $50,000 for the year ended December 31, 2011, causing it to be taxed in different tax brackets for those years.

Net Loss

As a result of the foregoing factors, net loss during the year ended December 31, 2012 was $0.9 million compared to a net loss during the year ended December 31, 2011 of $1.9 million. The net loss for the year ended December 31, 2011 included $0.4 million of amortization expense related to the intangible asset resulting from the application of push-down accounting on August 18, 2010.

Interest Incurred

Interest incurred, which was incurred principally to finance land acquisition, land development and home construction, totaled $0.6 million and $0.4 million for the years ended December 31, 2012 and 2011, respectively, all of which was capitalized to real estate inventory. The increase in interest incurred during the year ended December 31, 2012 compared to the year ended December 31, 2011 was primarily attributable to our increase in outstanding debt, which was the result of the increase in the number of projects and the growth in our real estate inventory.

Lots Owned and Controlled

The table below summarizes our lots owned and controlled as of the dates presented:

	December 31,				Increase (Decrease)
	2012		2011		Amount			%
Lots Owned
Southern California		150		2		148			NM	*
Northern California		219		340		(121	)		(36	%)
Total		369		342		27				%
Lots Controlled(1)
Southern California		107		20		87			435	%
Northern California		108		—		108			—
Fee Building Projects		234		102		132			129	%
Total		449		122		327			268	%
Total Lots Owned and Controlled		818		464		354			76	%

^*  Not meaningful.

⁽¹⁾  Includes 183 lots and 20 lots that were under purchase and sale agreements as of December 31, 2012 and 2011, respectively, and 32 lots that are under a non-binding letter of intent as of December 31, 2012.

In Southern California, our owned and controlled land totaled 257 lots as of December 31, 2012. The controlled lots are subject to purchase and sale agreements and include two infill sites (which are new homes constructed on vacant or under-utilized sites among existing properties in established communities) strategically located within our core markets, including 20 lots in Thousand Oaks (Los Angeles County) and 87 lots in Calabasas (Los Angeles County). In addition to Company projects, we are managing five fee building projects, all located in Southern California, for a total of 234 homes.

In Northern California, our owned and controlled land totaled 327 lots as of December 31, 2012. We plan to open sales locations at two new communities in 2013 in the following cities (counties): Granite Bay (Placer) and Folsom (Sacramento). Lots under purchase and sale agreements in Northern California include one infill site with 76 lots in San Mateo (San Mateo County).

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Year Ended December 31, 2011 Compared to the Period from August 18, 2010 through December 31, 2010

Net New Home Orders and Backlog

	Year Ended December 31, 2011			Period From August 18, 2010 (Inception) Through December 31, 2010			Increase (Decrease)
							Amount			%
Net new home orders		45			15			30			200	%
Cancellation rate		25	%		10	%		15	%		150	%
Average selling communities		4			3			1			17	%
Selling communities at end of period		4			3			1			33	%
Backlog (dollar value)	$	5,074,000		$	3,982,000		$	1,092,000			27	%
Backlog (units)		7			11			(4	)		(36	%)
Average sales price of backlog	$	725,000		$	362,000		$	363,000			100	%

Net new home orders for the year ended December 31, 2011 increased 200% to 45, compared to 15 for the period from August 18, 2010 to December 31, 2010. Our overall absorption rate for the year ended December 31, 2011 was 11.25 per average selling community (0.94 monthly), compared to 5.0 per average selling community (0.42 monthly) during the period from August 18, 2010 to December 31, 2010. Our cancellation rate of buyers who contracted to buy a home, but did not close escrow (as a percentage of overall orders), was approximately 25% for the year ended December 31, 2011 as compared to 10% for the period from August 18, 2010 to December 31, 2010. The growth during the year ended December 31, 2011 was primarily due to the opening of three new communities, one of which closed out within the same period. Our average number of selling communities increased by one during the year ended December 31, 2011 due to opening three new communities, offset by the final closeout of two selling communities.

The decrease in backlog units of four homes was driven by the increase in new home deliveries and the final closeout of two selling communities during the year ended December 31, 2011 as compared to the period from August 18, 2010 to December 31, 2010. The dollar value and average sales price of backlog increased by $1.1 million and $363,000, respectively, when compared to the period from August 18, 2010 to December 31, 2010 primarily due to a different product mix with larger home and lot sizes. Backlog has not been reduced to reflect our historical cancellation rate.

Home Sales Revenue and New Homes Delivered

	Year Ended December 31, 2011		Period From August 18, 2010 (Inception) Through December 31, 2010		Increase (Decrease)
					Amount			%
New homes delivered		49		8		41			513	%
Home sales revenue(1)	$	25,624,111	$	5,319,048	$	20,305,063			382	%
Average sales price of homes delivered(1)	$	523,000	$	665,000	$	(142,000	)		(21	%)

⁽¹⁾  We entered into a fee build agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue only for these option upgrades, and not the related new homes delivered, in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the year ended December 31, 2011 and the period from August 18, 2010 (Inception) through December 31, 2010, we recognized revenue for these option upgrades of $3.2 million and $2.3 million, respectively, which is included above in home sales revenue. These revenues were for the delivery of option upgrades on 47 and 37 homes during the year ended December 31, 2011 and the period from August 18, 2010 (Inception) through December 31, 2010, respectively.

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New home deliveries increased by 41, or 513% during the year ended December 31, 2011 compared to the period from August 18, 2010 to December 31, 2010. The increase in new home deliveries was primarily attributable to the increase in net new home orders and net increase of one selling community.

Home sales revenue increased by $20.3 million, or 382%, during the year ended December 31, 2011 primarily due to the increase in new home deliveries. The decrease in average sales price is primarily due to a change in product mix.

Homebuilding

	Year Ended December 31,						Period From August 18, 2010 (Inception) Through December 31,
	2011			%			2010			%
Home sales(1)	$	25,624,111			100.0	%	$	5,319,408			100.0	%
Cost of home sales(1)		21,774,199			85.0	%		4,423,236			83.2	%
Homebuilding gross margin		3,849,912			15.0	%		896,172			16.8	%
Add: interest in cost of home sales		425,704			1.7	%		43,398			0.8	%
Adjusted homebuilding gross margin(2)	$	4,275,616			16.7	%	$	939,570			17.7	%
Homebuilding gross margin percentage		15.0	%					16.8	%
Adjusted homebuilding gross margin percentage(2)		16.7	%					17.7	%

⁽¹⁾  We entered into a construction management services agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue only for these option upgrades, and not for the related new homes delivered, in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the year ended December 31, 2011 and the period from August 18, 2010 (Inception) through December 31, 2010, we recognized revenue for these option upgrades of $3.2 million and $2.3 million, respectively, which is included above in homebuilding home sales. The cost of these option upgrades, included above in homebuilding cost of home sales, was $2.4 million and $1.7 million during the year ended December 31, 2011 and the period from August 18, 2010 (Inception) through December 31, 2010, respectively.

⁽²⁾  Non-GAAP financial measure (as discussed below).

Our homebuilding gross margin decreased to 15.0% for the year ended December 31, 2011 as compared to 16.8% for the period from August 18, 2010 to December 31, 2010 primarily due to the decline in delivery of options and upgrades at one of our fee building projects from 2011 compared to 2010. Excluding these option upgrades revenues, homebuilding home sales during the year ended December 31, 2011 and the period from August 18, 2010 (Inception) through December 31, 2010 would have been $22.5 million and $3.0 million, respectively, and homebuilding cost of home sales would have been $19.3 million and $2.7 million, respectively. Homebuilding gross margin percentage would have increased to 14.1% for the year ended December 31, 2011 from 9.2% for the period from August 18, 2010 (Inception) through December 31, 2010, respectively (see note 1 above).

Excluding interest in cost of home sales, adjusted homebuilding gross margin percentage was 16.7% for the year ended December 31, 2011, compared to 17.7% for the period from August 18, 2010 to December 31, 2010. The decrease in adjusted homebuilding gross margin is primarily due to the decline in delivery of options and upgrades at one of our fee building projects from 2011 compared to 2010. Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe that by adding interest in cost of home sales back to homebuilding gross margin investors are able to assess the performance of our homebuilding business excluding our interest cost, allowing a focus on the performance of the underlying homebuilding operations. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits

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investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

Fee Building

	Year Ended						Period From August 18, 2010 (Inception) Through December 31,
	2011			%			2010		%
Fee building revenues	$	16,522,946			100.0	%	$	11,494,347		100.0	%
Cost of fee building		16,762,666			101.5	%		11,331,286		98.6	%
Fee building gross margin	$	(239,720	)		(1.5	%)	$	163,061		1.4	%

As of December 31, 2011 and 2010, we had two and one fee building agreements, respectively, with independent third-party land owners and two and one construction management agreements, respectively, with our unconsolidated joint ventures to provide construction management services. Fee building revenues increased $5.0 million, or 44%, to $16.5 million for the year ended December 31, 2011 from $11.5 million for the period from August 18, 2010 through December 31, 2010. Cost of fee building increased $5.4 million, or 48%, to $16.8 million for the year ended December 31, 2011 from $11.3 million for the period from August 18, 2010 through December 31, 2010. The increase in revenue and cost of fee building is due to the addition of two new fee building agreements during the year ended December 31, 2011.

Cost of fee building includes amortization expense on contracts intangible related to a fee building contract contributed by our Predecessor at our formation. Amortization expense was $0.4 million and $0.3 million for the year ended December 31, 2011 and the period from August 18, 2010 and December 31, 2010, respectively.

Abandoned Project Costs

Pre-acquisition costs, which primarily are non-refundable land deposits for specific projects, are expensed to abandoned project costs when we determine continuation of the respective project is not probable. During the year ended December 31, 2011, we recognized $0.1 million in abandoned project costs compared to $0 for the period from August 18, 2010 to December 31, 2010. The increase is primarily due to the increase in project investigation activity.

Equity in Net (Income) Loss of Unconsolidated Joint Ventures

As of December 31, 2011 and 2010, we had ownership interests in two and one unconsolidated joint ventures, respectively, with percentage capital interests ranging from 5% to 10%. The unconsolidated joint ventures resulted in a net loss of $0.8 million during the year ended December 31, 2011, of which $(39,000) was our proportionate share of equity in net loss. The unconsolidated joint ventures did not have any income or loss during the period from August 18, 2010 to December 31, 2010.

Selling, General and Administrative Expense

					As a Percentage of Home Sales Revenue
	Year Ended December 31, 2011		Period From August 18, 2010 (Inception) Through December 31 2010		Year Ended December 31, 2011			Period From August 18, 2010 (Inception) Through December 31 2010
Selling and marketing expenses	$	1,748,430	$	453,799		6.8	%		8.5	%
General and administrative expenses (“G&A”)		3,522,617		689,781		13.7	%		13.0	%
Total selling, marketing and G&A	$	5,271,047	$	1,143,580		20.6	%		30.2	%

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Sales and marketing expenses increased $1.3 million, or 285%, to $1.7 million for the year ended December 31, 2011 from $0.5 million for the period from August 18, 2010 through December 31, 2010. The increase in sales and marketing expense was primarily due to a 513% increase in number of homes delivered from Company projects for the year ended December 31, 2011. The increase in sales and marketing expenses was also due to an increase of two selling communities for Company projects to four at December 31, 2011 from two at December 31, 2010. Sales and marketing expenses were 6.8% and 8.5% of overall home sales revenue for the year ended December 31, 2011 and the period from August 18, 2010 to December 31, 2010, respectively.

General and administrative expenses increased $2.8 million, or 411%, to $3.5 million for the year ended December 31, 2011 from $0.7 million for the period from August 18, 2010 to December 31, 2010, primarily attributable to twelve months of general and administrative expenses for the full year as compared to just over four months for the period from August 18, 2010 to December 31, 2010. Our general and administrative expenses as a percentage of home sales revenue were 13.7% and 13.0% for the year ended December 31, 2011 and the period from August 18, 2010 to December 31, 2010, respectively, as a result of increased general and administrative support attributable to our growth in employees and operations.

Provision For Taxes

Provision for income taxes increased to $10,149 for the year ended December 31, 2011 compared to zero for the period from August 18, 2010 to December 31, 2011. The increase in provision for income taxes is primarily due to state tax credits that were available during the period from August 18, 2010 to December 31, 2010 and not available during the year ended December 31, 2011.

Other Income (Expense), Net

Other income (expense), net, increased to ($14,750), for the year ended December 31, 2011 from ($10,596) for the period from August 18, 2010 to December 31, 2010. The increase was primarily due to an increase in miscellaneous fees paid to state regulatory agencies.

Net Loss

As a result of the foregoing factors, net loss for the year ended December 31, 2011 was $1.9 million compared to a net loss for the period from August 18, 2010 to December 31, 2010 of $0.1 million.

Interest Incurred

Interest incurred, which was incurred principally to finance land acquisition, land development and home construction, totaled $0.4 million and $0.1 million for the year ended December 31, 2011 and the period from August 18, 2010 to December 31, 2010, respectively, all of which was capitalized to real estate inventory. The increase in interest incurred during the year ended December 31, 2011 compared to the period from August 18, 2010 to December 31, 2010 was primarily attributable to a full year of interest in 2011 compared to only a partial year in 2010.

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Lots Owned and Controlled

The table below summarizes our lots owned and controlled as of the dates presented:

	December 31,				Increase (Decrease)
	2011		2010		Amount			%
Lots Owned
Southern California		2		27		(25	)		(93	%)
Northern California		340		128		212			166	%
Total		342		155		187			45	%
Lots Controlled(1)
Southern California		20		—		20			—
Northern California		—		—		—			—
Fee Building Projects		102		133		(31	)		(23	%)
Total		122		133		(11	)		(8	%)
Total Lots Owned and Controlled		464		288		176			62	%

⁽¹⁾  Includes 20 lots that were under purchase and sale agreements as of December 31, 2011.

Year Ended December 31, 2011 Compared to the Period from January 1, 2010 through August 17, 2010 (Our Predecessor)

Net New Home Orders and Backlog

	December 31,			August 17,			Increase (Decrease)
	2011			2010			Amount			%
Net new home orders		45			4			41			NM	*
Cancellation rate		25	%		0	%		25	%		n/a
Average selling communities		4			1			3			300	%
Selling communities at end of period		4			1			3			300	%
Backlog (dollar value)	$	5,074,000		$	1,177,000		$	3,897,000			331	%
Backlog (units)		7			4			3			75	%
Average sales price of backlog	$	725,000		$	294,000		$	431,000			147	%

* Not meaningful.

Net new home orders for the year ended December 31, 2011 increased by 41 to 45 compared to four for the period from January 1, 2010 through August 17, 2010. Our overall absorption rate for the year ended December 31, 2011 was 11.25 per average selling community (0.94 monthly). The comparative analysis for the absorption rate for the period from January 1, 2010 through August 17, 2010 is not comparable since there was only one active selling community which opened in June 2010. Our absorption rate per average selling community increased and we experienced substantial order growth for the year ended December 31, 2011 as compared to the period from January 1, 2010 through August 17, 2010 due to twelve months of order activity from four selling communities versus three months of order activity from one selling location in the 2010 period. Our cancellation rate was approximately 25% for the year ended December 31, 2011 as compared to 0% for the period from January 1, 2010 through August 17, 2010. The cancellation rate was higher for the year ended December 31, 2011 due to increased sales activity and therefore increased opportunity for cancellation to occur.

Backlog units increased by three homes, or 75%, to seven as of December 31, 2010 as compared to four homes as of August 17, 2010, primarily driven by the increase in net new home orders offset by 49 home deliveries for the year ended December 31, 2011. The dollar value of backlog increased $3.9 million, or 331%, to $5.1 million as of December 31, 2011 from $1.2 million as of August 17, 2010. The increase in dollar amount of

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backlog reflects the increase in the number of homes in backlog and an increase in the average sales price of homes in backlog. Our average sales price of homes in backlog increased $0.4 million, or 147%, to $0.7 million at December 31, 2011 compared to $0.3 million at August 17, 2010 due to the introduction of new product at new communities with a shift to larger square footage and higher-end homes with corresponding higher average sales prices in the 2011 period. Backlog has not been reduced to reflect our historical cancellation rate.

Home Sales Revenue and New Homes Delivered

	Year Ended December 31, 2011		January 1, 2010 Through August 17, 2010			Increase (Decrease)
						Amount		%
New homes delivered		49		—			49		n/a
Home sales revenue(1)	$	25,624,111	$	538,598		$	25,085,513		NM	*
Average sales price of homes delivered(1)	$	523,000		n/a	(1)	$	—		n/a

* Not meaningful.

(1) Our Predecessor and we entered into a fee building agreement that allowed us to independently operate a design center and directly market upgrade options to the landowners’ homebuyers. We recognized revenue only for these option upgrades, and not for the related new home deliveries, in accordance with ASC 360-20, Property, Plant and Equipment, Real Estate Sales, as more fully described in the notes to the consolidated financial statements. During the year ended December 31, 2011 and the period from January 1, 2010 through August 17, 2010, we recognized revenue for these option upgrades of $3.2 million and $0.6 million, respectively, which is included above in home sales revenue. These revenues were for the delivery of option upgrades on 47 and 12 homes during the year ended December 31, 2011 and the period from January 1, 2010 through August 17, 2010, respectively, which are included above in new home deliveries from fee building.

Excluding these option upgrades revenues, home sales revenue during the year ended December 31, 2011 and the period from January 1 through August 17, 2010 would have been $22.5 million and $0, respectively, and the average sales price of homes delivered in 2011 would have been $458,000.

The increase in new homes delivered and average sales price of homes delivered is due to the lack of home sales during the Predecessor period from January 1, 2010 through August 17, 2010. As described in note (1) to the table above, the $538,958 home sales revenue recognized during the Predecessor period from January 1, 2010 through August 17, 2010 was for option upgrades on the delivery of fee building homes.

Fee Building

	Year Ended December 31,						Period From January 1, 2010 Through August 17,
	2011			%			2010		%
Fee building revenues	$	16,522,946			100.0	%	$	12,941,110		100.0	%
Cost of fee building		16,762,666			101.3	%		12,764,497		98.6	%
Fee building gross margin	$	(239,720	)		(1.3	%)	$	176,613		1.4	%

Fee building revenues increased $3.6 million to $16.5 million for the year ended December 31, 2011 from $12.9 million for the period from January 1, 2010 through August 17, 2010. Cost of fee building increased $4.0 million to $16.8 million for the year ended December 31, 2011 from $12.8 million for the period from January 1, 2010 through August 17, 2010. The number of homes delivered under our fee building agreements increased 35, or 292%, to 47 during the year ended December 31, 2011, from 12 during the period from January 1, 2010 through August 17, 2010 which was the primary reason that fee building revenues and cost of fee building increased.

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Cost of fee building includes amortization expense on contracts intangible related to a fee building contract contributed by our Predecessor at our formation. Amortization expense was $0.4 million and $0 for the year ended December 31, 2011 and the period from January 1, 2010 through August 17, 2010, respectively which was the primary reason fee building gross margin decreased.

Selling, General and Administrative Expense

					As a Percentage of Home Sales Revenue
			Predecessor					Predecessor
	Year Ended December 31, 2011		Period From January 1, 2010 Through August 17, 2010		Year Ended December 31, 2011			Period From January 1, 2010 Through August 17, 2010
Selling and marketing expenses	$	1,748,430	$	134,002		6.8	%		24.9	%
General and administrative expenses (“G&A”)		3,522,617		328,295		13.7	%		61.0	%
Total selling, marketing and G&A	$	5,271,047	$	462,297		20.6	%		85.8	%

Selling and marketing expenses increased $1.6 million to $1.7 million for the year ended December 31, 2011 from $0.1 million for the period from January 1, 2010 through August 17, 2010. The increase in selling and marketing expenses were primarily due to an increase of 49 in number of homes delivered for the year ended December 31, 2011, from none in the period from January 1, 2010 through August 17, 2010. The increase in selling and marketing expenses was also due to an increase of two selling communities during the year ended December 31, 2011. Selling and marketing expenses were 6.8% and 24.9% of overall home sales revenue for the year ended December 31, 2011 and the period from January 1, 2010 to August 17, 2010, respectively. This decrease is due to less home sales revenue during the period from January 1, 2010 through August 17, 2010 (home sales revenue during this period was solely from option sales on a fee building project, there was no home sales revenue from Company projects).

General and administrative expenses increased $3.2 million to $3.5 million for the year ended December 31, 2011 from $0.3 million for the period from January 1, 2010 through August 17, 2010, primarily attributable to our growth in employees and operations for the full year 2011 as compared to the period from January 1, 2010 through August 17, 2010. Our general and administrative expenses as a percentage of home sales revenue were 13.7% compared to 60.9% for the year ended December 31, 2011 and the period from January 1, 2010 through August 17, 2010, respectively. This decrease is due to less home sales revenue during the period from January 1, 2010 through August 17, 2010 (home sales revenue during this period was solely from option sales on a fee building project, there was no home sales revenue from Company projects).

Other Income (Expense), Net

Other income (expense), net, increased to ($14,750) for the year ended December 31, 2011 from ($6,048) for the period from January 1, 2010 through August 17, 2010. The increase was primarily due to an increase in miscellaneous fees paid to state regulatory agencies.

Net Loss

As a result of the foregoing factors, net loss for the year ended December 31, 2011 was $1.9 million compared to a net loss for the period from January 1, 2010 through August 17, 2010 of $0.2 million.

Interest Incurred

Interest incurred, which was incurred principally to finance land acquisition, land development and home construction, totaled $0.4 million and $0.1 million for the year ended December 31, 2011 and the period from

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January 1, 2010 to August 17, 2010, respectively, all of which was capitalized to real estate inventory. The increase in interest incurred during the year ended December 31, 2011 compared to the period from January 1, 2010 to August 17, 2010 was primarily attributable to a full year of interest in 2011 compared to only a partial year in 2010.

Liquidity and Capital Resources

Overview

Our principal uses of capital for the year ended December 31, 2012 and the three months ended March 31, 2013 were land purchases, land development, home construction, investments in unconsolidated joint ventures, operating expenses and the payment of routine liabilities. We used funds generated by operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth.

Cash flows for each of our communities depend on their stage in the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our real estate inventories and not recognized in our consolidated statement of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are actively acquiring and developing lots in our markets to increase our lot supply and community count. We focus on strategically located sites, which are located along key transportation corridors in major job centers in our submarkets. As demand for new homes improves and we continue to expand our business, we expect that cash outlays for land purchases and land development intended to increase our lot inventory will exceed our cash generated by operations. During the year ended December 31, 2012, we delivered 53 homes and purchased 150 lots. During the three months ended March 31, 2013, we delivered 12 homes and purchased 20 lots. The opportunity to purchase substantially finished lots in desired locations is becoming increasingly more limited and competitive. As a result, we are investing more capital to acquire and develop lots for our homebuilding activity.

We exercise strict controls and believe we have a prudent strategy for company-wide cash management, including those related to cash outlays for land and inventory acquisition and development. We ended the 2012 year with $6.0 million of cash and cash equivalents. During the three months ended March 31, 2013, our members increased the aggregate capital commitment from $40 million to $50 million. As of December 31, 2012, $38.4 million of committed entity capital was funded. The remaining $11.6 of the $50.0 million commitment was contributed during the first quarter of 2013, increasing our cash balance accordingly. This contribution was used to acquire additional land. At March 31, 2013, we had $5.2 million of cash and cash equivalents, including restricted cash. Subsequently, during the second quarter of 2013, our members increased the aggregate capital commitment from $50 million to $60 million. This additional $10 million commitment was contributed during April of 2013, increasing our cash balance accordingly. This contribution was also used to acquire additional land and make additional investments in unconsolidated joint ventures. We intend to generate cash from the sale of our inventory, net of loan release payments on our notes payable when applicable, but we intend to redeploy the net cash generated from the sale of inventory to acquire and develop strategic and well-positioned lots that represent opportunities to generate future income.

At March 31, 2013, December 31, 2012 and December 31, 2011, we had $3.9 million, $5.4 million and $14,619, respectively, in accounts payable that related to costs incurred under our fee building agreements. Funding to pay these amounts is the obligation of the independent third-party land owner which is funded on a monthly basis. Similarly, contracts and account receivable as of the same periods included $4.5 million, $5.8 million and $59,317 related to the payment of the above payables. The increase in activity and addition of new

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fee building agreements during the year ended December 31, 2012 caused the increase in accounts payable and contracts and accounts receivable. As of March 31, 2013, we have not experienced any losses from uncollectable contracts and accounts receivable related to our fee building projects.

While our primary growth strategy will focus on increasing our market position in existing markets in California, we continue to be open to opportunities to expand outside these markets through organic growth or acquisitions. We are exploring opportunities to expand into Phoenix and the Pacific Northwest.

We intend to employ both debt and equity as part of our ongoing financing strategy, coupled with redeployment of cash flows from continuing operations, to provide us with the financial flexibility to access capital on the best terms available. In that regard, we expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. As of March 31, 2013, we had approximately $27.8 million of aggregate loan commitments, of which $18.2 million was outstanding. We will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. As a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized. However, subsequent to the offering to which this prospectus relates our board of directors may change our target debt levels at any time without the approval of our stockholders.

We intend to finance future acquisitions and developments with the most advantageous source of capital available to us at the time of the transaction, which may include a combination of common and preferred equity, secured and unsecured corporate level debt, property-level debt and mortgage financing and other public, private or bank debt.

Land Acquisition Note

During the year ended December 31, 2012, we entered into a note with a land seller, secured by real estate, which bears interest at 7.0% per annum. The note provides for a commitment of $9.5 million all of which had been funded as of March 31, 2013. The note matures on February 15, 2015 and requires certain mandatory pay downs totaling $1.0 million based on the occurrence of certain project-related events. Interest is payable monthly and the remaining principal is due at maturity.

Unsecured Note

IHP, a related party, issued an unsecured promissory note to us on December 13, 2012. The note provides for a commitment of $5.5 million, of which $1.0 million had been funded as of March 31, 2013. We have $4.5 million available to draw on the commitment as of March 31, 2013. This unsecured promissory note bears interest at 14% per annum and matures on June 13, 2013.

Secured Acquisition and Development Loans and Construction Loans

As of March 31, 2013, we were party to several secured acquisition and development loan agreements to purchase and develop land parcels. In addition, we were party to several secured construction loan agreements for the construction of our model and production homes. As of March 31, 2013, the total aggregate commitment of our acquisition and development loans and our construction loans was approximately $22.3 million, of which $17.2 million was outstanding. The acquisition and development loans will be repaid as lots are released from the loans based upon a specific release price, as defined in each respective loan agreement. Our construction loans will be repaid with proceeds from home sales based upon a specific release price, as defined in each respective loan agreement. These loans range in maturity between September 2013 and October 2014, including six month extensions which are at our election (subject to certain conditions). Interest on the loans is paid monthly at a rate based on LIBOR or prime rate pricing, with interest rate floors ranging between 3.5% and 5.125%.

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Covenant Compliance

Under our secured development and construction loans, we are required to comply with certain financial covenants, including but not limited to those set forth in the table below:

Financial Covenant	Actual at March 31, 2013		Covenant Requirement at March 31, 2013
Cash Balance	$	5,231,707	$	1,000,000
Tangible Net Worth	$	47,481,146	$	25,000,000
Debt to Tangible Net Worth Ratio		0.38 : 1.0		< 2.5 : 1.0

As of March 31, 2013 and December 31, 2012 and 2011, we were in compliance with all of these financial covenants.

We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-capital are calculated as follows:

	March  31, 2013			At December 31,
				2012			2011			2010
Notes payable	$	18,239,273		$	17,721,878		$	9,383,462		$	5,818,436
Members’ equity		47,481,146			35,574,714			27,851,589			19,284,813
Total capital	$	65,720,419		$	53,296,592		$	37,235,051		$	25,103,249
Ratio of debt-to-capital (1)		28	%		33	%		25	%		23	%
Notes payable	$	18,239,273		$	17,721,878		$	9,383,462		$	5,818,436
Less: cash		(5,231,707	)		(6,152,048	)		(5,523,851	)		(2,425,377	)
Net debt		13,007,566			11,569,830			3,859,611			3,393,059
Members’ equity		47,481,146			35,574,714			27,851,589			19,284,813
Total capital	$	60,488,712		$	47,144,544		$	31,711,200		$	22,677,872
Ratio of net debt-to-capital (2).		22	%		25	%		12	%		15	%

⁽¹⁾  The ratio of debt-to-capital is computed as the quotient obtained by dividing notes payable by the sum of total notes payable plus members’ equity.

⁽²⁾  The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is notes payable less cash) by the sum of net debt plus members’ equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We believe that by deducting our cash from our notes payable we provide a measure of our indebtedness that takes into account our cash liquidity. We believe this provides useful information as the ratio of debt-to-capital does not take into account our liquidity and we believe that the ratio net of cash provides supplemental information by which our financial position may be considered. Investors may also find this to be helpful when comparing our leverage to the leverage of our competitors that present similar information. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.

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Cash Flows —Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

For the three months ended March 31, 2013 as compared to the three months ended March 31, 2012, the comparison of cash flows is as follows:

• Net cash used in operating activities was $1.6 million in the 2013 period versus net cash provided by operating activities of $0.5 million in the 2012 period. The change was primarily a result of (i) an increase in cash outflows for real estate inventories to $0.5 million in the 2013 period compared a net decrease in real estate inventories of $0.7 million in the 2012 period, primarily driven by an increase in both land acquisitions and development in the 2013 period compared to the 2012 period and (ii) cash outflows from a decrease in accounts payable, accrued expenses and other liabilities of $2.1 million offset by an increase in contracts and accounts receivable of $1.3 million in the 2013 period as compared to cash inflows from a decrease in contracts and accounts receivable of $1.4 million offset by an increase in accounts payable, accrued expenses and other liabilities of $1.6 million in the 2012 period.

• Net cash used in investing activities increased to $11.4 million in the 2013 period from $0.7 million in the 2012 period. The change was primarily a result of increased net cash contributions to our unconsolidated joint ventures during the 2013 period partially offset by distributions of equity from our unconsolidated joint ventures.

• Net cash provided by financing activities was $12.1 million in the 2013 period versus net cash used in financing activities of $1.3 million in the 2012 period. The change was primarily a result of (i) net borrowings of notes payable of $0.5 million in the 2013 period as compared to net repayments on notes payable of $1.3 million in the 2012 period and (ii) an increase in contributions from members to $11.6 million in the 2013 period from none in the 2012 period.

As of March 31, 2013, our cash balance was $5.1 million. As previously discussed, additional capital contributions of $10.0 million were made by members subsequent to March 31, 2013. We believe we have sufficient cash and sources of financing for at least twelve months.

Cash Flows—Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

For the year ended December 31, 2012 as compared to the year ended December 31, 2011, the comparison of cash flows is as follows:

• Net cash provided by operating activities increased to $1.0 million in the 2012 period from a use of $6.9 million in the 2011 period. The change was primarily a result of (i) a decrease in cash outflows for real estate inventories to $0.9 million in the 2012 period compared to $7.2 million in the 2011 period, primarily driven by the use of seller financing to purchase $9.5 million of land in the 2012 period as compared to no seller financing used in the 2011 period, (ii) cash inflows from an increase in accounts payable of $7.5 million offset by an increase in contracts and accounts receivable of $6.0 million in the 2012 period as compared to cash inflows from a decrease in contracts and accounts receivable of $2.9 million offset by an decrease in accounts payable of $2.8 million in the 2011 period, and (iii) a decrease in consolidated net loss to $0.9 million in the 2012 period compared to a consolidated net loss of $1.9 million in the 2011 period.

• Net cash used in investing activities increased to $7.9 million in the 2012 period from $3.3 million in the 2011 period. The change was primarily a result of increased net cash contributions to our unconsolidated joint ventures during the 2012 period.

• Net cash provided by financing activities decreased to $7.4 million in the 2012 period from $13.6 million in the 2011 period. The change was primarily a result of (i) net repayments of notes payable of $2.2 million in the 2012 period as compared to net borrowings on notes payable of $3.6 million in the 2011 period and (ii) a decrease in contributions from members to $8.6 million in the 2012 period from $14.0 million in the 2011 period. This was partially offset by proceeds from the issuance of unsecured

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notes to a member of $1.0 million in the 2012 period as compared to $0 in the 2011 period and a decrease in distributions to members to $0 in the 2012 period from $4.0 million in the 2011 period.

As of December 31, 2012, our cash balance was $6.0 million. As previously discussed, additional capital contributions of $11.6 million were made by members subsequent to December 31, 2012. We believe we have sufficient cash and sources of financing for at least twelve months.

Cash Flows—Year Ended December 31, 2011 Compared to the Period from August 18, 2010 (Inception) Through December 31, 2010

For the year ended December 31, 2011 as compared to the period from August 18, 2010 through December 31, 2010, the comparison of cash flows is as follows:

• Net cash used in operating activities decreased to $6.9 million in the 2011 period from a use of $11.0 million in the 2010 period. The change was primarily a result of (i) a decrease in cash outflows for real estate inventories to $7.2 million in the 2011 period compared to $11.0 million in the 2010 period, primarily driven by a focus on land development and home construction in the 2011 period as compared to a focus on land purchases in the 2010 period and (ii) cash inflows from an increase in accrued expenses and other liabilities of $1.3 million in the 2011 period as compared to cash outflows from a decrease in accrued expenses and other liabilities of $0.4 million in the 2010 period.

• Net cash used in investing activities increased to $3.3 million in the 2011 period from $1.8 million in the 2010 period. The change was primarily a result of increased cash contributions to our unconsolidated joint ventures during the 2011 period.

• Net cash provided by financing activities decreased to $13.6 million in the 2011 period from $14.2 million in the 2010 period. The change was primarily a result of an increase in cash distributions to members to $4.0 million in the 2011 period as compared to $0 in the 2010 period. This was partially offset by an increase in net borrowings on notes payable to $3.6 million in the 2011 period as compared to $0.3 million in the 2010 period and an increase in cash contributions from members to $14.0 million in the 2011 period as compared to $13.9 million in the 2010 period.

As of December 31, 2011, our cash balance was $5.4 million.

Cash Flows—Year Ended December 31, 2011 Compared to the Period from January 1, 2010 Through August 17, 2010

For the year ended December 31, 2011 as compared to the period from January 1, 2010 through August 17, 2010, the comparison of cash flows is as follows:

• Net cash used in operating activities increased to $6.9 million in the 2011 period from a use of $5.5 million in the 2010 period. The change was primarily a result of (i) an increase in cash outflows for real estate inventories to $7.2 million in the 2011 period compared to $6.1 million in the 2010 period, primarily driven by the increase in land, land development and homes under construction in the 2011 period as compared to the 2010 period and (ii) an increase in consolidated net loss to $1.9 million in the 2011 period compared to a consolidated net loss of $0.2 million in the 2010 period.

• Net cash used in investing activities increased to $3.3 million in the 2011 period from $0.2 million in the 2010 period. The change was primarily a result of increased cash contributions to our unconsolidated joint ventures during the 2011 period.

• Net cash provided by financing activities increased to $13.6 million in the 2011 period from $5.5 million in the 2010 period. The change was primarily a result of an increase in net cash contributions from members to $10.0 million in the 2011 period as compared to $0 in the 2010 period. This was

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partially offset by an increase in net borrowings on notes payable to $3.6 million in the 2011 period as compared to $5.5 million in the 2010 period.

As of December 31, 2011, our cash balance was $5.5 million.

Contractual Obligations

The following table summarizes our future estimated cash payments under existing contractual obligations as of December 31, 2012, including estimated cash payments due by period. Our purchase obligations primarily represent commitments for subcontractor labor and material to be utilized in the normal course of business.

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years		More than 5 years
Long-term debt principal payments(1)	$	18,239,273	$	4,457,850	$	13,781,423	$	—	$	—
Long-term debt interest payments		1,680,000		1,067,000		613,000		—		—
Operating leases		1,434,928		312,587		914,372		207,969		—
Purchase obligations(2)		6,597,813		6,592,813		—		—		—
Total	$	27,952,014	$	12,435,250	$	15,308,795	$	207,969		—

⁽¹⁾  Long-term debt includes our secured acquisition and development and construction loans which have contractual maturities depending on specified events such as home sales and release price. The related debt payments for these loans are shown in the schedule above based on our expectation of the specified event occurring, which is between September 2013 to October 2014. For a more detailed description of our long-term debt, please see note 9 of the notes to our consolidated financial statements included elsewhere in this prospectus.

⁽²⁾  Includes subcontractor labor and material commitments as of March 31, 2013 for which we are responsible if the subcontractor completes the work as specified in their respective commitments, excluding purchase obligations made on behalf of the owner(s) of fee build projects for which we do not have risk of loss.

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Off-Balance Sheet Arrangements

As of March 31, 2013, we held membership interests in six unconsolidated joint ventures. We were a party to one loan-to-value maintenance agreement related to an unconsolidated joint venture as of March 31, 2013. The following table reflects certain financial and other information related to our unconsolidated joint ventures as of March 31, 2013.

				As of March 31, 2013
													Loan-to- Value Maintenance Agreement		Future Capital Commitment (2)
	Year Formed			Total Joint Venture						Debt-to-Total Capitalization
Joint Venture Name			Location	Assets		Debt (1)		Equity
				(Dollars in thousands)											(Dollars in thousands)
LR8 Investors, LLC		2010	Irvine, Orange County	$	78,421	$	25,104	$	47,120		35	%		Yes	$	—
Larkspur Land 8 Investors, LLC		2011	Larkspur, Marin County		40,753		9,184		30,336		23	%		No		537
TNHC-W CV, LLC		2012	Calabasas, Los Angeles County		1,608		—		1,520		0	%		N/A		TBD	*
TNHC-TCN Santa Clarita LP		2012	Valencia, Los Angeles County		20,694		—		20,415		0	%		N/A		562
TNHC-HW San Jose LLC		2012	San Jose, Santa Clara County		34,305		—		33,752		0	%		N/A		—
THNC Newport LLC		2013	Newport Beach, Orange Country		29,555		—		29,555		0	%		N/A		5,500
Total Unconsolidated Joint Ventures				$	205,336	$	34,288	$	162,699		17	%			$	6,599

* To be determined.

⁽¹⁾  Scheduled maturities of the unconsolidated joint venture debt as of March 31, 2013 are as follows: $9.0 million matures in 2013 and $33.7 million matures in 2014.

⁽²⁾  Future capital commitment represents our proportionate share of estimated future contributions to the respective unconsolidated joint ventures as of March 31, 2013. Actual contributions may differ materially.

As of March 31, 2013, the unconsolidated joint ventures were in compliance with their respective loan covenants, where applicable, and we did not make any loan-to-value maintenance related payments during the year ended December 31, 2012 and the three months ended March 31, 2013.

Inflation

Our homebuilding and fee building segments can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur

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during the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

Critical Accounting Policies

Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of costs and expenses during the reporting period. On an ongoing basis, our management evaluates its estimates and judgments, including those which impact our most critical accounting policies. Our management bases its estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our management believes that the following accounting policies are among the most important to the portrayal of our financial condition and results of operations and require among the most difficult, subjective or complex judgments:

Implications of Being an Emerging Growth Company

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include:

• a requirement to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in an initial public offering registration statement;

• an exemption to provide less than five years of selected financial data in an initial public offering registration statement;

• an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act in the assessment of the emerging growth company’s internal control over financial reporting;

• an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies with no pending registration statement; and

• an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer.

We have determined to opt out of the exemption from compliance with new or revised financial accounting standards. As a result, we will comply with new or revised financial accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of this exemption is irrevocable.

We have elected to adopt certain of the reduced disclosure requirements described above. As a result of these elections, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. In addition, it is possible that some investors will find our common stock less attractive as a result of our elections, which may cause a less active trading market for our common stock and more volatility in our stock price.

We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means among other things, that the market value of our common stock that is held by non-affiliates is at least $700 million as of

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the last business day of our most recently completed second fiscal quarter and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Real Estate Inventories and Cost of Sales

Real estate inventories consist of land, land under development, homes under construction, completed homes and model homes and are stated at cost, net of impairment losses. We capitalize direct carrying costs, including interest, property taxes and related development costs to inventories. Field construction supervision and related direct overhead are also included in the capitalized cost of inventories. Direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their anticipated relative sales or fair value. Homebuilding cost of sales is recognized at the same time revenue is recognized and is recorded based upon total estimated costs to be allocated to each home within a community. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their respective community. The estimation and allocation of these costs requires a substantial degree of judgment by management.

The estimation process involved in determining relative sales or fair values is inherently uncertain because it involves estimating future sales values of homes before delivery. Additionally, in determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including construction delays, increases in costs that have not been committed or unforeseen issues encountered during construction that fall outside the scope of existing contracts, or costs that come in less than originally anticipated. While the actual results for a particular construction project are accurately reported over time, a variance between the budget and actual costs could result in the understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred, and utilizing the most recent information available to estimate costs.

If there are indicators of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value.

When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, which could lead to higher margins but lower absorption, our cash flow analysis will be different than if the objective is to increase

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sales, which could lead to lower margins but higher absorption. These objectives may vary significantly from community to community and over time. If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. For the three months ended March 31, 2013 and 2012 and for the year ended December 31, 2011 and for the periods from August 18, 2010 (inception) to December 31, 2010, and from January 1, 2010 to August 17, 2010, we reviewed all of our homebuilding projects for impairment and did not identify any indicators of impairment. During the second quarter of the year ended December 31, 2012, the Company initiated a change in use to sell certain finished lots not under construction for one of its communities in Northern California. This change in use resulted in an impairment of $350,000 for the related land held for sale which is reflected in cost of land sales in the accompanying statement of operations. The sale closed in July 2013 resulting in a gross margin of $28,209. For the year ended December 31, 2012, the net result of this transaction was a land sales gross margin of ($321,791).

As of March 31, 2013 and December 31, 2012 and 2011, we had $1,065,190, $1,326,897 and $2,378,733 of completed model homes without a sales contract, respectively.

Capitalization of Interest

We follow the practice of capitalizing interest to inventories owned during the period of development and to investments in unconsolidated homebuilding and land development joint ventures in accordance with ASC 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories owned is included in cost of sales as related units or lots are sold. Interest capitalized to investments in unconsolidated homebuilding joint ventures is included as a reduction of income from unconsolidated joint ventures when the related homes or lots are sold to third parties. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us. Qualified assets represent projects that are actively selling or under development as well as investments in unconsolidated joint ventures accounted for under the equity method.

Revenue Recognition

Home Sales and Profit Recognition

In accordance with ASC 360, Property, Plant, and Equipment, revenues from home sales and other real estate sales are recorded and a profit is recognized when the respective units are closed. Home sales and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is closed. When it is determined that the earnings process is not complete, the sale and the related profit are deferred for recognition in future periods. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”

Fee Building

We enter into fee building agreements to provide services whereby it will build and in some cases market and sell homes, on behalf of independent third-party property owners. The independent third-party property owner funds all project costs incurred by us and our Predecessor to build and sell the homes. We and our Predecessor primarily enter into cost plus fee contracts where it charges independent third-party property owners for all direct and indirect costs plus a negotiated management fee. For these types of contracts, we and our Predecessor recognize revenue based on the actual total costs it has expended and the applicable management

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fee. The management fee is typically a fixed fee based on a percentage of the cost or home sales revenue of the project depending on the terms of the agreement with the independent third-party property owner. In accordance with ASC 605, Revenue Recognition, revenues from fee building services are recognized over a cost-to-cost approach in applying the percentage-of-completion method. Under this approach, revenue is earned in proportion to total costs incurred, divided by total costs expected to be incurred. The total estimated cost plus the management fee represents the total contract value. We and our Predecessor recognize revenue based on the actual labor and other direct costs incurred, plus the portion of the management fee it has earned to date. In the course of providing its services, we routinely subcontract for services and incurs other direct costs on behalf of its clients. These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in the our and our Predecessor’s revenue and cost of revenue. Under certain agreements, we and the Predecessor are eligible to receive additional incentive compensation as certain financial thresholds defined in the agreement are achieved. We and our Predecessor recognize revenue for any incentive compensation when such financial thresholds are probable of being met and such compensation is deemed to be collectible, generally at the date the amount is communicated to us by the independent third-party property owner.

We and our Predecessor enter into fee building and management contracts, including with its unconsolidated joint ventures, where it does not bear risks for any services outside of its own. For these types of contracts, we and our Predecessor recognize revenue as services are performed. We do not recognize any revenue or costs related to subcontractors’ cost since it does not bear any risk related to them.

We generally utilize a cost-to-cost approach in applying the percentage-of-completion method of revenue recognition for our fee build projects, under which revenue is earned in proportion to total costs incurred, divided by total costs expected to be incurred. Recognition of revenue and profit under this method is dependent upon a number of factors, including the accuracy of a variety of estimates, including construction progress, material quantities, the achievement of milestones, penalty provisions, labor productivity and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.

We also enter in to fee build and management contracts, including with our unconsolidated joint ventures, where we provide construction supervision services and do not bear risks for any services outside of our own. Revenues from these services are recognized over a proportional performance method. Under this approach, revenue is earned in proportion to total estimated efforts, generally direct labor hours, expected to be provided to the client. The estimated total efforts require a substantial degree of judgment by management.

As of and for the three months ended March 31, 2013 and the years ended December 31, 2012 and 2011, one customer comprised 89%, 95% and 93%, respectively, of our fee building revenue and 85%, 95% and 42%, respectively, of the related receivables.

Variable Interest Entities

We and our Predecessor account for variable interest entities in accordance with ASC 810, Consolidation, or ASC 810. Under ASC 810, a variable interest entity, or VIE, is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. If we are not able to control such activities, we are not considered the primary beneficiary of the VIE.

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We are also involved in several joint ventures with independent third parties for our homebuilding activities. We use the equity method of accounting for investments that qualify as VIEs where we are not the primary.

Warranty Reserves

In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to homebuyers. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized while indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred. Amounts are accrued based upon our historical rates. We also consider historical experience of our peers due to the Company’s limited history related to homebuilding sales. The Company receives warranty payments from its clients for certain of its fee building projects where it has the contractual risk of construction. These payments are recorded as warranty reserve accruals. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts as appropriate for current quantitative and qualitative factors. Factors that affect the warranty accruals include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. Although we consider the warranty accruals reflected in our consolidated balance sheet to be adequate, actual future costs could differ significantly from our currently estimated amounts. Our warranty accrual is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

Acquired Intangible Assets

Upon consummation of a business combination as defined in ASC 805, Business Combinations, we performed an assessment to determine the value of the acquired company’s tangible and identifiable intangible assets and liabilities. In its assessment, we determined whether identifiable intangible assets exist, which typically include backlog and customer relationships. The identified intangible assets are amortized over their respective calculated term.

Contracts and Accounts Receivable

Contracts and accounts receivable primarily represents the fees earned but not collected, and reimbursable project costs incurred in connection with fee building agreements. We and our Predecessor periodically evaluates the collectability of its contracts receivable, and if it is determined that a receivable might not be fully collectible, an allowance is recorded for the amount deemed uncollectible. This allowance for doubtful accounts is estimated based on management’s evaluation of the contracts involved and the financial condition of its clients. Factors considered in evaluations include, but are not limited to:

• client type;

• historical contract performance;

• historical collection and delinquency trends;

• client credit worthiness; and

• general economic conditions.

As of March 31, 2013, December 31, 2012 and 2011, no allowance was recorded related to contracts and accounts receivable.

Income Taxes

We (including our Predecessor) are a limited liability company treated as a partnership for income tax purposes and subject to certain minimal taxes and fees; however, income taxes on taxable income or losses realized by us are the obligation of the members. We have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements, nor have we been assessed interest or penalties by any major tax jurisdictions. Our evaluation was performed for the tax years ended December 31, 2012, 2011, and 2010.

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We and our Predecessor have a subsidiary that is treated as a C Corporation. Federal and state income taxes are provided for this entity in accordance with the provisions of ASC 740, Income Taxes. The provision for, or the benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on its determination of whether it is more likely than not that some or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which those temporary differences become deductible. Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the consolidated financial position or results of operations.

We and our Predecessor followed certain accounting guidance with respect to how uncertain tax positions should be accounted for and disclosed in the consolidated financial statements. The guidance requires the assessment of tax positions taken or expected to be taken in the tax return and to determine whether the tax positions are “more-likely-than-not” of being sustained upon examination by the applicable taxing authority. Tax positions deemed to meet the more-likely-than-not criteria would be recoded as a tax benefit or expense in the current year. We are required to assess open tax years, as defined by the statute of limitations, for all major jurisdictions, including federal and certain states. Open tax years are those that are open for examination by taxing authorities. We have no examinations in progress and believe that there are no uncertain tax positions that do not meet the more-likely-than-not level of authority.

Related Party Transactions

See “Certain Relationships and Related Party Transactions” for a description of our transactions with related parties.

Recently Issued Accounting Standards

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 amends ASC 820, Fair Value Measurements, or ASC 820, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. Our adoption of these provisions of ASU 2011-04 on January 1, 2012 did not have an impact on the consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate debt. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the three months ended March 31, 2013 and the years ended December 31, 2012 and 2011. We have not entered into and currently do not hold derivatives for trading or speculative purposes. Many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Cautionary Note Concerning Forward-Looking Statements.”

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The table below details the principal amount and the average interest rates for the outstanding debt for each category based upon the expected maturity or disposition dates. The fair value of our variable rate debt, which consists of our notes payable, is based on quoted market prices for the same or similar instruments as of March 31, 2013.

	Expected Maturity
	2013			2014			2015-2017			Total			Estimated Fair Value
Variable rate debt(1)	$	3,457,850		$	4,281,423		$	—		$	7,739,273		$	7,739,273
Average interest rate		4.15	%		3.50	%		—	%		3.83	%		3.83	%

⁽¹⁾  Contractual maturities of the variable rate debt are in 2013 and 2014; however, the assets securing the loans are expected to be sold in less than a year and consequently repayment will be required at that time. For a more detailed description of our long-term debt, please see note 9 of the notes to our consolidated financial statements included elsewhere in this prospectus.

Based on the current interest rate management policies we have in place with respect to our outstanding debt, we do not believe that the future market rate risks related to the above securities will have a material adverse impact on our financial position, results of operations or liquidity.

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MARKET OPPORTUNITY

Unless otherwise indicated, market data is derived from a market study prepared for us in connection with this offering by John Burns Real Estate Consulting, LLC (“JBREC”) based on the most recent data available as of March 2013. Founded in 2001, JBREC is an independent research provider and consulting firm focused on the housing industry. The following information contains forward-looking statements which are subject to uncertainty and you should review “Cautionary Note Concerning Forward-Looking Statements.”

This Market Opportunity section provides a review of the following:

Overview

• National Housing Market

Selected Housing Markets

• Orange County

• San Diego County

• Ventura County

• Los Angeles County

• San Francisco Metropolitan Division

• San Jose Metropolitan Statistical Area

• Sacramento Metropolitan Statistical Area

• Phoenix Metropolitan Statistical Area

National Housing Market

The U.S. housing market continues to improve from the cyclical low points reached during the 2008 to 2009 national recession. Between the 2005 market peak and 2011, new single-family housing sales declined 76%, according to data compiled by the U.S. Census Bureau, and median home prices declined 34%, as measured by the S&P Case-Shiller Index. In 2011, early signs of a recovery began to materialize in many markets around the country as a result of an improving macroeconomic backdrop and favorable housing affordability. In 2012, homebuilding permits increased 29% and the annual median single-family existing home price increased 6.6% year-over-year since 2011. Growth in new home sales has outpaced growth in existing home sales over the same period, increasing 20% versus 9% for existing homes, which rose, in part, due to foreclosure-related sales.

Historically, strong housing markets have been associated with very favorable affordability, a healthy domestic economy, positive demographic trends such as population growth and household formation, falling mortgage rates, increases in renters that qualify as homebuyers, and locally based dynamics such as housing demand relative to housing supply. Many markets across the U.S. are exhibiting most of these positive characteristics. Relative to long-term historical averages, the U.S. economy is creating more jobs than homebuilding permits issued, the inventory of resale and new unsold homes is well below average, and affordability is near its best level in more than 30 years, as measured by the ratio of homeownership costs to household income.

Despite recent momentum, the U.S. housing market has not fully recovered from the 2008 to 2009 recession as consumer confidence remains below average levels, mortgage underwriting standards have tightened, and the number of delinquent homes remains elevated relative to historical averages. Additionally, real estate is a local industry and not all markets exhibit the same trends.

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The U.S. housing market is in the beginning of phase three of a three-phase supply-constrained housing recovery, as described below:

• Phase 1—job growth begins.

• Phase 2—price appreciation occurs among low-priced homes in foreclosure, increasing resale prices to the point that purchasing a new home provides a good value compared to purchasing an existing home. Reduced resale inventory and great affordability are fueling a surge in demand for new homes in this recovery.

• Phase 3—strong demand and limited supply lead to considerable price appreciation in land-constrained markets, and a resurgence in construction activity in markets with sufficient land supplies. Price appreciation allows discretionary buyers to sell their existing homes and potentially purchase a new home.

While conditions are improving, significant future growth is required to return to pre-recession housing market conditions.

• Construction starts, as measured by the U.S. Census Bureau through January 2013, are at 890,000 units per year. This represents 40% of a recovery to a level of 1.5 million annual starts, which is comparable to housing starts in the year 2000, a period that is reflective of a more stable market. Permits issued through January 2013 are nearly twice the level of the low of 478,000 annual starts in April 2009.

• Existing home sales, as measured by the National Association of Realtors, are at 4,920,000 annualized transactions through January 2013, which is in line with what JBREC estimates to be a stable level based on a ratio of existing home sales activity per household during the late 1980s and 1990s, when the housing market was in a more balanced environment and many economic variables were near historical averages. Existing home sales had fallen to an annualized rate of 3,300,000 transactions in July 2010.

• New home sales are at 473,000 annualized transactions through January 2013, as measured by the U.S. Census Bureau, representing 31% of a recovery to a level of 800,000 annual transactions, which JBREC estimates to be a stable level based on new home sales activity during the late 1990s, when the housing market was in a more balanced environment and many economic variables were near historical averages. New home sales had fallen to 273,000 annualized transactions in February 2011.

• Home affordability for the nation reached its most favorable levels during the housing downturn as prices and mortgage rates declined. A combination of rising prices and mortgage rates is likely to increase the cost of housing relative to incomes for U.S. homebuyers over the next five years, bringing affordability measures closer to the historical median level measured from 1981 to 2012.

Demand.    Job growth is the most important factor for a healthy housing market. While year-over-year job growth is once again positive after significant losses from 2008 through 2010, recent growth has moderated amidst fiscal uncertainty. Additionally, the rate of job growth in economic recoveries has slowed over the last 30 years, primarily as a result of the aging U.S. labor force, productivity improvements and globalization. JBREC assumes that job growth will grow at a 1.6% compound annual rate from 2013 through 2017, ramping up in 2014 and 2015, and

slowing in 2016 and 2017. By the end of 2014, the economy is expected to have recovered all of the 7.7 million jobs lost between 2008 and 2010.

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The average employment growth to homebuilding permit ratio for the country was 2.5 as of December 31, 2012. A balanced ratio in a stable market is 1.2 to 1.3. This ratio has been above a stable market ratio for several quarters, due to a rise in employment growth coupled with historically low homebuilding permit levels. Eventually, the relative excess job growth to homebuilding permit growth should lead to improving consumer confidence and new home sales, which will drive increased construction activity.

Household formations are expected to average 1.36 million per year through 2017, based on population growth that averages 0.9% per year and headship rates (which is the percentage of people in an age group that head a household) that return to levels that are more consistent with historical trends by 2025. The reduction in headship rates for nearly all age groups from 2000 to 2010 was caused primarily by the economic distress in the late 2000s. Immigration is expected to add to the household and population growth as well, occurring at approximately 0.3% per year, and mostly concentrated in the 20 to 40 year old demographic.

A lack of inventory is limiting sales activity in the existing home market, but sales are expected to grow through 2016, in part, due to continued investor activity. After decreasing to 4.1 million transactions in 2008 from a peak of nearly 7.1 million transactions three years prior, existing home sales transactions are currently just over 4.9 million, hampered by a large decrease in the supply of homes on the market. JBREC forecasts that sales will rise to 5.5 million transactions in 2016, which would be slightly higher than the sales activity in 2001, and will decline in 2017 when rates are assumed to exceed 5.5% and the economy is assumed to slow. The share of sales that were for investment purposes rose to 27% in 2011, which was the highest rate since 2005. An elevated share of distressed sales is expected to keep investor activity above normal levels in the near term. Many investors are converting distressed inventory to rentals for a long-term hold, which is aiding the recovery process as they are removing marginal inventory that otherwise depresses prices.

The projected slow but steady job growth should support absorption of the rising new home supply, which is coming off historical lows. New home sales transactions reached a trough in 2011 at 306,000 homes sold, and are forecasted to rise steadily to 805,000 sales in 2016—a level last reached in pre-boom 1997 and slightly higher than 2007. The new home market currently has only 43,000 units of completed supply, which is near the lowest level in more than 30 years, and JBREC expects construction levels to increase as the price of housing rebounds. Supply.    JBREC is forecasting measurable improvement in new residential construction activity. Activity should steadily increase through 2016 at a rate that slightly exceeds the recovery in past regional downturns, such as what happened in Houston in the late-1980s and Southern California in the late-1990s. With prices rising, and certain submarkets stabilized, homebuilder demand for lots is increasing substantially. Very little entitlement processing took place during the housing correction, so the supply of

finished, or even approved lots, is very tight today. There will be a lag in the delivery of new lot supply, especially in markets with a prolonged approvals process, such as California. In many metro areas, lot prices are quickly approaching peak values as demand exceeds supply.

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The number of existing homes available for sale (not including “shadow inventory,” which is the number of homes with a mortgage that are in some form of distress but that are not currently for sale) continues its general downward trend after peaking in 2007. As of January 31, 2013, there were 4.2 months of inventory supply on the market, which is well below the peak level and below the average of 7.2 months of supply over the past 30 years.

The excess of vacant homes in the United States has been reduced significantly to an estimated 52,000 units as of February 28, 2013, according to JBREC. The vacant housing inventory had accumulated as investors and second-home buyers purchased homes for profit and personal use, and again as the severe recession significantly reduced household formations. As household growth outpaces construction, the excess vacancy is clearing and housing vacancy is stabilizing nationally, although this will vary by local market.

While the number of homes entering the foreclosure process is declining, the overall volume is still quite high relative to historical levels. Approximately 11.3% of all mortgages are delinquent as of the fourth quarter of 2012—nearly twice the pre-2008 level. The shadow inventory is still substantial. This supply is likely to be sold or liquidated over the next several years. JBREC believes that banks will dispose of many of these distressed loans through either short sales or foreclosures and will do so at a moderate rate so as to limit the downward pressure on home prices resulting from the liquidation. One risk is that banks change their philosophy and decide to dispose of these distressed loans at a more rapid pace.

The media has made much of the distress in the market, focusing on the homes that are in some form of delinquency or foreclosure. However, only 9% of the total housing units in the United States have some sort of distress; the remaining 91% do not, as estimated by JBREC as of February 2013.

Affordability.    Affordability in the existing home market is at historically favorable levels nationally, looking back over the last 30 years. The ratio of annual housing costs (which is mortgage payment plus a portion of the down payment) for the median-priced resale home to the median household income is near an all-time low, dating back to 1981. Due to rising mortgage rates coupled with expected home price appreciation, affordability conditions nationally are expected to weaken gradually in the coming years, reaching their historical median levels in 2016. While affordability conditions vary by market, most markets have experienced their most favorable historical affordability during this cycle.   Home values are trending up, and the combination of historically low mortgage rates, a declining percentage of distressed sales, and low inventory levels should drive rising home values. JBREC estimates national home values appreciated by approximately 2% in 2012, and forecasts national appreciation of 7.5% in 2013 and 8.5% in 2014, slowing to 1.5% by 2017. Many factors can influence this outlook. Purchases by the Federal Reserve of mortgage-backed securities cause JBREC to believe that the Federal Reserve would like to see home prices rise—and is succeeding in doing so.  

Increasing home price appreciation will be supported by low mortgage rates, which remain historically favorable and are expected to remain low in the near term due to low inflation and global economic uncertainty.

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JBREC assumes that average 30-year fixed mortgage rates will rise gradually to 5.7% by 2017, as increasing inflation and an improving economy drive rates higher after this period of very low inflation. This assumption has a very high level of risk as interest rates can change quickly.

There is a strong case for solid price appreciation:

• Demand—demand is growing much faster than the new home supply being added to the market, which is helping to reduce the excess existing supply in the market. With a lower level of excess supply, prices will rise as there will be multiple buyers for every house on the market for sale.

• Affordability—the most favorable affordability in decades will make it easier for buyers to pay higher prices for homes.

• Investment—hard assets, such as real estate, are broadly considered an inflation hedge, and many investors will focus on inflation once the current deflation concerns subside. International investors sense a fantastic opportunity to buy U.S. real estate, partially thanks to favorable exchange rates. Also, large institutional investors as well as local investment groups see a great opportunity to buy homes at below replacement cost or below the historical price/income ratio, and have been driving prices up.

The Bear Case.    While the fundamentals are in place for a recovery in the housing market, there are a number of factors that are slowing the recovery, including the following.

• The market is experiencing a low level of activity from entry-level buyers due to a lack of savings, challenges with back-end debt-to-income ratios and credit, and uncertainty about the housing market and the economy.

• A low level of home purchases by current homeowners is occurring due to the high loan-to-value ratios of many existing homeowners.

• The economy could still experience slow and volatile growth in the years to come, and even a recession. Recessions caused by excess leverage, such as the recent recession, usually resolve over many years and the path is typically very volatile.

• A large number of mortgaged homes will continue to go through the foreclosure process and will be sold under duress.

• Mortgage rates could rise.

• The implementation of qualified mortgage and qualified residential mortgage rules proposed in the Dodd Frank Wall Street Reform and Consumer Protection Act could make mortgages more difficult to obtain. The recent qualified mortgage definition recommended a 43% backend debt-to-income ratio, which is generally more accommodative than the early 1990s.

• Development and building costs are rising, which could negatively impact homebuilder margins.

In addition, the government deficit is substantial, and the United States will be subject to further credit rating downgrades until political leadership develops and executes a plan to address the deficit. A lack of fiscal accountability could cause U.S. economic problems for years to come.

Conclusion.    In summary, housing is a risky asset class, but JBREC believes the outlook for the housing market is very favorable as a result of several factors, including the following:

• Demand is strong. The number of adults finding employment is exceeding new home supply by a ratio of 2.5 to 1.

• Supply is low. Resale inventory is well below the historical average months of supply, new home inventory is near an all-time low, and new construction is well below historical averages.

• Affordability is historically favorable. With mortgage rates at 3.5%+, and home prices in many markets back to levels last seen in 2003, homeownership is an attractive financial option.

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JBREC forecasts that the excesses of the recent downturn will clear and that home prices and construction will increase for the foreseeable future.

The following table provides a summary of actual economic data and estimates, forecasts and projections for the eight primary markets for the most recent data available as of March 2013.

	Forecasted 2013 Home Value Appreciation(1)			2012 Data
Market				Job Growth		Permits		Job Growth / Permit  Ratio		Months of Resale Supply(2)
Orange County		12.2	%		31,600		6,109		5.2		2.1
San Diego		11.3	%		25,400		5,687		4.5		2.5
Ventura		9.7	%		4,000		526		7.6		2.6
Los Angeles		9.0	%		67,200		11,295		5.9		2.8
San Francisco		12.9	%		38,100		4,429		8.6		2.0
San Jose		13.3	%		28,800		5,661		5.1		1.4
Sacramento		12.7	%		13,900		3,420		4.1		0.9
Phoenix		18.0	%		41,500		15,882		2.6		2.2

⁽¹⁾  This information is contained in the market study provided to us by JBREC and is based upon various assumptions and forward-looking estimates. Actual results may differ materially from this forecast.

⁽²⁾  Estimated months of supply as of December 31, 2012.

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Orange County, CA Housing Market Overview Orange County, California, also referred to as the Santa Ana-Anaheim-Irvine metropolitan division, is a part of a single MSA which consists of Los Angeles and Orange Counties together. Orange County has nearly 3.1 million people and 1.0 million households, making it the third-most populous county in California. Considered to be a set of suburban commuter cities several decades ago, Orange County now has its own vibrant economy and employment centers, and stands on its own identity as a mature community and culture independent of the larger Los Angeles County to its north. Because of its coastal location and its status as a thriving employment center, Orange County is a “first choice” region within the greater Southern California real estate market.
The housing fundamentals of Orange County have shown considerable improvement in recent years, which is a positive sign for home price appreciation in this market, indicating a recovery from the recession of the last few years. The John Burns Real Estate Consulting Housing Cycle Risk Index measures the health of the housing market based on the performance of 24 market fundamentals in relation to their own history, and has historically been a one- to three-year leading indicator for home price appreciation. The improvement in the overall fundamentals is the result of improving job growth, low supply, fantastic affordability, and the turning of the business cycle. The affordability fundamentals are excellent, with prices having bottomed at levels last seen in 2003 and 2004, at the same time that all-time low mortgage rates are now at 3.5%. The combination of prices being below peak and historically low mortgage rates provide a historic buying opportunity. There are 1.4 million non-farm payroll jobs in Orange County, and employment growth was positive in 2011 and 2012 after job losses in 2007 through 2010. The metro area lost 165,200 jobs (10.9%) from the 2006 peak before adding a combined 46,600 jobs (3.4% growth) in 2011 and 2012. JBREC assumes employment growth of 33,500 jobs (2.4%) in 2013. Although the area is famous for its vacation destinations such as Disneyland and Knott’s Berry Farm, employment in Orange County is distributed over many industries and sectors. The largest employment sector is Trade, Transportation and Utilities (18.4% of jobs), followed by the high-paying Professional and Business Services (18.0%) sector. Leisure and Hospitality (12.9%), Educational and Health Services
(11.8%), Manufacturing (10.9%) and Government (10.3%) follow in size. While Disney is indeed the county’s largest employer, the next three places are held by the University of California, Irvine; St. Joseph’s Health; and Boeing. The headquarters of several Fortune 500 companies are in Orange County, including Ingram Micro and First American in Santa Ana, Western Digital in Lake Forest, and Pacific Life in Newport Beach. The city of Irvine is the home of Allergan, Broadcom, Standard Pacific and Gateway. The Asian-based automobile and electronics companies Mazda, Toshiba, Toyota, Samsung, Kia, Mitsubishi and Hyundai all have regional or national headquarters in Orange County.

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While Orange County lost 0.4% of its population in 2005 and 2006, it has gained population every year since then, adding a total of 162,200 people (5.4%) from 2007 through 2012. JBREC assumes population growth of 32,200 people (1.0% growth) and household growth of 11,600 (1.1% growth) in 2013.

For 2012, the median household income in Orange County was $71,924, having peaked in 2008 at $76,181. Notably, Orange County median household income is well above the corresponding figure of $53,784 for Los Angeles County, showing the prevalence of higher-income jobs, many of them professional, in Orange County. JBREC assumes income growth will be relatively flat for Orange County in 2013.   Existing home sales in Orange County are rising after dipping in 2011. In the twelve months ended December 31, 2012, existing home sales for the area increased to 33,171, up 41% from the trough of 2007. Existing home sales levels are still well below the peak level of 52,000 in 2003. Home prices have turned around in Orange County. The median existing single-family detached home price declined 31% between 2007 and 2009, due in part to a shift in sales activity away from the higher price points and a loss in value. The strength of the Orange County economy is seen in the fact that this decline was less than the corresponding drop of 41% in Los Angeles County. In 2012, the median price for existing single-family detached home prices was $501,935, up from $479,691 in 2011; prices in 2012 were above the 2003 median price level of $455,000, but still below the median price for 2004.   New home sales activity in 2012 has risen from the trough levels of 2009, but remains low for this market. New home sales transactions totaled 1,956 for the twelve months ended December 31, 2012, well below the peak of 6,436 in 2003. JBREC expects the new home sales volume to increase to 2,500 transactions in 2013. The median new home price is once again rising after declining from the peak level in 2005. In 2012, the median new home price was $615,601, which is up 8.9% from 2011, but still down 13% from its top of $706,500 in 2005. The median new home price can be heavily influenced by the mix of home types being sold at any given time, and should not be relied upon as the only indicator of market trends.    

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Home values in Orange County are poised for continued positive growth in 2013, according to JBREC. The Burns Home Value Index provides an estimate of home value trends in an MSA, based on an “electronic appraisal” of every home in the market, rather than just the small sample of homes that are actually transacting. JBREC forecasts home values to rise by 12.2% in 2013, after averaging 3.3% growth in 2012. Homebuilding permit activity in Orange County continues to increase from its lowest levels in decades, with the mix of permits issued gradually moving toward multi-family housing as the county “fills up” and available land slowly decreases. While JBREC forecasts that much of the growth in the housing inventory in 2013 will be for multifamily units, single-family construction is also expected to rebound from trough levels during the downturn in housing. Single-family homebuilding permits had fallen to 1,330 units in 2008, but rose to 2,264 over the twelve months ended December 31, 2012. Multifamily permits totaled 3,845 in 2012 and are projected to rise to 4,500 in 2013. The potential exists for a significant increase in homebuilding permit activity in Orange County over the next decade due to a number of large, restructured investments such as: Heritage Fields at the former El Toro Marine Corps Air Station; the former Tustin Marine Corps Air Station; Baker Ranch; Rancho Mission Viejo; and the Irvine Ranch. The demand being generated for housing is greater than the new supply being added to the market, with recent job growth in the twelve months ended December 31, 2012 more than five times the number of homebuilding permits issued in that same time; the employment growth to homebuilding permit ratio in 2012 was 5.2. That ratio is expected to remain high at 4.7 for 2013 due to strong job growth. Resale listings in Orange County are low and declining, which could lead to more competitiveness and increasing prices in the resale market. Through December 2012, the county had 5,770 homes listed on the market, which represented a 37% decline from one year prior and a 42% drop from 2010. By comparison, listings exceeded 17,000 homes on the market in some months of 2007. The level of listings at year-end 2012 translates to a very low 2.1 months of supply, based on

existing home sales activity over the most recent twelve months. A 6.0 month supply is considered equilibrium for most markets. The 2012 inventory level is well below the peak level of 8.9 months of supply in 2008.

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Pre-foreclosure notices are declining in Orange County, which is a positive sign for home prices, as pre-foreclosure notices are an indicator of future distress. In the twelve months ended December 31, 2012, approximately 12,700 notices were issued, representing a 31% decline from one year prior and a 60% decline from the peak in 2009. While the number of homes falling into pre-foreclosure is declining, there is a moderate level of potential distressed homes that are not yet on the market and may limit upward movement for home prices. JBREC estimated the shadow inventory as of December 31, 2012 at 17,200, or about 5.5 months of supply. The shadow inventory is approximately three times the very low level of listings that are on the market. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years, and the pace of distressed sales will be slow enough that home prices will not be significantly negatively affected. When comparing the monthly costs of owning the median-priced home with the median household income,

affordability conditions are better than the historical median affordability conditions in the Orange County metro division. JBREC’s Affordability Index takes into consideration the change in mortgage rates over time in its estimate of the ownership costs, which can significantly impact the monthly payment. JBREC forecasts affordability conditions in Orange County will weaken further in 2013 as home prices and mortgage rates are expected to rise.

In summary, the housing fundamentals in Orange County are solid. Job growth is positive for housing demand in this market, particularly as job growth outpaces the supply of new homes being added to the market. Low levels of existing home listings are creating a more competitive resale market, which should influence future home price appreciation. Prices are at low levels not seen since 2003-2004, in a time when mortgage rates are also at historic lows. The combination of low prices and low mortgage rates in a county of high-income jobs suggests a rebound in the form of rising construction activity and home prices.

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San Diego, CA Housing Market Overview

The San Diego-Carlsbad-San Marcos, California MSA consists of San Diego County. San Diego is the second-most populous county in the State of California, with nearly 3.2 million people and more than 1.1 million households, which is slightly larger than neighboring Orange County. The coastal county is known for its defense/military bases, high-tech industry, and tourism, as well as manufacturing and research. The majority of demand for housing is generated by growth in the region’s diverse economy, but San Diego has also attracted certain affluent second-home buyers and retirees for quality of life reasons.

The housing fundamentals in San Diego are improving, which is a positive sign for price appreciation in this market. The John Burns Real Estate Consulting Housing Cycle Risk Index measures the health of the housing market based on the performance of 24 market fundamentals in relation to their own history, and has historically been a one- to three-year leading indicator for home price appreciation. The overall housing market fundamentals grade has improved since 2008, as the demand, supply and affordability fundamentals have all improved in this market. The risk of a substantial oversupply of residential lots and homes in this MSA are reduced relative to most other markets in the country due to a very difficult entitlement process in which it can take several years to convert a raw property into entitled and finished residential lots. San Diego has a payroll employment level of more than 1.2 million workers, and job growth has returning to the market after witnessing a decrease in employment of 6.6% between 2008 and 2010. On a percentage basis, the San Diego metro area witnessed the smallest decrease in employment of the Southern California metro areas. The metro area added 36,300 jobs (3.0% growth) in 2011 and 2012 combined, and JBREC assumes job growth of 37,300 (3.0%) in 2013. Defense/military has a large presence in San Diego’s employment, including the largest naval fleet in the world. The county is also home to a large number of research and manufacturing businesses, particularly in the wireless and biotechnology sectors, and is home to several Fortune 500 companies, including Qualcomm and Sempra Energy. The Government sector is the

county’s largest, accounting for 18.1% of employment, The Professional and Business Services sector is nearly equal in size, accounting for 17.3% of jobs, and is generally considered to be a high-income employment sector. The Trade, Transportation and Utilities sector comprises 16.4% of employment. Compared to the nation, San Diego has a higher concentration of jobs in the Professional and Business Services, Leisure and Hospitality, and Government sectors.

Population and household growth in San Diego have rebounded after slowing in the early- to mid-2000s. From 2007 to 2011, population growth averaged 39,000 people (1.3%) per year and household growth averaged

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12,300 (1.2%) per year. JBREC assumes population growth of 44,500 people (1.4% growth) and household growth of 16,400 households (1.5% growth) in 2013.

For 2012, the median household income in San Diego was $60,778, which is higher than the national average. After peaking above $63,500 in 2008, the median household income in San Diego declined in 2009 and 2010. JBREC assumes income levels will remain relatively flat in 2013. San Diego’s existing home sales are improving. In the twelve months ended December 31, 2012, sales had reached 38,059 transactions, representing an increase of more than 43% from the 2007 market trough of 26,715. The federal and state tax credits, as well as increased levels of distressed sales, helped to boost sales in 2008 and 2009. Sales slowed in 2010 and 2011 as the tax credits began to expire and the number of homes on the market began to decline, but sales are rising once again. Resale prices had witnessed strong appreciation from the late 1990s through 2005, but remained essentially flat in 2006 and decreased from 2007 through 2009. The median price in San Diego declined 38% from the peak in 2005 to the trough in 2009, due in part to a shift in sales activity away from the higher price points and a loss in value. Home prices now appear to be stabilizing.

San Diego’s new home sales activity is beginning to slowly increase from trough levels in 2011, but the increase is expected to accelerate as both demand and supply return to the market. New home sales totaled 3,197 in the twelve months ended December 31, 2012, and JBREC forecasts continued growth to 3,300 transactions in 2013, which is still low in comparison to historical levels for this market. While the median new home price is down from the peak level in 2004, new home prices should not be relied upon as the only indicator of market trends, as they can be heavily influenced by the mix of home types being sold at any given time. Resale home prices are a better indication of market trends.

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Home values in the San Diego MSA are rebounding, and are poised for continued positive growth in 2013, according to the Burns Home Value Index. The index shows that San Diego home values appreciated 3.0% in 2012, following six years of declining values from 2006 through 2011. JBREC forecasts home values to rise more than 11% in 2013. Homebuilding permit activity in San Diego is rising from its lowest levels in decades, but 2012 levels wereless than one-third of the highest level during the early 2000s. The trough of the market for construction activity occurred in 2009 at just under 3,000 total homebuilding permits, which was less than 7% of the peak permit level in the county in 1986. During the twelve months ended December 31, 2012, San Diego issued 5,687 homebuilding permits, which is much lower than the demand generated by the recent improvement in employment growth. Over the 30-year period from 1983 through 2012, 52% of the homebuilding permits issued were for single-family homes. In 2012, 39% of the homebuilding permits issued were for single-family homes. This shift is due to a lack of land zoned for traditional single-family detached homes and a resulting increase in the share of infill, attached housing.

The demand being generated for housing is greater than the new supply being added to the market, with job growth in the twelve months ended December 31, 2012 significantly higher than the number of homebuilding permits issued in that same time. The employment growth to homebuilding permit ratio was 4.5 in 2012, as compared to the 1.3 average employment growth to homebuilding permit ratio for the market from 1981 through 2011, and is expected to remain high in 2013. Resale listings in San Diego are declining, causing the resale market to become more competitive and leading to increases in prices. Through December 31, 2012, San Diego had 7,969 homes listed on the market, which represented a decline of 36% from the prior year. In late 2006 and again in late 2007, listings surpassed 22,000 homes on the market. The level of listings as of December 31, 2012 equated to 2.5 months of supply, based on existing home sales activity over the prior twelve months. This represents a significant decrease from the more than nine months of supply in 2008.

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In addition to the decline in listings, pre-foreclosure notices have been trending downward, which is a positive sign for home prices in the San Diego market. Pre-foreclosure notices are an indicator of future home sales that will be distressed sales. In the twelve months ended December 31, 2012, just over 15,000 pre-foreclosure notices had been issued, representing a 24% decline from the prior year and a 61% decline from the peak in 2009. While the level of future distressed home sales is generally declining, there remains a moderate level of distressed homes that are not yet on the market that will act to limit rapid appreciation of home prices. As of December 31, 2012, the shadow inventory amounted to an estimated 20,200 homes, or 6.1 months of supply. This is nearly more than two times the level of listings that were on the market at that time. JBREC believes that most shadow inventory homes in San Diego will gradually become distressed sales over the next few years, and the pace of distressed sales will be slow enough that home prices will not be significantly negatively affected.

When comparing the monthly costs of owning the median-priced home with the median household income, through December 31, 2012, affordability in San Diego is much better than the area’s historical median dating back to 1981. Affordability conditions in 2012 were at their best level since late 1999. Affordability conditions are expected to worsen in 2013 as home prices and mortgage rates are expected to rise. In summary, San Diego’s housing fundamentals are solid. Job growth exceeds the area’s new construction levels, and listings are on the decline. As the fundamentals that drive the San Diego housing market reflect a more stable environment, the market is on track to return to solid price appreciation and rising construction.

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Ventura, CA Housing Market Overview

The Ventura MSA, also referred to as the Oxnard-Thousand Oaks-Ventura MSA, consists of Ventura County. The county is home to more than 840,000 people and more than 275,000 households. The coastal county has a rich history, while simultaneously providing amenities found in much more urban settings. Although Ventura lives in the large shadow of Los Angeles County to the south, it has a vibrant economy in its own right, and household income levels are significantly higher than surrounding metros. Limited land supply and a tough land planning and approval environment will continue to restrict the supply of new homes over the next few years.

The housing fundamentals in Ventura are improving, which is a positive sign for home price appreciation in this market, indicating a recovery from the recession of the last few years. The improvement in the overall fundamentals is the result of improving job growth, low supply and excellent affordability. In particular, the supply fundamentals stand out, given the very low levels of homebuilding permit activity and resale listings. The combination of prices being below peak and historically low mortgage rates provide a historic buying opportunity, which makes for fantastic affordability conditions.   There are nearly 279,000 non-farm payroll jobs in Ventura County, and employment growth was positive in 2011 and 2012 after job losses that lasted from 2007 through 2010. The metro area lost 25,000 jobs (8.4%) from the 2006 peak before adding 6,100 jobs (2.2% growth) in 2011 through 2012. JBREC assumes employment growth rising to 5,900 jobs added in 2013.   The largest employment sector is Trade, Transportation and Utilities (19.8% of jobs), followed by the high-paying Professional and Business Services (14.7%) sector. The Government and Education and Health Services sectors each comprise an additional 14.3% of jobs in the MSA, which is lower than the national average for these sectors. The Fortune 500 pharmaceutical company Amgen is headquartered in Thousand Oaks.    

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The Ventura MSA showed a slowing in population growth and household growth in the mid-2000s, but has rebounded, adding an estimated 9,400 people and 3,600 households in 2012. JBREC assumes population growth of approximately 9,300 people (1.1% growth) and household growth of approximately 3,800 (1.4% growth) in 2013.

For 2012, the median household income in Ventura County was $72,979, having peaked in 2008 at $76,888. Notably, Ventura’s median household income is well above the median income for Los Angeles County, showing the prevalence of higher-income jobs, many of them professional, in Ventura County. JBREC assumes median incomes will remain relatively flat for Ventura in 2013. Existing home sales in Ventura are rising rapidly after remaining relatively flat in 2010 and 2011. In the twelve months ended December 31, 2012, existing home sales for the area increased to 9,721, up 31% from the trough of 2007. Existing home sales levels in 2012 were still well below the peak level of 16,535 in 1988. Home prices are starting to turn around in Ventura. The median existing single-family detached home price declined 38% between 2007 and 2009, due in part to a shift in sales activity away from the higher price points and a loss in value. Although substantial, this decline was slightly less than the corresponding drop of 41% in Los Angeles County. In 2012, the median price for existing single-family detached home prices was $407,151, up from $396,333 in 2011; prices in 2012 were above the 2003 median price level of $403,000, but still below the median price for 2004. New home sales activity in 2012 has risen from the trough levels of 2011, but remains very low for this market. New home sales transactions totaled 368 for the twelve months ended December 31, 2012, well below the peak of 2,965 in 2000. JBREC expects the new home sales volume to increase to 600 transactions in 2013. The median new home price is once again starting to inch upwards after declining from the peak level in 2005. In 2012, the median new home price was $359,708, which is up about $800 from 2011, but still down 49% from its top

of $699,000 in 2005. The median new home price can be heavily influenced by the mix of home types being sold at any given time, and should not be relied upon as the only indicator of market trends.

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Home values in Ventura are poised for positive growth in 2013, according to JBREC. JBREC forecasts home values to rise by 9.7% in 2013, after rising 1.4% in 2012.   Homebuilding permit activity in Ventura is starting to pick up, but remains at very low levels. While JBREC forecasts that much of the growth in the housing inventory in 2013 will be for multifamily units, single-family construction is also expected to rebound steadily. Single-family homebuilding permits had fallen to 204 units in 2009, but rose to 238 over the twelve months ended December 31, 2012. Single-family homebuilding permits are expected to account for roughly 40% of the total residential construction activity in 2013, rising to 390 permits. In contrast, multifamily permits totaled 288 in 2012 and are projected to rise to 480 in 2013. Limited available land will keep construction activity well below what was seen over the last few decades.   The demand being generated for housing is greater than the new supply being added to the market, with job growth in the twelve months ended December 31, 2012 more than seven times the number of homebuilding permits issued in that same time; the employment growth to homebuilding permit ratio in 2012 was 7.6. That ratio is expected to remain high in 2013, due to improving job growth and low permit levels.   Resale listings in Ventura are low and declining, which could lead to more competitiveness and increasing prices in the resale market. Through December 2012, the county had 2,123 homes listed on the market, which represented a 41% decline from one year prior and a 45% drop from 2010. By comparison, listings exceeded 7,000 homes on the market in some months of 2007. The level of listings as of December 31, 2012 translates to a very low 2.6 months of supply, based on existing home sales activity during 2012. A 6.0 month supply is considered equilibrium for most markets. The 2012 year-end inventory level is well below the peak level of 11.8 months of supply in 2008.      

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Pre-foreclosure notices are declining in Ventura, which is a positive sign for home prices, as pre-foreclosure notices are an indicator of future distress. In the twelve months ended December 31, 2012, approximately 4,400 notices were issued, representing a 26% decline from one year prior and a 52% decline from the peak in 2009. While the number of homes falling into pre-foreclosure is declining, there is a moderate level of potential distressed homes that are not yet on the market and may limit upward movement for home prices. As of December 31, 2012, JBREC estimated the shadow inventory at 5,900, or about 6.2 months of supply. The shadow inventory is more than two times the very low level of listings that were on the market at that time. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years, and the pace of distressed sales will be slow enough that home prices will not be significantly negatively affected. When comparing the monthly costs of owning the median-priced home with the median household income,

affordability conditions are better than the historical median affordability conditions in Ventura. JBREC forecasts affordability conditions in Ventura will weaken in 2013 as home prices and mortgage rates are expected to rise. In summary, the housing fundamentals in Ventura are improving steadily. Job growth is positive for housing demand in this market, particularly as job growth outpaces the supply of new homes being added to the market. Low levels of existing home listings are creating a more competitive resale market, which should influence future home price appreciation. Prices are at low levels not seen since 2003, in a time when mortgage rates are also at historic lows. The combination of low prices and low mortgage rates in a county of high-income jobs suggests a rebound in the form of rising construction activity and home prices.

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Los Angeles, CA Housing Market Overview

The Los Angeles metropolitan division is a part of a single MSA which consists of Los Angeles and Orange Counties together; the Los Angeles division represents Los Angeles County only. This county has nearly 10.1 million people and 3.3 million households, making it the most populous county in the entire nation as well as in California, representing slightly less than 30% of the state population and about 3% of the population of the entire nation. Owing to its size, this market has a wide diversity of submarkets and demographics, which make it critical for builders and developers to understand the local consumer. A large percentage of new homebuilding activity will likely occur in either infill locations close to job growth or in more distant areas where land is available for traditional single-family detached home development.

The housing fundamentals of Los Angeles County have shown considerable improvement in recent years, which is a positive sign for home price appreciation in this market, indicating a recovery from the recession of the last few years. The improvement in the overall fundamentals is the result of improving job growth and declining distressed sales, crossed with low construction levels in the recession. The affordability fundamentals are excellent, with prices on average having fallen to levels consistent with prices in 2003 at the same time that mortgage rates are at a historically low level, around 3.5%. The current affordability conditions provide a historic buying opportunity. There are more than 3.8 million non-farm payroll jobs in Los Angeles County, and employment growth is once again positive after job losses in 2008 through 2010. The metro area lost 349,700 jobs (8.5%) from the 2007 peak before adding 24,600 jobs (0.7% growth) in 2011 and 67,200 jobs (1.8% growth) in 2012. The recent recession resulted in fewer losses than the 433,900 jobs lost in the downturn of 1991 through 1994, which had fallen upon a smaller population. JBREC assumes employment growth of 76,600 jobs in 2013. Although the area is famous for its entertainment industry, employment in Los Angeles County is distributed over many industries and sectors. The largest employment sector is Trade, Transportation and Utilities (20.0% of jobs), followed by the high-paying Professional and Business Services (14.5%), Government (14.4%), and Educational and Health Services (14.3%). Los Angeles County is home to such Fortune 500 companies as Walt Disney, DirecTV, Occidental Petroleum and Edison International, as well as the U.S headquarters for automobile companies

Toyota, Honda and Isuzu. The city and county governments are also major employers, as is the educational system. The ports of Los Angeles and Long Beach handle one-fourth of all container traffic coming into the United States, making the complex the largest port in the country and the third-largest in the world.

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Los Angeles County lost a little less than one percent of its population in the three years from 2005 through 2007, but has added 301,000 people from 2008 through 2012 (3.1% cumulative growth). JBREC assumes population growth of approximately 99,700 people (1.0% growth) and household growth of approximately 37,500 households (1.1% growth) in 2013.

For 2012, the median household income in Los Angeles County was $53,784, having declined modestly since 2008 when it peaked at $55,537. Despite a very slight decline in incomes in 2012, JBREC assumes positive growth of 0.1% in 2013.   Existing home sales in Los Angeles County are rising vigorously after declining in 2010 and 2011. In the twelve months ended December 31, 2012, existing home sales for the area increased to 79,746, up 36% from the trough of the market in 2008. Existing home sales levels in 2012 were still well below the peak levels that topped 127,000 transactions in both 2003 and 2004. Home prices have turned around in Los Angeles County. In a classic business cycle, the median existing single-family detached home price declined by 41% between 2007 and 2009, representing the withdrawal of generous lending that had made high prices possible and led to many distressed sales. In 2012, the median price for existing single-family detached home prices was $340,078, up from $324,106 in 2011, and the median price in 2012 was slightly above the 2003 median price level of $330,000.   New home sales activity in 2012 rose from trough levels in 2011, but remains very low in comparison to history in this market. New home sales transactions totaled 4,346 for the twelve months ended December 31, 2012, up from 3,822 in 2011, but still well short of the peak at 12,370 in 2006. The median new home price is once again rising after declining from the peak level in 2007. In 2012 the median new home price was $376,769, down 25% from its peak of $502,867 in 2007. The median new home price can be heavily influenced by the mix of home types being sold at any given time in this broad region. As a result, resale home prices are a better indication of market trends.      

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Home values in Los Angeles County are poised for positive growth in 2013, according to the Burns Home Value Index. JBREC forecasts home values to rise by 9.0% in 2013, after growing just 0.8% in 2012.   While the mix of new housing construction in this county has historically been a fairly balanced split between attached homes and single-family detached homes, the market is becoming a more attached-dominated market as the availability of land for detached housing is diminished. JBREC forecasts that much of the growth in the housing in 2013 will be for multifamily units, but single-family construction is also expected to rebound from trough levels during the downturn in housing. Single-family homebuilding permits had fallen to 2,268 units in 2009 as construction slowed, but rose to 2,654 over the twelve months ended December 31, 2012. Single-family homebuilding permits are expected to account for approximately one-fifth of the total residential construction activity in 2013, rising to 3,360 permits. In contrast, multi-family permits totaled 8,641 in 2012 and are projected to rise to 12,000 in 2013.   The demand being generated for housing is greater than the new supply being added to the market, with job growth in the twelve months ended December 31, 2012 nearly six times the number of homebuilding permits issued in that same time; the employment growth to homebuilding permit ratio in 2012 was 5.9. This ratio is expected to remain high in 2013, owing to relatively strong job growth and low permit levels.   Resale listings in Los Angeles County are very low and declining rapidly, which could lead to more competitiveness and increasing prices in the resale market. Through December 2012, the county had 18,650 homes listed on the market, which represented a 38% decline from one year prior and an almost 50% drop from 2010. By comparison, listings exceeded 50,000 homes on the market in much of 2007 and 2008. The level of listings as of December 31, 2012 translates to a very low 2.8 months of supply, based on existing home sales activity over the most recent twelve months. A 6.0 month supply is considered equilibrium for most markets. The 2012 year-end inventory level is well below the level of more than 11 to 12 months of supply years ago, when listings had peaked.      

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Pre-foreclosure notices are declining in Los Angeles County. This is a positive sign for home prices, as pre-foreclosure notices are an indicator of future distress. In the twelve months ended December 31, 2012, approximately 43,800 notices were issued, representing a 28% decline from one year prior and a 60% decline from the peak in 2009. While the number of homes falling into pre-foreclosure is declining, there is a moderate level of potential distressed homes that are not yet on the market and may limit upward movement for home prices. As of December 31, 2012, JBREC estimated the shadow inventory at 58,800 homes, or about 7.5 months of supply. This is approximately three times the very low level of listings on the market at that same time. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years, and the pace of distressed sales will be slow enough that home prices will not be significantly negatively affected. When comparing the monthly costs of owning the median-priced home with the median household income,

affordability conditions are excellent in relation to history in the Los Angeles metro area. Affordability conditions at the end of 2012 were at the market’s best since 2000. JBREC forecasts affordability conditions in Los Angeles County will begin to weaken in 2013 as home prices and mortgage rates are expected to rise. In summary, the housing fundamentals in Los Angeles are excellent. Solid job growth in 2012 is positive for housing demand in this market, particularly as job growth significantly outpaces the supply of new homes being added to the market. Low levels of existing home listings are creating a more competitive resale market, which should influence future home price appreciation. Additionally, the combination of prices that are down from peak levels and low mortgage rates means that affordability is excellent for the buyer, suggesting a coming cyclic rebound in the form of increased construction activity and rising home prices.

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San Francisco, CA Housing Market Overview

The San Francisco Metropolitan Division consists of three counties: San Francisco, San Mateo and Marin. It is part of the larger San Francisco-Oakland-Hayward MSA, which also includes the East Bay counties of Alameda and Contra Costa. All three counties in the San Francisco Metropolitan Division are affluent and housing there tends to be expensive. Combined, the three counties have a population of more than 1.8 million. The San Francisco metro is mature and largely developed in core locations. Limited land supply and a tough land planning and approval environment restrict the supply of new homes. Homebuyers typically evaluate opportunities to buy higher density product closer-in, or commute to outlying locations for relative affordability and detached homes. Like many other markets, the San Francisco Metro experienced a housing correction; however, a major reason is that San Francisco’s economy was still struggling from the technology correction during the early parts of the national housing boom.

The housing fundamentals of the San Francisco metro have shown considerable improvement in recent years, based largely on gains in affordability, which is a positive sign for home price appreciation in this market, indicating a recovery from the recession of the last few years. The improvement in the overall fundamentals is the result of improving job growth, increasing affordability, and the turning of the business cycle. The affordability fundamentals are excellent (by San Francisco standards), with prices reset to 2003 and 2004 levels, at the same time that all-time low mortgage rates are now at 3.5%. The combination of below-peak prices and lower mortgage payments than ever provides an historic buying opportunity. As a result, properties are now quickly snapped up by eager buyers, mostly at higher prices than one year ago and sometimes above their asking prices. There are nearly 1.0 million non-farm payroll jobs in the San Francisco metro, and employment growth resumed in 2011 and 2012 after job losses in 2009 and 2010. The metro area lost 60,600 jobs (6.1%) in 2009 and 2010 before adding 62,000 jobs (6.6% growth) in 2011 through 2012. JBREC assumes employment growth of 27,600 jobs (2.8%) in 2013. The strongest sector for employment is the high-paid Professional and Business Services (22.1% of jobs), followed by Trade, Transportation and Utilities (15.6%), Leisure and Hospitality (13.6%), Government (13.4%), and Educational and Health Services (11.7%). In the city of San Francisco itself, tourism is a major industry. Many private companies make their headquarters in San Francisco, including Wells Fargo (the largest private employer in the city), Union Bank, the construction firm Bechtel, and Visa. In San Mateo

County the largest private employers are Genentech, Oracle, and Kaiser Permanente. These counties are also home to many smaller companies, often startups, in the biotech and computer/Internet fields, in the spirit of Silicon Valley to the south.

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While the San Francisco metro lost 2.2% of its population in the dot-com recession from 2001 through 2004, it has gained population every year since then, adding 104,900 people (6.0% cumulative) from 2007 through 2012. JBREC assumes population growth of approximately 12,900 people (0.7% growth) and household growth of approximately 6,800 (0.9% growth) in 2013.

For 2012, the median household income in the three-county metro was $77,651, just short of its peak of $78,514 in 2008. This high level of median household income suggests the prevalence of well-paying professional jobs. JBREC assumes the median income will decline by 0.4% in 2013.   Existing home sales in the San Francisco metro are rising vigorously in 2012 and had been going up for three years before that, since 2009. In the twelve months ended December 31, 2012, existing home sales for the area increased to 17,592, up 20.6% from 2011 and up 41% from the trough of 2008. Current existing home sales levels are still well below the peak level of 24,979 in 2004. The median existing single-family detached home price declined by 22% between 2007 and 2011, but this was a far smaller decline than in many metros, thanks to limited supply, less of a price increase early in the decade because of the crash in the technology sector, and an abundance of high-paying jobs. In 2012, the median price for existing single-family detached home prices was $716,037, up 7.0% from $669,212 in 2011. Since the economy remains strong, supply remains low, and mortgage rates are low, prices are likely to rise in the near and medium term.   New home sales activity in 2012 has risen above the levels of 2011, but there have always been relatively few new sales compared to the population of this mature and land-constrained metro. New home sales transactions totaled 1,017 for the twelve months ended December 31, 2012, up from 826 in 2011, but well below the peak of 2,516 in 2004, and we expect sales to remain relatively flat in 2013. The median new home price continues to strongly rise. In 2012, the median new home price was $754,483, up 14% from 2011 and an    

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all-time high, even surpassing the boom peak of 2007. The median new home price can be heavily influenced by the mix of home types being sold at any given time in this broad region. As a result, resale home prices are a better indication of market trends, especially given that the new home sales volume in this market is very much lower than the existing home sales volume.

Home values in the San Francisco metro are poised for positive growth in 2013, according to the Burns Home Value Index. JBREC forecasts home values to rise by 12.9% in 2013, after growing 9.1% in 2012.   Because of cultural preference and the lack of buildable land, the mix of new permits has favored multifamily in-fill housing over single-family homes for the last two decades. JBREC forecasts that this trend will continue in 2013. Single-family construction is also expected to rebound from trough levels during the downturn in housing. Single-family homebuilding permits had fallen to only 349 units in 2010 and 374 units in 2011, but rose to 469 over the twelve months ended December 31, 2012. Single-family homebuilding permits are expected to rise to approximately 700 in 2013, but remain low given the constraints in this market. Historically, more than one-half of the single-family homebuilding permits issues in the metro division have been in San Mateo County, and has risen to two-thirds of single-family permits in 2011 and 2012. Multifamily permits totaled 3,960 in 2012 and are projected to fall to 3,000 in 2013.   The demand being generated for housing is greater than the new supply being added to the market, with job growth in the twelve months ended December 31, 2012 outpacing the number of homebuilding permits issued in that same time by more than eight to one. That ratio is expected to remain high in 2013 as permit activity is not expected to dramatically increase.   Resale listings in the San Francisco metro are low and declining, which could lead to more competitiveness and increasing prices in the resale market. Through December 2012, the county had just 2,920 homes listed on the market, which represented a 12% decline from one year prior and a 31% drop from 2010. This level of listings translates to a very low 2.0 months of supply, based on existing home sales activity over the twelve months through December 31, 2012. A 6.0 month supply is considered equilibrium for most markets. The 2012 year-end inventory level is well below the peak level of 6.3 months of supply in 2009 and 2010. Note that even the peak level of inventory was rather low, indicating the existing home market conditions have always been tight. It is not surprising,      

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therefore, that both new and existing homes are often quickly purchased when they come to market, whether by investors or by households planning to occupy the residences; sometimes the homes are sold as soon as they are listed, and sometimes they sell at higher prices than had been expected. Again, the governing factor is the lack of supply.

Pre-foreclosure notices are declining in this metro. This is a positive sign for home prices, as pre-foreclosure notices are an indicator of future distress. In the twelve months ended December 31, 2012, approximately 4,300 notices were issued, representing a 35% decline from one year prior and a 52% decline from the peak in 2009. While the number of homes falling into pre-foreclosure is declining, there is a moderate level of potential distressed homes that are not yet on the market and may limit upward movement for home prices. JBREC estimated the shadow inventory as of December 31, 2012 at 5,900 homes, or about 3.9 months of supply. This level of shadow inventory is approximately two times the level of listings that were on the market at that time. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years, but the pace of distressed sales will be slow enough that home prices will not be significantly negatively affected. When comparing the monthly costs of owning the median-priced home with the median household income, affordability conditions are good in relation to history in

the San Francisco metro area. JBREC estimates that affordability is good, but will weaken in 2013 as home prices and mortgage rates are both expected to rise. In summary, the housing fundamentals in the San Francisco metro are solid, with a recovery underway and the potential for strong price appreciation. There is solid growth of high-income jobs to support demand in an environment of low and constrained supply. In addition, affordability is much better than average for the metro’s history. Limited lot and land supplies and the political environment affecting project approvals are long-term conditions in the Bay Area, which underscores the importance of a management team with strong local knowledge and planning and development expertise.

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San Jose, CA Housing Market Overview

The San Jose MSA consists of Santa Clara and San Benito counties. With nearly 1.9 million people and 636,000 households, San Jose is one of the larger markets in the state of California. Widely regarded as a leading technology center, the metro area is home to many of the world’s foremost technology companies. The job growth from this South Bay market has a ripple effect on regional housing demand. The mix of housing in San Jose is shifting from a fairly balanced split between attached homes and single-family detached homes to a more attached-dominated market as the availability of land for detached housing is diminished, as well as political and environmental challenges.

San Jose’s housing fundamentals have shown considerable improvement in recent years, which is a positive sign for home price appreciation in this market. The improvement in the overall fundamentals is the result of improving job growth and rising sales activity paired with low homebuilding permit and listings levels. The affordability fundamentals in San Jose are improved from 2005, and affordability conditions are now better than the MSA’s historical median. There are more than 905,000 non-farm payroll jobs in the San Jose metro area, and employment growth is once again positive after job losses in 2009 and 2010. The metro area lost 59,800 jobs (6.5%) from the 2008 peak before adding 21,300 jobs (2.5% growth) in 2011 and 28,800 jobs (3.3% growth) in 2012. The recent recession resulted in fewer losses than the downturn caused by the “dot com” bust in the early 2000s, when San Jose lost 182,300 jobs between 2001 and 2004, or 17.5% of the market total. JBREC assumes employment growth of 26,300 jobs (2.9%) in 2013. Because of its dominance in the technology industry, San Jose has a very high concentration of employment in related job sectors when compared to the nation as a whole. Technology and innovation-related employment contribute significantly to the sizeable economy in the MSA. The largest employment sector is the higher-paying Professional and Business Services sector, which accounts for nearly 20% of the payroll jobs in the metro area. The next largest sector is Manufacturing, which accounts for 17% of the jobs in San Jose—nearly twice the national average. The Information sector, at approximately 6% of all jobs, is three times the concentration of the nation, and is also considered to be a higher-paying sector. Technology companies dominate the Fortune 500 companies in San Jose, which include Hewlett-Packard, Apple, Google,

SanDisk and Intel, among many others. Approximately 41% of the U.S. venture capital investment activity in 2012 took place in Silicon Valley (which also includes the San Francisco market to the north), amounting to nearly $10.9 billion, according to the PricewaterhouseCoopers MoneyTree Report.

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Unlike the years that followed the dot com bust in the early 2000s, San Jose has not witnessed a drop in population or households in the recent downturn. Growth has remained strong, with an average of 23,900 people (1.3% growth) added each year from 2007 through 2011, and an average of 8,400 households (1.4% growth) added annually. JBREC assumes population growth of approximately 16,500 people (0.9% growth) and household growth of approximately 7,100 households (1.1% growth) in 2013.

For 2012, the median household income in the San Jose metro area was $85,044, which is the highest among the major Bay Area markets, driven by tech jobs. The San Jose median household income peaked above $87,300 in 2008, declining in 2009 and 2010. Despite a slight decline in incomes in 2012, JBREC assumes 1.0% growth in 2013.   Existing home sales in San Jose are rising after remaining relatively flat in 2010 and 2011. In the twelve months ended December 31, 2012, existing home sales for the area increased nearly 34% to 20,228 transactions from the trough of the market at 15,130 transactions in 2008. Existing home sales levels in 2012 constituted a return to the levels prevalent in the mid-1990s. Home prices also continue to rise in San Jose. The total decline in the median existing single-family detached home price of nearly 37% between 2008 and 2009 was a result of sales activity shifting to lower price points, as well as a loss of value. The median existing single-family detached home price of $581,653 in 2012 was on par with the median price in 2004 for this market.   San Jose’s new home sales activity is rising from trough levels in 2011, but remains historically low for this market. New home sales transactions totaled 1,515 for the twelve months ended December 31, 2012. The San Jose market has historically accounted for 28% of the new home sales activity among the three major Bay Area markets (San Jose, San Francisco and Oakland) over the last 20 years and, in 2012, San Jose made up 27% of the total. The median new home price is once again rising after declining from the peak level in 2007. The median new home price can be heavily influenced by the mix of home types being sold at any given time    

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in this broad region. As a result, resale home prices are a better indication of market trends, especially given that the new home sales volume in this market is considerably lower than the existing home sales volume.

Home values in the San Jose MSA are rebounding, and are poised for positive growth in 2013, according to the Burns Home Value Index. The index shows that San Jose home values appreciated 8.0% in 2012, following five years of declining prices from 2007 through 2011. JBREC forecasts home values to rise more than 13.3% in 2013.   While the mix of new housing construction in San Jose has historically been a fairly balanced split between attached homes and single-family detached homes, the market is becoming a more attached-dominated market as the availability of land for detached housing is diminished. JBREC forecasts that much of the growth in the housing inventory in 2013 will be for multifamily units, but single-family construction is also expected to rebound from trough levels during the downturn in housing. Single-family homebuilding permits had fallen to 642 units in 2009 as construction slowed, but more than doubled to 1,513 single-family homebuilding permits over the twelve months ended December 31, 2012. Single-family homebuilding permits are expected to account for approximately one-third of the total residential construction activity in 2013, rising to 1,800 permits.   The demand being generated for housing is greater than the new supply being added to the market, with job growth in the twelve months ended December 31, 2012 significantly higher than the number of homebuilding permits issued in that same time. The employment growth to homebuilding permit ratio in 2012 was 5.1. Historically, the ratio has been closer to 1.2 jobs added for every homebuilding permit issued. The ratio is expected to remain high in 2013 due to solid job growth amidst relatively low permit levels.   Resale listings in San Jose are very low and declining rapidly, which could lead to more competitiveness and increasing prices in the resale market. Through December 31, 2012, San Jose had 2,353 homes listed on the market, which represented a 50% decline from one year prior. By comparison, listings exceeded 10,000 homes on the market in August 2008. The current level of listings translates to a very low 1.4 months of supply, based on existing home sales activity over the most recent twelve months. A 6.0 month supply is considered equilibrium for most markets. The current inventory level is well below the level of more than 8.5 months of supply when listings had peaked.      

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Pre-foreclosure notices are once again declining in the San Jose market after flattening in 2011. This is a positive sign for home prices, as pre-foreclosure notices are an indicator of future distress. In the twelve months ended December 31, 2012, approximately 5,500 notices were issued, representing a 43% decline from one year prior and a 67% decline from the peak in 2009. While the number of homes falling into pre-foreclosure is declining, there is a moderate level of potential distressed homes that are not yet on the market and may limit upward movement for home prices. As of December 31, 2012, JBREC estimated the shadow inventory at 7,600 homes, or 3.9 months of supply. This is approximately three times the very low level of listings on the market at that time. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years, and the pace of distressed sales will be slow enough that home prices will not be significantly negatively affected. When comparing the monthly costs of owning the median-priced home with the median household income, affordability conditions are excellent in relation to

history in the San Jose MSA. JBREC’s Affordability Index takes into consideration the change in mortgage rates over time in its estimate of the ownership costs, which can significantly impact the monthly payment. Affordability conditions at the end of 2011 were at the market’s best since 1997. While affordability conditions weakened slightly in 2012 as home prices rose, overall affordability remains favorable (by San Jose standards) in comparison to historical levels. JBREC forecasts affordability conditions in San Jose will weaken considerably in 2013 as home prices and mortgage rates are expected to rise. In summary, the housing fundamentals in San Jose are improving. The combination of solid job growth and a high-income employment base are positive for housing demand in this market, particularly as job growth outpaces the supply of new homes being added to the market. Low levels of existing home listings are creating a more competitive resale market, which should influence future home price appreciation.

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Sacramento, CA Housing Market Overview The Sacramento-Arden-Arcade-Roseville metro consists of four counties: El Dorado, Placer, Sacramento and Yolo counties. Sacramento’s status as the capital of California provides a large employment basis for solid middle-class households. This is a major metro area with more than 2 million residents and more than 800,000 jobs, comparable to, for instance, greater Portland or Charlotte. Because of the relative availability of land and the low prices for housing in the area, this region experienced a great deal of construction and rapidly rising prices during the boom of the last decade. Sacramento has long been impacted by Bay Area commuters and relocations. High prices and a lack of developable land in the Bay Area traditionally push buyers into the greater Sacramento area, although that impact was muted during the housing downturn.

The housing fundamentals of the Sacramento metro have shown considerable improvement in recent years, based largely on gains in affordability, which is a positive sign for home price appreciation in this market, indicating a recovery from the recession of the last few years. The improvement in the overall fundamentals is the result of improving job growth, strongly increasing affordability, and the turning of the business cycle. The affordability fundamentals are excellent, with prices comparable to 2001 levels, at the same time that all-time low mortgage rates are now at 3.5%. There are 822,000 non-farm payroll jobs in the Sacramento metro, and employment growth turned positive in 2012 after job losses from 2008 through 2011. The metro area lost 94,400 jobs (10.1%) from 2008 through 2011 before adding 13,900 jobs (1.7% growth) in 2012. JBREC assumes improving employment growth averaging 21,400 jobs (2.6%) in 2013. Because Sacramento is the state capital, by far the largest sector of employment is Government (27.3%), followed by Trade, Transportation and Utilities (17.6%), Educational and Health Services (13.3%), and Professional and Business Services (12.8%). Beside governmental and educational organizations at various levels, the largest private employers in Sacramento include Sutter Health, Kaiser Permanente, Intel, and Dignity Health.

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The population and number of households continue to grow at a relatively steady pace in the Sacramento MSA, with improved growth assumed in the near term. In 2012 the population rose to 2,205,000, adding 25,900 (1.2%) from 2011. JBREC assumes population growth of approximately 27,700 (1.3% growth) and household growth of approximately 9,300 (1.1% growth) in 2013.

For 2012, the median household income in the Sacramento metro area was $58,970, increasing from 2010 and 2011, but still below the peak of $61,139 in 2008. JBREC assumes continued increases in incomes, with slower growth of 0.6% in 2013.   Existing home sales in the Sacramento metro area steadily increased in 2011 and 2012 after dipping in 2010. In the twelve months ended December 31, 2012, existing home sales for the area increased to 35,837, up 6.6% from 2011 and up 65.5% from the trough in 2007.   Existing home sales levels in 2012 were still well below the peak level of 50,459 in 2004, and are forecasted to top 38,000 transactions in 2013. The median existing single-family detached home price declined by 51% between 2006 and 2011, representing the withdrawal of generous lending and a falling back from unsustainable prices. In 2012, the median single-family detached existing home price was $197,853, which was up 6.4% from $185,951 in 2011.   The new home sales volume in 2012 witnessed its first increase following 6 years of decline in the Sacramento MSA, and remains well below the sales volume from the boom years when construction rang out at an intense pace. New home sales transactions totaled 2,566 for the twelve months ended December 31, 2012, which was up from 1,933 in 2011. By comparison, new home sales in the MSA reached 16,635 in 2003, and surpassed 15,000 transactions per year for four consecutive years from 2002 through 2005, indicating the strength of the boom in this area. JBREC projects new home sales will reach 3,400 transactions in 2013. The median new home price in 2012 was $296,153, which    

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was up 8.5% from 2011, but still far below the peak of $466,000 attained in 2005. The median new home price can be heavily influenced by the mix of home types being sold at any given time. As a result, resale home prices are a better indication of market trends, especially given the very low level of new homes that are transacting.

Home values in the Sacramento MSA are poised for positive growth in 2013, according to the Burns Home Value Index. JBREC forecasts home values to rise by 12.7% in 2013, after growing 3.7% in 2012. The predicted home value appreciation is based on the current over-correction of the housing cycle on the downside, and the current excellent affordability conditions resulting from the combination of low prices and low mortgage rates. Single-family construction has begun to rebound from trough levels during the housing downturn, with continued growth projected in the near future. Because of the availability of land, new single-family construction has tended to be higher than multifamily construction in the Sacramento area. Single-family homebuilding permits had fallen to 1,873 units in 2011, but rose to 2,860 over the twelve months ended December 31, 2012. By comparison, single-family homebuilding permits topped 18,000 units in 2003 and 2004. Single-family homebuilding permits are expected to rise to 3,800 in 2013, which is still well below peak levels. Multifamily permits totaled only 560 in 2012 and are projected to rise to 1,500 units in 2013. The demand being generated for housing is greater than the new supply being added to the market, with job growth in the twelve months ended December 31, 2012 outpacing the number of homebuilding permits issued in that same time by more than four to one. Job growth is expected to outpace homebuilding activity at a similar level in 2013. Resale listings in the Sacramento metro area are low and declining, which could lead to more competitiveness and increasing prices in the resale market. Through December 2012, the MSA had just 2,656 homes listed on the market, which represented a 54% decline from one year prior. The level of listings at that time translates to only 0.9 months of supply, based on existing home sales activity over the twelve months ended December 31, 2012. A 6.0 month supply is considered equilibrium for most markets. In contrast, inventory in October 2007 constituted 8.3 months of supply. Given the low levels of inventory, existing homes are being quickly purchased when they come to market, whether by investors or by households planning to occupy the residences.

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Pre-foreclosure notices are declining in the Sacramento metro area, which is a positive sign for home prices, as pre-foreclosure notices are an indicator of future distress. In the twelve months ended December 31, 2012, just under 17,000 notices were issued, representing a 26% decline from one year prior and a 55% decline from the peak in 2009. While the number of homes falling into pre-foreclosure is declining, there is a significant number of potential distressed homes that are not yet on the market. The high number of defaults and distressed properties (both short sales and REOs) has been a drag on the Sacramento area real estate market for years. JBREC estimated the shadow inventory as of December 31, 2012 at 23,400, or about 7.8 months of supply. This level of shadow inventory is between eight and nine times the very low level of listings on the market at that time. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years, and will act as a drag on the Sacramento market, but the pace of distressed sales will be slow enough that home prices will not be massively impacted. While declining, the sheer size of the shadow inventory makes it something not to be dismissed.

When comparing the monthly costs of owning the median-priced home with the median household income, affordability conditions are excellent in relation to history in the Sacramento metro area. JBREC estimates that affordability conditions reached their historical best level in early 2012 and will weaken in 2013 as home prices and mortgage rates rise. In summary, the housing fundamentals in the Sacramento metro are outstanding. Prices are low and, at the same time, mortgage rates are at all-time lows. The combination of overcorrected prices, low mortgage rates and tremendously low levels of homes for sale supports a cyclic recovery and strong optimism regarding prices and construction in this market.

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Phoenix, AZ Housing Market Overview

The Phoenix-Mesa-Glendale Metropolitan Area consists of Maricopa and Pinal counties. With 4.3 million people and 1.6 million households, Phoenix is the largest market in the state of Arizona. Phoenix is well-known as a retirement mecca and enjoys plenty of tourism, but is also ranked second in the country for solar power installations and is a manufacturing and distribution hub that operates at a 40% savings from California locations. Key cities in the MSA include Phoenix, Mesa, Scottsdale and Tempe.

The housing fundamentals in the Phoenix MSA have shown considerable improvement in recent years, which is typically a precursor for home price appreciation. The John Burns Real Estate Consulting Housing Cycle Risk Index measures the health of the housing market based on the performance of 24 market fundamentals in relation to their own history, and has historically been a one- to three-year leading indicator for home price appreciation. The improvement in the overall fundamentals is due to the combination of significantly improved demand fundamentals as a result of improving job growth and rising sales activity, and improved supply fundamentals as a result of low homebuilding permit and listings levels. The affordability fundamentals in Phoenix are very good, but are beginning to show signs of weakening as prices rise in this market.   There are more than 1.7 million non-farm payroll jobs in the Phoenix metro area, and employment growth resumed in 2011 after three years of losses from 2008 through 2010. The metro area lost 228,500 jobs, or 11.9% from the 2007 peak of 1.9 million, before adding 25,200 jobs (1.5%) in 2011 and another 41,500 jobs (2.4%) in 2012. JBREC assumes Phoenix will add 63,000 new jobs (3.6%) in 2013   Phoenix has a diverse employment distribution that resembles that of the nation as a whole, with some differences. The largest employment sector is the Trade, Transportation and Utilities sector, which accounts for nearly 21% of the jobs in the metro. Phoenix has a larger combined concentration of jobs in the sectors that generally represent higher incomes: Professional and Business Services, Financial Activities and Information. The combination of these three sectors represents 26% of the jobs in the metro, versus 21% for the nation.    

Metro leaders are focused on development or expansion of several industry clusters, including renewable energy, biomedical/personalized medicine, advanced business services, manufacturing and distribution, data centers, emerging technology and aerospace and aviation. Several of these sectors capitalize on the many sunny, clear days each year and lower cost of doing business, which is reportedly 40% lower than California. Top employers include city, county and state government, Bank of America, Wells Fargo, Raytheon, Arizona State University and Apollo Group, which is the parent company for Phoenix University and many other accessible education programs.

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Population and household growth slowed in Phoenix during the recession, with an average of 57,500 people (1.0% growth) and 22,240 households (1.5% growth) added annually from 2008 through 2012. JBREC assumes a return to strong population growth of approximately 116,300 people (2.7% growth) and strong household growth of 42,500 households (2.7% growth) in 2013.

The median household income is rising in the Phoenix metro, increasing 2.5% in 2012 to nearly $52,600. While the median household income is still below the peak of $55,700 in 2008, JBREC assumes continued income growth. reaching 1.7% in 2013.   Phoenix’s existing home sales volume has recovered significant from the low in 2007, but remains below the peak in 2003. Approximately 100,000 existing home sales in 2012 were 65% higher than the trough at 60,600 transactions in volume in 2008. JBREC forecasts that existing home sales will reach 101,600 transactions in 2013, which would be the most since 2005.   The median existing home sales price rose 22.7% in 2012, following five years of declining or weak prices. From the 2006 peak to the 2010 trough, the median existing single-family detached home price declined by 54% as a result of sales activity shifting to lower price points, as well as a loss of value. The median existing single-family detached home price of $148,182 in 2012 was on par with the median price in 2002-2003 for this market.   New home sales activity increased in Phoenix during 2012 from the 2011 trough, and JBREC forecasts strong sales growth for the next several years. New home sales transactions totaled 10,769 for the twelve months ended December 31, 2012, which was up nearly 27% from the recent trough in 2011. JBREC projects that new home sales activity will increase to 17,000 transactions in 2013, which would be the highest level since 2008.    

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While solid growth is forecasted for the next several years, new home sales activity is likely to remain well below the peak levels achieved in 2005. Very low resale and new home inventory levels paired with recovering demand are driving new home prices higher, as consumers want to take advantage of low mortgage rates and great affordability. New homes typically have a pricing premium over resale homes, and that gap is growing again as housing recovers. DataQuick indicates the 2012 median price for new homes was $210,963. The median new home price rose 6.0% in 2012 after declining from the peak of $269,300 in 2006. The median new home price can be heavily influenced by the mix of home types being sold and, as a result, resale home prices are a better indication of market trends.

Phoenix home values rose 15.4% in 2012, following five years of declining values, during which time home values declined 55% from the 2006 peak, according to JBREC’s Burns Home Value Index. The index provides an estimate of home value trends in an MSA, and is calculated based on an “electronic appraisal” of every home in the market, rather than just the small sample of homes that are actually transacting. JBREC forecasts home values to rise 18% in 2013.   Single-family homebuilding permit activity in the Phoenix metro continues to rise from very low levels, and JBREC forecasts volume to grow in 2013 as the demand for housing increases. Single-family homebuilding permits totaled 11,859 in the twelve months ended 2012, rising from 7,212 units at the low point of the cycle in 2010. JBREC forecasts that single-family homebuilding permits will reach 18,000 issuances in 2013, which would be the highest level since 2007 in this market.   The pace of job growth is ahead of permit activity in Phoenix, resulting in current demand outpacing the new supply being added to the market. For 2012, approximately 2.6 jobs were added to the market for every 1 homebuilding permit issued. Historically, this ratio has been closer to 1.2 for the Phoenix metro. The ratio is expected to increase slightly to 2.9 in 2013 as employment growth increases.   The resale inventory declined rapidly in the Phoenix metro in 2011 and 2012, plummeting by 18.5% just in the last year. As of December 31, 2012, there were 18,632 listings in the metro, translating to 2.2 months of supply, based on sales activity during 2012. A 6.0 month supply is considered equilibrium for most markets. Low levels of inventory could lead to more competitiveness and increasing prices in the resale market. The level of listings as of December 31, 2012 was well below the peak of more than 58,200 listings in October 2007, and the months of supply had been as high as 12.6 months in March 2008.      

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Pre-foreclosure notices have been declining in the Phoenix metro division since a peak in the fourth quarter of 2009. At the peak, approximately 117,300 notices were issued in Phoenix. In the twelve months ended December 31, 2012, approximately 41,800 notices had been issued, which represents a 37% decline from the twelve months ended December 31, 2011. There is a relatively high level of potential distressed homes that are not yet on the market and may limit home price appreciation. As of December 31, 2012, the shadow inventory amounted to an estimated 38,600 homes, or 5.0 months of supply at the resale sales rate during 2012. JBREC believes that most shadow inventory homes will gradually become distressed sales over the next few years; however, demand for the distressed inventory will exceed the slow pace of inventory coming to market so that material home price declines are unlikely. When comparing the monthly costs of owning the median-priced home with the median household income, current affordability conditions are excellent in relation

to history in the Phoenix metro. JBREC’s Affordability Index takes into consideration the change in mortgage rates over time in its estimate of the ownership costs, which can significantly impact the monthly payment. Affordability conditions at 2012 year-end were near the market’s best. JBREC forecasts that affordability conditions in Phoenix will worsen in 2013 as home prices and mortgage rates are expected to rise.

In summary, the Phoenix metropolitan area is recovering, with strong job growth that is fueling housing demand. Additional demand for homes by retirees and second-home buyers isn’t captured in the job growth metrics, which serve as a proxy for demand. Investors have also been active buyers in recent years, helping to clear much of the distress. Because resale and new home inventories are very limited, home prices are appreciating. Homebuilders are reporting very strong sales and improving pricing power, leading many to intentionally slow sales while working to open new sections or communities. Lot and land prices are escalating quickly.

Use of Estimates and Forward-Looking Statements

This market study was prepared for The New Home Company in connection with this offering by JBREC. Founded in 2001, JBREC is an independent research provider and consulting firm focused on the housing industry. The market study contains forward-looking statements which are subject to uncertainty.

The estimates, forecasts and projections prepared by JBREC are based upon numerous assumptions and may not prove to be accurate. This market study contains estimates, forecasts and projections that were prepared by JBREC, a real estate consulting firm. The estimates, forecasts and projections relate to, among other things, home value indices, payroll employment growth, median household income, housing permits and household formation. No assurance can be given that these estimates are, or that the forecasts and projections will prove to be, accurate. These estimates, forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of JBREC. No assurance can be given regarding the accuracy or appropriateness of the assumptions and judgments made, or the methodologies used, by JBREC. The application of alternative assumptions, judgments or methodologies could result in materially less favorable estimates, forecasts and projections than those contained in this market study. Other real estate experts have different views regarding these forecasts and projections that may be more positive or negative, including in terms of the timing, magnitude and direction of future changes.

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The forecasts and projections are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. JBREC has made these forecasts and projections based on studying the historical and current performance of the residential housing market and applying JBREC’s qualitative knowledge about the residential housing market. The future is difficult to predict, particularly given that the economy and housing markets can be cyclical, subject to changing consumer and market psychology, and governmental policies related to mortgage regulations and interest rates. There will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. Accordingly, the forecasts and projections included in this market study might not occur or might occur to a different extent or at a different time. For the foregoing reasons, JBREC cannot provide any assurance that the estimates, forecasts and projections contained in this market study are accurate, actual outcomes may vary significantly from those contained or implied by the forecasts and projections, and you should not place undue reliance on these estimates, forecasts and projections. See “Risk Factors—Risks Related to Our Business—The estimates, forecasts and projections relating to our markets prepared by JBREC are based upon numerous assumptions and may not prove to be accurate.”

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OUR BUSINESS

Our Company

We are a new generation homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California, including coastal Southern California, the San Francisco Bay area and metro Sacramento. We also seek to create unique communities via our significant land development expertise, either stand-alone or within master-planned communities developed by third parties. As a new generation homebuilder, we are driven by:

• understanding our target homebuyer customers through extensive research and analytical methods;

• personalizing new home designs to fit our target homebuyers’ unique lifestyle needs;

• a tailored, contemporary and technology-enhanced approach to marketing our new homes;

• enhancing the homebuyer experience through high-touch customer service and care;

• selecting attractive investment opportunities, without burdensome legacy issues, that we believe are well-positioned to be developed in a manner that enhances the value of such opportunities; and

• hand-selecting talented employees that share our culture of continuous personal and professional innovation and development.

We were founded in August 2009, towards the end of an unprecedented downturn in the U.S. homebuilding industry, with a combined initial capital commitment of $10 million by our founders, who are also our four most senior executives. Our founders, Larry Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer, and Tom Redwitz, our Chief Operating Officer, have extensive and complementary construction, design, marketing, development and entitlement expertise as well as strong relationships with key land sellers within each of our local markets and have worked together for up to 25 years. Additionally, Mr. Webb and Mr. Stelmar served in similar capacities together at John Laing Homes and oversaw the growth of that business, beginning with the merger of Watt Residential Partners with John Laing Homes in 1998, the leveraged buyout of John Laing Homes in 2001 for $190 million and, finally, orchestrating its timely sale in 2006 for $1.05 billion. Messrs. Webb and Stelmar were instrumental in driving the expansion of John Laing Homes following the merger from a small, multi-market builder to the second largest private builder in the United States at the time of its sale in 2006 (2,891 closings in 2005). We believe that the diverse and complementary skill sets our founders have acquired during their extensive careers in the industry provide an important competitive advantage for our company.

We were formed in 2009 and on August 18, 2010, Watt and IHP were admitted as members. References to our “Predecessor” in this prospectus are references to us prior to August 18, 2010. Our Predecessor’s business focused on fee building projects in Southern California, in which we built, marketed and sold homes for independent third-party land owners in prestigious master planned communities typically under The New Home Company name. Fee building represented a capital-efficient method of establishing operations and strengthening relationships with key land owners and developers. Commencing with the $20 million capital commitment by IHP Capital Partners, or IHP, and Watt Residential LLC, or Watt, in August 2010, and the subsequent $10 million capital commitment by Tricon Capital Group, Inc., or Tricon, in January 2011, we began to rapidly deploy capital to acquire land and build homes on larger infill sites within established communities, where we could leverage the experience of our management team in land planning and development. In an effort to sustain a steep growth trajectory while retaining ownership control and generating attractive risk-adjusted returns for all stakeholders, we have employed a joint venture strategy, in which we contribute a minority share of the capital and receive distributions in excess of our percentage capital interest plus management fees. Our joint venture strategy has been instrumental in allowing us to leverage our entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets, such as Orange and Los Angeles counties in Southern California and Santa Clara, San Mateo, Marin and Yolo counties in Northern California. In 2012, sales

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from unconsolidated joint ventures represented 57% of our total sales, versus 0% in 2011. We intend to continue to use joint venture partnerships to access unique market opportunities, including land development opportunities. We intend to invest the proceeds of this offering primarily to accelerate the contribution from wholly owned projects for our own account.

We employ a local market, consumer-driven approach to designing differentiated homes that meet the unique lifestyle needs of homebuyers across a variety of demographics. Our deeply analytical approach to market research and construction expertise across an extensive product offering allow us the flexibility to pursue a wide array of land acquisition opportunities and appeal to a broad range of potential homebuyers, including entry-level, move-up, move-down and luxury-focused customers. Our current product offering (including homes that we are building for our unconsolidated joint ventures) ranges in price from approximately $280,000 to $2.2 million (excluding 12 units of affordable housing), with home sizes ranging from approximately 800 to 4,600 square feet. Customer-focused community creation and product development, as well as exemplary customer service, are key components of the lifestyle connection we seek to establish with each homebuyer.

Additionally, we strive to enhance the home-buying experience and buyers’ personal investment in their homes through actively engaging them in the selection of design options and upgrades. Our on-site design studios offer state-of-the-art amenities and a wide variety of structural and design options across many price points, allowing buyers to personalize any of our home types to meet their unique needs. We believe our design studios are a key source of competitive differentiation and contribute to greater profitability through the sale of higher margin options. In 2012 our cancellation rate was 10%, including unconsolidated joint ventures, which was below the average of approximately 18.5% for public homebuilders. In February 2013, we were awarded the Eliant Homebuyers’ Choice Award for Best Overall Customer Experience, Best Design Selection Experience and Best Construction Experience among mid-size builders. Our commitment to customer satisfaction is a key element of our company culture, which we believe fosters an environment where our team members can innovate. We believe our reputation for high quality, differentiated architecture and design as well as high customer satisfaction and company culture enhances our overall financial performance and generates increased customer loyalty. However, we face significant competition in our markets.

In addition to our award-winning home designs and customer service, an important element of our business strategy is leveraging our substantial land entitlement and development expertise to add value to the land we acquire. Collectively, our senior executive team as well as our deep bench of managerial talent have decades of experience acquiring land, creating masterplans, obtaining entitlements and completing projects on budget and on schedule. However, despite our management team’s experience, we were formed in 2009 and have a limited operating history. To increase returns and manage risks associated with larger projects, from time to time, we may seek to sell land at various stages of development to other homebuilders. We believe we have established a reputation as both successful land developers and high-quality homebuilders, and will continue to focus on optimal capital allocation and balance between these activities throughout the lives of our projects.

As of March 31, 2013, our homebuilding operations consisted of nine communities, three of which are actively selling, containing 377 lots under various stages of development. In addition, our unconsolidated joint venture homebuilding projects consisted of 13 communities, three of which are actively selling, containing 743 lots, as described below, in Southern California, the San Francisco Bay area and metro Sacramento. The 13 unconsolidated joint venture communities are located in Irvine (Orange County – three actively selling communities), Larkspur (Marin County – three communities), San Jose (Santa Clara County – three communities) and Santa Clarita (Los Angeles County – four communities). Additionally, as of March 31, 2013, we operated five communities, three of which are actively selling, containing 189 lots under fee building projects in Southern California.

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Lots and Communities as of March 31, 2013

	Total				Actively Selling
	Lots		Communities		Lots		Communities
Company		377		9		85		3
Unconsolidated Joint Ventures		743		13		104		3
Fee Building		189		5		171		3

Since August 2009, we have delivered 122 homes at Company projects, 65 homes through our unconsolidated joint ventures, and 191 homes through our fee building projects. These communities are located in prestigious master-planned communities in California. Our management team has long-standing relationships with leading masterplan community developers in each of our core markets and, through these relationships, we are generally invited to participate in new lot offerings. Home sales revenues for our and our unconsolidated joint venture activities were $25.6 million and $0, respectively, in 2011, $24.2 million and $56.0 million, respectively, in 2012, and $4.7 million and $30.8 million, respectively for the three months ended March 31, 2013, and our business mix has shifted away from fee building to projects in which we have a significant financial interest (directly or in unconsolidated joint ventures). As of March 31, 2013, we owned or controlled 639 lots and our unconsolidated joint ventures owned or controlled 3,091 lots. As of March 31, 2013, we owned 377 lots and controlled 262 lots, and our unconsolidated joint ventures owned 743 lots and controlled 2,348 lots, of which 32 lots were under non-binding letters of intent. In addition, at such date, we controlled 189 additional lots under fee building contracts. Cumulatively, these lots represent supply to support our current growth plan over the next several years. We and our unconsolidated joint ventures currently own or control 100% of the lots needed for projected closings through 2015. We seek to invest only in land inventory that we can efficiently develop for homebuilding over a 24- to 36-month horizon in order to increase our returns on capital and reduce our exposure to market risk. We continually evaluate new communities and believe we have an attractive pipeline of land acquisition opportunities.

For the three months ended March 31, 2013 we had net income of $306,432, and for the years ended December 31, 2012 and 2011, we experienced net losses of $876,875 and $1.9 million, respectively.

In Southern California, we owned or controlled 326 lots as of March 31, 2013, and our unconsolidated joint ventures owned or controlled 618 lots. Each of these unconsolidated joint ventures will develop lots and build and sell homes. We plan to open sales locations at five new communities by March 31, 2014 through our unconsolidated joint ventures at the Company-created master planned community in Santa Clarita and the Newport Beach community. In addition, we controlled five fee building projects that contain a total of 189 homes remaining to be built in Irvine and Dana Point (Orange County) and Carlsbad (San Diego County).

In the San Francisco Bay area, we owned or controlled 106 lots as of March 31, 2013 and our unconsolidated joint ventures owned or controlled 728 lots. The lots owned by unconsolidated joint ventures consist of 85 lots in Larkspur (Marin County) and 239 lots in San Jose (Santa Clara County) intended for homebuilding activity. The lots controlled by unconsolidated joint ventures consist of 404 lots in Foster City (San Mateo County). Of these, approximately 200 lots are intended for homebuilding activity some of which we may purchase for Company projects. We anticipate that the remaining lots will be sold and developed by others, primarily for other residential uses. In March 2013, we entered into an agreement to acquire 30 lots in Santa Clara (Santa Clara county – one community). We plan to open sale locations at six new communities through our unconsolidated joint ventures located in Larkspur (three communities) and San Jose (three communities) by March 31, 2014.

In metro Sacramento, we owned or controlled 207 lots in established market areas in El Dorado, Placer and Sacramento counties. We expect to acquire and develop the 513 in Davis (Yolo county), 870 lots in Russell Ranch (Sacramento County) and 330 lots in McKinley Village (Sacramento County) through unconsolidated joint ventures. We are in the process of creating a masterplan containing eight communities in Davis, under

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which we may acquire lots from the unconsolidated joint venture and build homes for our own account in addition to selling lots to other homebuilders. We plan to open sales locations at two new communities located in Granite Bay (Placer County) and Folsom (Sacramento County) by March 31, 2014. We expect to create a masterplan containing 12 communities in the Folsom community, under which we may acquire lots and build homes for our own account in addition to selling lots to other homebuilders. We anticipate that the Sacramento community will contain 330 homes in four product types.

Owned and Controlled Lots

	As of March 31, 2013						Activity April 1 - June     , 2013
Market	Lots Owned		Lots Controlled		Lots Owned and Controlled		Project Location		Status		Lots Controlled		Commun- ities		Purchase Price, Net ($mm)		Total Lots Owned or Controlled
Company
Southern California		170		156		326						108		2	$	118.2		434
								Irvine		LOI		70		1		72.0
								Irvine		LOI		38		1		46.2
Northern California		207		106		313												313
Total — Company		377		262		639												747
Fee Building		—		189		189												189
Unconsolidated Joint Ventures		743		2,348		3,091												3,091

Net new home orders for our projects for the quarter ended March 31, 2013 and the years ended December 31, 2012 and 2011 were 17 homes, 72 homes and 45 homes, respectively. Net new home orders for our unconsolidated joint venture projects for the quarter ended March 31, 2013 and the year ended December 31, 2012 were 28 homes and 96 homes, respectively. For the quarter ended March 31, 2013 and the year ended December 31, 2012, we delivered 12 homes and 53 homes, respectively, from our projects and 23 and 42 homes, respectively, from our unconsolidated joint venture projects. For the year ended December 31, 2011, we delivered 49 homes from our projects and no homes from our unconsolidated joint venture projects for total home sales revenue of $25.6 million. The dollar amount of our backlog of homes sold but not closed for our projects as of March 31, 2013 was approximately $13.7 million. The dollar amount of the backlog of homes sold but not closed for our unconsolidated joint venture projects as of March 31, 2013 was approximately $83.4 million.

We operate our business through The New Home Company LLC, which, prior to the completion of this offering, will be converted into a Delaware corporation and renamed The New Home Company Inc. The members of The New Home Company LLC, which include TNHC Partners LLC (the founders), IHP, Watt and Tricon, will receive an aggregate of         shares of our common stock in connection with our conversion into a corporation.

Our Competitive Strengths

We believe the following strengths will provide us with a significant competitive advantage in implementing our business strategy:

Experienced and Proven Leadership Supported by a Talented Senior Management Team

Our founders have worked together for various periods of up to 25 years and have successful track records of managing and growing homebuilding companies. Their combined real estate industry experience includes land

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acquisition, entitlement, master-planned community creation, land development, home construction, financing, marketing and sales of single-family detached and attached homes in communities in a variety of markets. Prior to forming our company in 2009, Messrs. Webb and Stelmar worked together for 11 years at John Laing Homes, from its formation in 1998, ultimately serving as its Chief Executive Officer and Chief Financial Officer, respectively. In 2001, Messrs. Webb and Stelmar led the leveraged buyout of John Laing Homes for $190 million, resulting in GMAC/RFC becoming the majority owner, and successfully orchestrated the timely sale of John Laing Homes in 2006 for $1.05 billion. Mr. Redwitz joined John Laing Homes in 2002 as President of its Laing Luxury Division, having served previously as President of Taylor Woodrow’s Southern California division from 1999 to 2002. In addition, Mr. Davis brings over 40 years of land development and entitlement experience and served for eleven years as President of Irvine Community Development Corporation, a subsidiary of The Irvine Company and developer of the Irvine Ranch, a 125,000 lot master-planned community containing approximately 40 villages located in Orange County, California. However, despite our management team’s experience, we were formed in 2009 and have a limited operating history.

We believe that our founders’ extensive experience, relationships, local market knowledge and reputation provide us with a competitive advantage in being able to acquire land, create masterplans, obtain entitlements, build quality homes and complete projects on budget and on schedule. Our executives are supported by a talented senior management team that was assembled at a time of dislocation in the homebuilding industry and was hand-picked to build deep organizational strength designed to ensure execution of management’s business plan.

Our founders have made and continue to hold a significant investment in the Company. Collectively, Messrs. Webb, Stelmar, Redwitz and Davis have invested $12.5 million cumulatively since the Company’s formation in 2009. Upon the completion of this offering, they will collectively beneficially own                  shares of our common stock (including restricted stock units and options for common stock that are expected to be granted in connection with this offering), which will represent         % of our common stock outstanding immediately after this offering.

Significant Land Positions in Our Markets to Support Growth Plan

We believe that we have strong land positions strategically located within our core markets, many of which were acquired during the downturn and are controlled at favorable prices. The prior experience of our founders in the creation of thoughtful land plans and consumer-driven architecture provides us the ability to create unique communities, enhancing the value of our homes. Our Southern California assets are well located along key transportation corridors in major job centers in our submarkets. In the San Francisco Bay area, our assets are located within and around the Silicon Valley, a major employment center. In Sacramento, our assets are located in infill or existing master-planned communities, located near major employment centers, with a concentration of larger technology and medical companies and strong school districts.

As of March 31, 2013, in California we owned or controlled 639 lots, our unconsolidated joint ventures owned or controlled 3,091 lots, and we controlled 189 lots under fee building arrangements. We owned 126 lots, and our unconsolidated joint ventures owned 743 lots, on which we had commenced development. An additional 173 lots were under development and subject to fee building contracts. The remaining lots were owned or controlled and in various stages of pre-development activities with development expected to begin by March 31, 2014.

Focus on Attractive Growth Markets in California

We are currently focused on identifying unique sites and creating communities that allow us to design, construct and sell consumer-driven single-family detached and attached homes in major metropolitan areas in coastal Southern California, the San Francisco Bay area and metro Sacramento. Given our existing land positions, strong local relationships and reputation for quality building, we believe our business is well-positioned to capitalize on the housing market recovery underway in these markets. However, we face significant competition in our markets and during the most recent downturn the California housing market experienced a

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deeper and longer decline than many other markets. According to JBREC, these regions represent some of the largest single family housing markets in the country, as defined by sales, starts and building permits. In coastal Southern California, we principally operate in the counties of Orange, San Diego, Los Angeles and Ventura. In the San Francisco Bay area, we principally operate in the counties of Santa Clara, San Mateo and Marin, while in metro Sacramento, we operate primarily in the counties of El Dorado, Placer, Sacramento and Yolo. These markets are generally characterized as infill markets with barriers to entry, job growth and increasing populations, which can create growing demand for new housing. Moreover, our management team has deep local market knowledge of the California homebuilding and the land planning and development businesses. We believe this experience and strong relationships with local market participants uniquely enable our company to source site acquisitions and achieve land entitlements to fuel our growth.

History of Operational Discipline

Our management team possesses extensive and valuable expertise, including in the growth and operation of a much larger homebuilder controlled by a large public company. The perspective gained from leadership roles with companies such as John Laing Homes, Taylor Woodrow, the Irvine Company and others has helped shape the strict discipline and hands-on management approach that we believe has been a key component of our initial success. From weekly project activity performance management to semi-monthly operations reviews covering each project combined with financial accountability at the project level, our strict operating discipline is a key part of our strategy to increase returns while effectively managing risk. However, like other growing companies, we face challenges in expanding our operations while trying to manage risk and maintaining our disciplined and hands-on approach. Our management team has drawn upon the deep real estate knowledge base of IHP, Watt and Tricon personnel and their substantial experience in investing in real estate. Additionally, IHP and Tricon have made off-market opportunities available to us through affiliates and may make additional opportunities available to us in the future.

We also have strong relationships with institutional joint venture partners, including Westbrook, Hillwood and Tricon. As of March 31, 2013, we had five unconsolidated joint ventures with these partners, with total assets of $203 million and total capital contributed by the partners of 138.3 million, including $22.8 million contributed by us. We believe that these relationships may provide us with access to future land opportunities controlled by them.

Absence of Legacy Issues Allows Us to Focus on the Growth of Our Business

Our absence of legacy issues enables us to focus on the growth of our business, as opposed to diverting attention and resources to manage troubled assets or other legacy issues. Our land inventory was accumulated following the investment in us by IHP and Watt in August 2010 and by Tricon in January 2011, and we do not have any existing distressed assets or liabilities to manage, unlike many competitors that were affected by the unprecedented downturn in the real estate markets that resulted from the recession during 2008 and 2009. All of our real estate assets were acquired and are located in markets that we targeted after the downturn commenced. However, there can be no assurance that our land inventory will not decline in value from the prices that we paid.

Our Business Strategy

Our business strategy is focused on the design, construction and sale of consumer-driven new homes in planned communities in major metropolitan areas located in coastal Southern California, the San Francisco Bay area and metro Sacramento. Our business strategy is driven by the following:

Disciplined Acquisition of Attractive Land Positions

We believe that we have strong land positions strategically located within our core markets, many of which were acquired or that we acquired control over during the downturn in the market. We believe that our

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professional reputation and long-standing relationships with key land sellers including master plan community developers, brokers and other builders, as well as our institutional investors and joint venture partners, enable us to acquire well-positioned land parcels in our existing markets as well as new target markets. The strength of these relationships often provides us with a first look at acquisition opportunities and allows us to negotiate terms based on our reputation for delivering on our promises.

In addition, we plan to continue to leverage the strength of our land planning and land development expertise in each local market to position us to add value to our land, capture incremental profit opportunities and provide a steady supply of lots to support the significant planned growth of our homebuilding business. Land development and planning operations are overseen by Joseph Davis, one of our founders and our Chief Investment Officer, who has over 40 years of industry experience. Collectively, the five senior professionals in charge of our land acquisition and planning activities have over 90 years of experience and extensive relationships that help us to achieve entitlements in a timely manner in order to reduce market risk. We only seek to acquire land where we believe our development and entitlement skills can help us earn a risk-adjusted return that is accretive to our overall return on land or that is in excess of existing market opportunities.

As of March 31, 2013, we owned or controlled 639 lots and our unconsolidated joint ventures owned or controlled 3,091 lots. In addition, we controlled 189 lots under fee building arrangements). We owned 377 lots and our unconsolidated joint ventures owned 743 lots. We controlled 262 lots and our unconsolidated joint ventures controlled 2,348 lots, including 32 lots under non-binding letters of intent. We believe that our strategy of holding an inventory of land that will provide us with a two- to three-year supply of developed lots for our homebuilding operations and focusing on the entitlement and development of parcels, primarily in our land development joint ventures, that we can complete within approximately 24 to 48 months from the date the property is acquired allows us to control our exposure to land development and market cycle risk while pursuing attractive returns on our capital. Furthermore, we have stringent underwriting return criteria that measure entitlement, development, market and financing risks for each proposed acquisition. These risks are quantified and a numeric risk value is determined, which is used to set our minimum required unleveraged internal rate of return for the proposed acquisition.

We further seek to reduce our exposure to land risk through the use of land options, joint ventures and other flexible land acquisition arrangements. Our joint venture strategy has been instrumental in allowing us to leverage our entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets.

Deliver a Diverse, Consumer-Driven Product Offering and a Superior Home Experience

We consider ourselves a local market, consumer-driven homebuilder with expertise across a wide variety of product types and customer segments, including the entry-level, move-up, move-down and luxury-focused customer segments. In addition to understanding the key economic drivers of demand in our markets, we focus on understanding the pool of potential buyers, the product types sought by those buyers and the proper price point for the product types in each market. We perform extensive consumer research that helps us create land plans and design homes that meet the needs and desires of our specific targeted buyers. Our homes are competitively priced, but are not designed to be the lowest cost option in the market. Our core operating philosophy is to provide a positive, memorable experience to our homeowners through active engagement in the building process, tailoring our product to the buyer’s lifestyle needs and enhancing communication, knowledge and satisfaction. Our selling process focuses on the homes’ features, benefits, quality and design. Our customers’ experience is measured by an independent survey company, beginning with the sales process. This customer feedback continues to be measured well after the buyer closes on the sale. Ultimately, we use direct customer feedback we receive to improve and differentiate the quality of our home products, selling experience and service for our customers.

A key element of our strategy is to allow all buyers to personalize their homes regardless of the price point. Unlike many homebuilders with centralized locations to which buyers can travel to select options and upgrades,

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each of our communities has an on-site design center with a dedicated designer knowledgeable about the attributes of the homes offered in the community. The specific options and upgrades, both structural and finishes, available for the community are selected by our buyers as they navigate the buying process. These options and upgrades in many cases can form a substantial part of the total purchase price of a home and are typically priced with profit margins well in excess of the profit margins on the base home purchase before the options and upgrades. We also believe that the active participation of buyers in selecting options and upgrades results in buyers becoming more personally invested in their homes. In 2012 our cancellation rate was 10% (including unconsolidated joint ventures), which was below the average of 18.5% for public homebuilders.

We spend extensive amount of time studying and designing our products through the selection of architects, consultants and homeowner focus groups for all levels and price points in our target markets. We believe our diversified product strategy enables us to better serve a wide range of buyers, adapt quickly to changing market conditions and improve performance and returns while strategically reducing portfolio risk. We believe these steps improve the selling process, lead to a more satisfied homeowner, increase the number of buyers referred to our communities and enhance our operating results.

Increase Active Community Count in Our Markets

Our belief that homebuilding is a local market business supports our strategy to pursue significant opportunities to expand our business in our existing markets. We continually review the allocation of capital among our markets, based on both aggregate demographic information and our own operating results. We use the results of these reviews to focus our investments on those markets where we believe we can increase our profitability and return on capital. Additionally, we engage in limited speculative building and proceed with community development in phases where we believe it is economically feasible to do so with the goal of optimizing community design and increasing profits. While our primary growth strategy will focus on increasing our market position in our existing markets, we are exploring expansion opportunities in Phoenix and the Pacific Northwest and may consider other markets, through organic growth or acquisitions.

Vigilant Focus on Cost Structure

Cost control throughout our business permeates our corporate culture. Our management team maintains its focus on controlling costs and in implementing measures designed to ensure that our organization is efficient. We competitively bid each phase of development while maintaining strong relationships with our trade partners. We manage production schedules closely and, while respecting our valued relationships, require accountability from our vendors and trade partners.

We have made significant investments in systems in order to be responsive to the reporting and other needs of our institutional investors. These systems are designed to enable us to operate our business efficiently. We believe that our systems and infrastructure are designed to be scalable and will support the planned growth of our Company.

Prudent Use of Leverage to Enhance Shareholder Returns

Our seasoned management team has experienced many cycles in the housing market and our four most senior executives have made substantial personal investments in us. We seek to increase stockholder value over the long-term, and operate our business to mitigate risks from downturns in the market and position ourselves to capitalize on upturns. We intend to employ both debt and equity as part of our ongoing financing strategy, coupled with redeployment of cash flow from continuing operations, to provide us with the financial flexibility to access capital on favorable terms. In that regard, we expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. Upon completion of the offering, we expect to have leverage on a debt to book capitalization basis of less than 20%. Our existing indebtedness is both recourse and non-recourse to us and we anticipate that future indebtedness will be likewise. As of March 31,

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2013, we had approximately $27.8 million of loan commitments, of which $18.2 million was outstanding. At that date, our aggregate loan commitments consisted primarily of a project-specific revolving loan and a loan from a land seller secured by the land. These amounts also included a commitment of $5.5 million from IHP under which $1.0 million had been advanced in connection with a specific project. Additionally, at March 31, 2013, our unconsolidated joint ventures had approximately $65 million of loan commitments, of which $34.2 million was outstanding. We provide limited recourse to the lenders under $45.2 million of the unconsolidated joint venture loan commitments, of which $24.4 million was outstanding.

We expect to incur indebtedness to supplement our investment capital. We are in discussions to obtain commitments from a lending syndicate for an unsecured revolving credit facility that we anticipate will be in place following completion of the offering. We expect that the proposed facility will consist of a borrowing base of our existing and future real estate assets, and will contain customary financial covenants. The proposed facility will be used to fund land acquisition and development expenditures and home construction and for general corporate purposes. There is no assurance that we will be able to enter into a definitive agreement relating to this proposed credit facility on terms we find acceptable.

Beyond our anticipated credit facility, we intend to use other financing methods as necessary, potentially including preferred equity, secured and unsecured corporate-level debt, property-level debt and other public, private or bank debt. When possible and desirable, we will seek to replace short-term sources of capital with long-term financing.

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Project Sales by Market

The following table sets forth home sales revenue and units delivered by market for our projects in which we built and sold the homes for our account during the quarter ended March 31, 2013 and the years ended December 31, 2012, 2011 and 2010. In addition, the following table sets forth units delivered by market during that period for our unconsolidated joint ventures and our fee building projects, in which we built the homes for independent third-party property owners. In our fee building business, we receive management fees for homes we build for independent third-party property owners and do not record the home sales revenue from the homes sold.

	Three Months Ended March 31, 2013				Year Ended December 31,
					2012				2011				2010
	Home Sales Revenue		Units Delivered		Home Sales Revenue		Units Delivered		Home Sales Revenue		Units Delivered		Home Sales Revenue		Units Delivered
					(dollars in thousands)
Southern California
Company Projects
Orange County:
Stonetree Manor, Irvine	$	—		—	$	—		—	$	9,916		14	$	674		1
Four Quartets, Irvine		—		—		980		2		5,146		11		—		—
Total—Southern California		—		—		980		2		15,062		25		674		1
Northern California
Owned Projects
Sacramento County:
Madeira, Elk Grove		—		—		3,364		10		5,842		17		2,338		7
Marbella, Folsom		—		—		1,527		5		—		—		—		—
Folsom Trails, Folsom		3,535		9		3,303		9		—		—		—		—
Placer County:
Strada, Roseville		—		—		—		—		933		5		—		—
Lincoln, Roseville		1,131		3		4,326		14		627		2		—		—
Granite Bay, Granite Bay		—		—		10,698		13		—		—		—		—
Total—Northern California		4,666		12		23,218		51		7,402		24		2,338		7
Total—Company	$	4,666		12	$	24,198		53	$	22,464		49	$	3,012		8
Unconsolidated Joint Ventures (1)
Orange County:
Lambert Ranch-Field, Irvine	$	9,301		9	$	14,466		14		—		—		—		—
Lambert Ranch-Hill, Irvine		11,664		8		21,131		15		—		—		—		—
Lambert Ranch-Grove, Irvine		9,799		6		20,421		13		—		—		—		—
Total—Unconsolidated Joint Ventures	$	30,764		23	$	56,018		42		—		—		—		—
Fee Building Projects
Orange County:
Carmel, Irvine(2)				—				—				47				49
Toscana, Irvine(3)				31				41				—				—
San Marino, Irvine(3)				14				9				—				—
Total—Fee Building Projects				45				50				47				49

⁽¹⁾  Home sales revenue from unconsolidated joint ventures reflects the entire amount of home sales revenue of such joint ventures and not our share thereof. We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures. Revenue from unconsolidated joint ventures is not included in our revenue for GAAP purposes, but is recognized as a component of equity in net (income) loss of unconsolidated joint ventures. These figures are included here for informational purposes only.

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⁽²⁾  We entered into a fee building agreement to build, sell and market homes in this community for an independent third-party owner. This project was marketed under The New Home Company brand name.

⁽³⁾  We entered into a fee building agreement to only build homes in this community for an independent third-party property owner. This project is marketed under the independent third-party property owner’s name.

Description of Completed Projects and Communities under Development

Our homebuilding projects usually take approximately 24 to 36 months to complete from the initiation of homebuilding activity. The following table presents project information relating to each of our markets as of March 31, 2013 and includes information for all completed projects from our inception and current projects under development where we are building and selling homes for our own account or for our unconsolidated joint ventures, all completed projects from our inception and current projects under development where we are acting as a fee builder.

County, Project, City	Year of First Delivery(1)		Total Number of Homes to Be Built at Completion(2)		Cumulative Units Delivered as of March 31, 2013		Backlog at March  31, 2013(3)		Lots as of March 31, 2013(4)		Sales Price Range (in thousands)(5)		Home Size Range (sq. ft.)(6)
Company Projects
Southern California
Los Angeles County:
Canyon Oaks, Calabasas		2015		150		—		—		150	$	620  -  $740		1,700  -  2,087
Orange County:
Four Quartets, Irvine		2011		13		13		—		—	$	372  -  $554		1,132  -  1,745
Stonetree Manor, Irvine		2011		15		15		—		—	$	635  -  $732		1,964  -  2,268
Ventura County:
Thousand Oaks, Thousand Oaks		2014		20		—		—		20	$	885  -  $964		2,900  -  4,016
Southern California Total				198		28		—		170
Northern California
El Dorado County:
Blackstone, El Dorado Hills		2014		71		—		—		71	$	350  -  $375		1,750  -  2,050
Placer County:
Lincoln Crossing, Lincoln		2011		27		19		8		8	$	303  -  $334		1,948  -  2,350
Strada, Roseville		2011		5		5		—		—	$	180  -  $197		1,271  -  1,462
Granite Bay, Granite Bay		2012		17		13		3		4	$	679  -  $1,150		2,809  -  3,680
Olive Ranch, Granite Bay		2013		12		—		1		12	$	850  -  $900		3,000  -  3,680
Sacramento County:
Madeira, Elk Grove		2010		34		34		—		—	$	273  -  $369		1,948  -  2,204
Marbella, Folsom		2012		5		5		—		—	$	343  -  $405		1,874  -  2,203
The Trails, Folsom		2012		79		18		19		61	$	345  -  $399		1,874  -  2,203
The Meadows, Folsom		2013		41		—		—		41	$	375  -  $395		1,950  -  2,200
Candela, Sacramento		2014		10		—		—		10	$	225  -  $250		1,541  -  1,801
Northern California Total				301		94		31		207
Total—Company				499		122		31		377
Unconsolidated Joint Venture Projects(7)
Southern California
Los Angeles County:
Aqua, Villa Metro, Valencia		2013		95		—		—		95	$	284  -  $348		1,105  -  1,441
Terra, Villa Metro, Valencia		2013		99		—		—		99	$	330  -  $379		1,420  -  1,745
Sol, Villa Metro, Valencia		2013		99		—		—		99	$	363  -  $414		1,610  -  1,998
Viento, Villa Metro, Valencia		2013		22		—		—		22	$	354  -  $447		1,764  -  2,391
Orange County:
The Field, Lambert Ranch, Irvine		2012		66		23		21		43	$	934  -  $1,300		2,673  -  3,027
The Hill, Lambert Ranch, Irvine		2012		45		23		16		22	$	1,244  -  $2,230		3,418  -  3,792
The Grove, Lambert Ranch, Irvine		2012		58		19		22		39	$	1,401  -  $1,940		4,273  -  4,573
Southern California Total				484		65		59		419

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County, Project, City	Year of First Delivery(1)		Total Number of Homes to Be Built at Completion(2)		Cumulative Units Delivered as of March 31, 2013		Backlog at March  31, 2013(3)		Lots as of March 31, 2013(4)		Sales Price Range (in thousands)(5)		Home Size Range (sq. ft.)(6)
Northern California
Marin County:
The Collection, Rose Lane, Larkspur		2013		29		—		—		29	$	1,700  -  $2,600		1,649  -  3,539
Garden House, Rose Lane, Larkspur (8)		2013		14		—		—		14	$	182  -  $1,000		900  -  1,250
Terraces, Rose Lane, Larkspur (8)		2013		42		—		—		42	$	182  -  $900		765  -  1,625
Santa Clara County:
Row Towns, Berryessa, San Jose		2013		107		—		—		107	$	560  -  $668		1,592  -  2,043
Court Towns, Berryessa, San Jose		2013		60		—		—		60	$	561  -  $670		1,648  -  2,185
Condo Flats, Berryessa, San Jose		2013		72		—		—		72	$	573  -  $661		1,678  -  2,017
Northern California Total				324		—		—		324
Total—Unconsolidated Joint Venture Projects				808		65		59		743
Fee Building Projects
Southern California
Orange County:
Carmel, Irvine		2011		96		96		—		—	$	899  -  $1,206		2,616  -  2,846
San Marino, Irvine (9)		2012		47		23		24		24	$	900  -  $1,100		2,808  -  3,761
Toscana, Irvine (9)		2011		86		72		14		14	$	1,000  -  $1,300		2,806  -  3,137
Mendocino, Irvine (9)		2013		133		—		36		133	$	800  -  $950		2,221  -  2,452
The Strand, Dana Point (9)		2014		2		—		—		2	$	5,000  -  $5,700		6,436  -  7,855
San Diego County:
Carlsbad, Carlsbad		2014		16		—		—		16	$	750  -  $990		2,900  -  3,750
Southern California Total				380		191		74		189
Total—Fee Building Projects				380		191		74		189

⁽¹⁾  Year of first delivery for future periods is based upon management’s estimates and is subject to change.

⁽²⁾  The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.

⁽³⁾  Backlog consists of homes under sales contracts that had not yet closed as of March 31, 2013, and there can be no assurance that closing of sold homes will occur. Backlog has not been reduced to reflect our historical cancellation rate.

⁽⁴⁾  Consists of owned or controlled lots, fee building lots and unconsolidated joint venture lots as of March 31, 2013, including owned or controlled lots, fee building lots and unconsolidated joint venture lots in backlog as of March 31, 2013. Of the foregoing lots, there were no completed and unsold homes other than those being used as model homes.

⁽⁵⁾  Sales price range reflects actual total price for homes already sold in the respective project and, where sales have not yet commenced for a projects, anticipated sales prices for homes to be sold. The actual prices at which our homes are sold in the future may differ.

⁽⁶⁾  Reflects actual home size range for homes already sold in the respective projects and, where sales have not yet commenced for a project, anticipated home size ranges for homes to be sold. The actual home size ranges may differ.

⁽⁷⁾  We own capital interests in our active unconsolidated joint ventures that range from 5% to 50% and, in each case, a share of the distributions of the joint venture in excess of our percentage capital interest, the amount of which varies among our different joint ventures.

⁽⁸⁾  Garden House and Terraces have nine and five below-market homes, respectively, as required by the Housing Authority of the County of Marin. The price range for these homes is $181,000 to $430,000 and is excluded from the sales price range.

⁽⁹⁾  We entered into a fee building agreement to only build homes in this community for an independent third-party property owner. The project is marketed under the third-party owner’s name.

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Pending Acquisitions

As of March 31, 2013, we and our unconsolidated joint ventures had options or were under contract to acquire land for an aggregate purchase price of approximately $30.0 million and $144.7 million, respectively, in each case net of deposits. As of March 31, 2013, we and our unconsolidated joint ventures had paid $1.0 million and $7.7 million, respectively, in non-refundable deposits relating to these pending acquisitions. The following table presents certain information with respect to each of these pending acquisitions as of March 31, 2013.

	Company						Unconsolidated Joint Ventures
Market	Total Lots Controlled(1)		Communities		Aggregate Purchase Price, Net(2)		Total Lots Controlled(3)		Communities		Aggregate Purchase Price, Net(4)
Southern California		156		2	$	17,500,000		199		3		53,865,000
San Francisco Bay Area		106		2		12,450,000		404		3		29,500,000
Metro Sacramento		—		—		—		1,745		25		61,379,000
Company Total		262		4	$	29,950,000		2,348		31	$	144,744,000

⁽¹⁾  All of the 262 lots controlled under Company projects are under purchase contracts. There can be no assurance that we will acquire any of these land parcels on the terms or timing anticipted or at all or that we will proceed to build and sell homes on any of this land.

⁽²⁾  Includes the estimated aggregate purchase price for pending acquisitions of all the lots per region, less aggregate deposits paid of $1.0 million as of March 31, 2013.

⁽³⁾  Includes 2,316 lots that are under purchase contracts and 32 lots that are under non-binding letters of intent. There can be no assurance that we will acquire any of these land parcels on the terms or timing anticipated or at all or that we will proceed to build and sell homes on any of this land.

⁽⁴⁾ Includes the estimated aggregate purchase price for pending acquisitions of all the lots per region, less aggregate deposits paid of $7.7 million as of March 31, 2013.

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Acquisition Process

As of March 31, 2013, we and our unconsolidated joint ventures had 13 and 44 communities containing 639 and 3,091 lots, respectively, under various stages of development. In addition, at that date, we had five communities containing 189 lots under our fee building arrangements. We believe that our current inventory of owned and controlled lots and lots under land option or purchase contracts will be adequate to supply our and our unconsolidated joint ventures’ homebuilding operations projected closings through 2015.

Our land acquisition strategy is differentiated between housing programs and larger lot development programs. For lot development programs, the focus is on developing entitled parcels that we can complete within approximately 24 to 48 months from date the property is acquired. For housing programs, we focus on controlling development and market cycle risk while maintaining an inventory of owned lots and lots under land option or purchase contracts sufficient for construction of homes over a two- to three-year period from the initiation of homebuilding activity. Our acquisition process generally includes the following steps aimed at reducing development and market cycle risk:

• review of the status of entitlements and other governmental processing, including title reviews;

• identification of target buyer and appropriate housing product;

• determination of land plan to accommodate desired housing product;

• completion of environmental reviews and third-party market studies;

• preparation of detailed budgets for all cost categories;

• completion of due diligence on the land parcel prior to committing to the acquisition;

• utilization of options, joint ventures and other land acquisition arrangements, if necessary;

• limitation on the size of an acquisition to minimize investment levels in any one project, which is generally an amount not to exceed 15% of the Company’s equity; and

• employment of centralized control of approval of all acquisitions through a Board approval process.

Upon the completion of this offering, the executive committee of our board of directors will have the authority to review and approve any land acquisition with a purchase price of up to $35 million.

Before purchasing a land parcel, we engage and work closely with outside architects and consultants to design our homes and communities.

We acquire land parcels pursuant to purchase agreements that are often structured as option contracts. Such option contracts require us to pay non-refundable deposits, which can vary by transaction, and entitle (but do not obligate) us to acquire the land typically at fixed prices. The term within which we can exercise our option varies by transaction, and our acquisition is often contingent upon the completion of entitlement or other work with regard to the land (such as “backbone” improvements, such as the installation of main roads or utility services). Depending upon the transaction, we may be required to purchase all of the land involved at one time or we may have a right to acquire identified groups of lots over a specified timetable. In some transactions, a portion of the consideration that we pay for the land may be in the form of a share of the profits of a project after we receive an agreed to level of profits from the project. In limited instances such as where we acquire land from a master developer that is part of a larger project, the seller may have repurchase rights entitling it to repurchase the land from us under circumstances where we do not develop the land by an outside deadline (unless the delay is caused by certain circumstances outside our control), or where we seek to sell the land directly to a third party or indirectly through a change in control of our company. Repurchase rights typically allow the seller to repurchase the land at the price that we paid the seller to acquire the land plus the cost of improvements that we have made to the land and less some specified discount.

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Homebuilding, Marketing and Sales Process

The detached homes that we have built range in size from approximately 1,100 to 4,600 square feet, and attached homes range in size from approximately 800 to 2,200 square feet. The prices of homes also vary substantially. Sales prices for detached homes range from approximately $280,000 to $2.2 million (excluding 12 units of affordable housing) and sales prices for attached homes range from approximately $350,00 to $670,000. The average sales price of our homes delivered from our projects was approximately $389,000, $457,000 and $523,000 and for homes delivered from our unconsolidated joint venture projects was $1.3 million, $1.3 million and $0, for the quarter ended March 31, 2013 and the years ended December 31, 2012 and 2011, respectively.

We typically develop communities in phases based upon projected sales. We seek to control the timing of construction of subsequent phases in the same community based on demand as evidenced by sales of homes in prior phases and the number of qualified potential homebuyers that exist on our priority buyer list. Our construction process is driven by sales contracts that generally precede the start of the construction of homes. The determination that a potential home buyer is qualified to obtain the financing necessary to complete the purchase is an integral part of our process. Once qualified, our on-site design centers, with designers dedicated to a specific community, work with the buyer to tailor the home to the buyer’s specifications. This practice is designed to enhance the buyers’ design center experience and results in increased option sales.

The design of our homes must conform to zoning requirements, building codes and energy efficiency laws. As a result, we contract with a number of architects and other consultants in connection with the design process. Substantially all of our construction work is done by trade partners with us acting as the general contractor. We also enter into contracts as needed with design professionals and other service providers who are familiar with local market conditions and requirements. We do not have long-term contractual commitments with our trade partners, suppliers or laborers. We maintain strong and long-standing relationships with many of our trade partners. We believe that our relationships with trade partners have been enhanced through involving them prior to the start of a new community, maintaining our schedules and making timely payment. By dealing fairly, we believe we are able to keep our key trade partners loyal to us.

Sales and Marketing

In connection with the sale and marketing of our homes, we make extensive use of advertising and other promotional activities, including through our website (thenewhomecompany.com), social-media, brochures, direct mail and other community-specific collateral materials. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.

We sell our homes through our own sales representatives. Our in-house sales force works from sales offices located in model homes close to or in each community. Sales representatives assist potential buyers by providing them with floor plan, price and community amenity information, construction timetables and tours of model homes. Sales personnel are licensed by the applicable real estate bodies in their respective markets, are trained by us and generally have had prior experience selling new homes in the local market.

As of March 31, 2013, we owned 14 model homes (9 of which were owned by our unconsolidated joint ventures). Generally, we build model homes at each project and have them professionally decorated to display design features and options available for purchase in the design center. We believe that model homes play a significant role in helping homebuyers understand the efficiencies and value provided by each floor plan type. Interior decorations vary among our models and are selected based upon the lifestyles of our targeted homebuyers. Structural changes in design from the model homes, other than those predetermined, are not generally permitted, but homebuyers may select various other optional construction and design amenities. Our on-site design centers are an integral part of our sales process. Specific options are selected for each community based upon the price of the home and anticipated buyer preferences. Options include structural (room configurations or pre-determined additional square footage), electrical, plumbing and finish options (flooring, cabinets, fixtures). In certain communities, we also offer turn-key landscape options. Each design center is

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managed by our own designers dedicated to the specific community. We believe this approach enables us to create a strong relationship with our buyers that results in fewer cancellations and increased revenue.

We typically sell homes using sales contracts that include cash deposits by the purchasers. Before entering into sales contracts, we pre-qualify our customers through a preferred mortgage provider. However, purchasers can generally cancel sales contracts if they are unable to sell their existing homes, if they fail to qualify for financing or under certain other circumstances. Although cancellations can delay the sale of our homes, they have historically not had a material impact on our operating results. For our projects, the cancellation rate of buyers who contracted to buy a home but did not close escrow as a percentage of overall orders was approximately 11% during the quarter ended March 31, 2013, 16% during the year ended December 31, 2012 and 25% during the year ended December 31, 2011. For our unconsolidated joint venture projects, the cancellation rate was 5% in 2012 and 0% in 2011 (as we had no home sales through unconsolidated joint ventures in 2011). Cancellation rates are subject to a variety of factors beyond our control, such as adverse economic conditions and increases in mortgage interest rates. As of March 31, 2013, we did not have any completed and unsold homes.

Customer Financing

At each of our communities, we seek to assist our homebuyers in obtaining financing by arranging with preferred mortgage lenders to offer qualified buyers a variety of financing options. Most homebuyers utilize long-term mortgage financing to purchase a home, and mortgage lenders will usually make loans only to qualified borrowers.

Quality Control and Customer Service

We pay particular attention to the product design process and carefully consider quality and choice of materials in order to attempt to eliminate building deficiencies. The quality and workmanship of the trade partners we employ are monitored using our personnel and third-party consultants. We make regular inspections and evaluations of our trade partners to seek to ensure that our standards are met.

We maintain a quality control and customer service staff whose role includes providing a positive experience for each customer throughout the pre-sale, sale, building, closing and post-closing periods. These employees are also responsible for providing after-sales customer service. Our quality and service initiatives include taking customers on a comprehensive tour of their home during construction and prior to closing and using a third party, Eliant, to survey our buyers in order to improve our standards of quality and customer satisfaction.

We have consistently ranked at the top end of the survey results when compared to the other builders who participate in the Eliant survey.

Warranty Program

Our company currently provides a limited one-year warranty covering workmanship and materials. In addition, our limited warranty, which generally ranges from a minimum of two years up to the period covered by the applicable statute of repose, covers certain defined construction defects. The limited warranty covering construction defects is transferable to subsequent buyers not under direct contract with us and requires that homebuyers agree to the definitions and procedures set forth in the warranty, including the submission of unresolved construction-related disputes to binding arbitration. We generally reserve 1% of the sales price of each home we sell to provide warranty service to our homebuyers. Additionally, we have dedicated customer service staff that work with our buyers and coordinate with trade partners, as necessary, during the warranty period. We believe that our reserves are adequate to cover the ultimate resolution of our potential liabilities associated with known and anticipated warranty and construction defect related claims and litigation.

We subcontract our homebuilding work to trade partners who generally provide us with an indemnity prior to receiving payments for their work. Accordingly, claims relating to workmanship and materials are generally the primary responsibility of our trade partners.

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We purchase general liability insurance that covers development and construction activity at each of our communities. Our trade partners are covered by these programs.

There can be no assurance, however, that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, that we will not incur significant cost of repairs or the expenses of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with our trade partners.

Seasonality

We have experienced seasonal variations in our quarterly operating results and capital requirements. We typically take orders for more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters to build our inventories to satisfy the deliveries in the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

Raw Materials

Typically, all the raw materials and most of the components used in our business are readily available in the United States. Most are standard items carried by major suppliers. However, a rapid increase in the number of homes started could cause shortages in the availability of such materials or in the price of services, thereby leading to delays in the delivery of homes under construction. We continue to monitor the supply markets to achieve favorable prices.

Joint Ventures

Our joint venture strategy has been instrumental in allowing us to leverage our entity-level capital and establish a homebuilding platform focused on high-growth, land-constrained markets, such as Orange and Los Angeles counties in Southern California and Santa Clara, San Mateo, Marin and Yolo counties in Northern California.

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We serve as the administrative member, manager or managing member of each of our eight homebuilding and one land development joint ventures. We do not, however, exercise control over the joint ventures, as the joint venture agreements generally provide our respective partners with the right to consent to certain actions. Under the joint venture agreements, certain major decisions must be approved by the applicable joint venture’s executive committee, which is comprised of both our representatives and representatives of our joint venture partners. In addition, some of our joint venture agreements grant both partners a buy-sell right pursuant to which, subject to certain exceptions, either partner may initiate procedures requiring the other partner to choose between selling its interest to the other partner or buying the other partner’s interest. Additional information on our homebuilding joint ventures and the agreements governing them is set forth below.

Name (Projects)	Location (Year of Formation)	Percent- age of Capital Contri- buted by Us			Net Capital Contributed by Us as of March 31, 2013(1) (in thousands)			Total Joint Venture						Total Number of Homes		Planned Opening(3)		Cumulative Units Closed as of March 31, 2013		Backlog as of March 31, 2013(4)		Lots owned as of March 31, 2013		Lots Controlled as of March 31, 2013
								(in thousands)
								Assets		Debt(2)		Equity
TNHC Newport LLC (Meridian)	Newport Beach, California		35	%	$	10,344	(6)	$	29,555		—	$	29,555		79		2014		—		—		—		79
TNHC-HW San Jose, LLC (Row Towns, Berryessa; Court Towns, Berryessa; Condo Flats, Berryessa)	San Jose, California		15	%	$	5,171		$	34,305		—	$	33,752		239		2014		—		—		239		—
LR8 Investors, LLC (The Field, Lambert Ranch; The Hill, Lambert Ranch; The Grove, Lambert Ranch)	Irvine, California		5	%	$	1,571		$	78,421	$	25,104	$	47,120		169		2012		65		59		104		—
Larkspur Land 8 Investors, LLC (The Collection, Rose Lane; Garden House, Rose Lane; Terraces, Rose Lane)	Larkspur, California		10	%	$	3,099		$	40,753	$	9,184	$	30,336		85		2013		—		—		85		—
TNHC—TCN Santa Clarita LP (Aqua, Villa Metro, Valencia; Terra, Villa Metro, Valencia; Sol, Villa Metro, Valencia; Viento, Villa Metro, Valencia)	Santa Clarita, California		10	%	$	2,070		$	20,694		—	$	20,415		315		2013		—		—		315		—
TNHC-W CV, LLC (Calabasas)	Calabasas, California		50	%(5)	$	760		$	1,608		—	$	1,520		87		2014		—		—		—		87
TNHC-San Juan LLC	San Juan Capistrano, California		20	%	$	530	(6)	$	530	$	—	$	530		33		2014		—		—		—		33
Encore McKinley Village, LLC	Sacramento, California		10	%	$	49	(6)	$	49	$	—	$	49		330		2015		—		—		—		330
TNHC Russell Ranch LLC	Folsom, California		35	%	$	527	(6)	$	527	$	—	$	527		870		2015		—		—		—		870

⁽¹⁾  Amounts reflect capital contributions and exclude cumulative net income or loss.

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⁽²⁾  Scheduled maturities of the unconsolidated joint venture debt as of March 31, 2013 are as follows: $604,000 matures in 2013 and $33.7 million matures in 2014.

⁽³⁾  Represents planned year in which model homes will be open for sales at the communities, except for Russell Ranch where it represents expected commencement date of lot sales.

⁽⁴⁾  Backlog consists of homes under sales contracts that had not yet closed as of March 31, 2013, and there can be no assurance that closing of sold homes will occur. Backlog has not been reduced to reflect our historical cancellation rate.

⁽⁵⁾  Our capital interest in this unconsolidated joint venture is currently 50%, but our capital interest will change as a result of the need for additional capital that is required to acquire and develop this site.

⁽⁶⁾  Joint venture operating agreement executed in May 2013 Amount as of March 31, 2013 represents amount invested in deposits and due diligence costs.

TNHC Newport LLC

We have a 35% capital interest in the TNHC Newport joint venture. The joint venture owns the Meridian project located in Newport Beach, California. NB Residence, LLC is our partner in this joint venture. We have the ability to admit IHP as a member of our entity, TNHC Meridian Investors LLC. Under the terms of the joint venture, after the return of certain priority capital to the joint venture partners, TNHC Meridian Investors is entitled to receive 50% of the distributions from the joint venture in accordance with our percentage economic interest. In addition, we receive management fees from the joint venture of approximately 3% of gross sales revenue.

We additionally serve as the managing member of the joint venture with discretion to manage its business and affairs on a daily basis. Certain major decisions require the approval of the executive committee, which is composed of one representative appointed by us and two by our partner. Major decisions include, among others, approval of any tax elections, approval of the commencement of construction, approval of any budget that varies materially from the initial annual budget, and the incurrence of any joint venture indebtedness or modification of the terms of existing debt. We may be removed as the managing member for cause. No member may transfer or pledge its interest in the joint venture except when such transfer or pledge is permitted under the joint venture agreement. Subject to certain exceptions, both members have a buy-sell right pursuant to which, after the initial phase of construction has been substantially completed, either member may initiate procedures requiring the other member to choose between selling its interest to the initiating member or buying the initiating member’s interest. If a member is involved in a bankruptcy proceeding, has engaged in bad conduct or has committed a material breach or default (which we refer to as a “call event” for purposes of this section), the member that is not the subject of such call Event has the right to purchase all of the membership interest of the member who was the subject of such call event. If we were the subject of such call event, our partner has a put right to sell its interests to us.

TNHC-HW San Jose, LLC

We have a 15% capital interest in the TNHC-HW San Jose joint venture. HW San Jose, LLC is our partner in this joint venture. The joint venture owns the Row Towns, Court Towns and Condo Flats of the Berryessa project located in San Jose, California. Under the terms of the joint venture, after the return of certain priority capital to the joint venture partners, we are entitled to receive 30% of the distributions from the joint venture. In addition, we receive management fees from the joint venture of approximately 3% of gross sales revenue.

We serve as the managing member of the TNHC-HW San Jose joint venture with discretion to manage its business and affairs on a daily basis. Certain major decisions require the approval of the executive committee composed of one representative appointed by us and two by our partner. Major decisions include, among others, approval of any tax elections, approval of the commencement of construction of each phase, approval of any budget that varies materially from the initial annual budget, the incurrence of any joint venture indebtedness or modifying the terms of existing debt. We may be removed as the managing member for cause. No member may transfer or pledge its interest in the joint venture except when such transfer or pledge is permitted under the joint venture agreement. Subject to certain exceptions, both members have a buy-sell right pursuant to which, after the date on which completion of construction of the improvements has been substantially completed, either member may initiate procedures requiring the other member to choose between selling its interest to the initiating member or buying the initiating member’s interest. If a member is involved in a bankruptcy proceeding, has engaged in bad conduct or has committed a material

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breach or default (which we refer to as a “call event” for purposes of this section), the member that is not the subject of such call event has the right to purchase all of the membership interest of the member who was the subject of such call event. If we were the subject of such call event, our partner has a put right to sell its interests to us. The agreement also provides our partner the opportunity to enter into a joint venture to develop our Foster City project under terms substantially the same as this agreement. Foster City is a land development joint venture. We are currently negotiating the governing organizational documents for the Foster City project with our joint venture partner. Our capital interest in the Foster City opportunity will be 35%, and we expect to receive distributions that exceed our capital percentage.

LR8 Investors, LLC

We have a 5% capital interest in the LR8 Investors joint venture, which owns The Field, The Hill and The Grove projects in the Lambert Ranch in Irvine, California. MFC18 LR LLC is our partner in this joint venture. If at any time, our partner intends to sell to one or more third-party purchaser more than 50% of its interest or any portion of its interest so that it will no longer control the joint venture, it may require us to sell our entire interest in the joint venture pursuant to the terms and conditions of such sale. Under the terms of the joint venture, we and our joint venture partner are entitled to distributions in accordance with our capital interest until our joint venture partner has received a 15% internal rate of return on its capital contributions. Thereafter, we are entitled to receive 15% of distributions until our joint venture partner receives a 20% internal rate of return or an aggregate of 1.5 times its peak capital contributions to the joint venture. Thereafter, we are entitled to receive 20% of distributions until our joint venture partner has achieved a 25% internal rate of return or received an amount equal to 1.65 times its peak capital contributions to the joint venture. Thereafter we are entitled to receive 30% of distributions. In addition, we receive management fees from the joint venture of approximately 3% of gross sales revenue.

We serve as the administrative member of the LR8 Investors joint venture in charge of its day-to-day operations with the duty to carry out all decisions and resolutions of the executive committee. Our partner serves as the managing member having the authority to do any act which is necessary or desirable to carry out the purposes of the joint venture, subject to the consent of the executive committee for certain major decisions. The executive committee consists of one member appointed by us and two members appointed by our partner. We may be removed as the administrative member for cause or if we are terminated as the general contractor but may not resign in our capacity as such. No member may transfer its interest in the joint venture without the written consent of the other member, except when such transfer is permitted under the joint venture agreement.

Larkspur Land 8 Investors, LLC

We have a 10% capital interest in the Larkspur Land 8 Investors joint venture, which owns The Collection, Garden House and Terraces and Rose Lane projects in Larkspur, California. MFC18 Larkspur Land, LLC is our partner in this joint venture. If at any time, our partner intends to sell to one or more third-party purchaser more than 50% of its interest or any portion of its interest so that it will no longer control the joint venture, it may require us to sell our entire interest in the joint venture pursuant to the terms and conditions of such sale. Under the terms of the joint venture, we are entitled to receive a percentage of distributions from the joint venture that exceeds our percentage capital interest. In addition, we receive management fees from the joint venture of approximately 3% of gross sales revenue.

We serve as the administrative member of the Larkspur Land 8 Investors joint venture in charge of its day-to-day operations with the duty to carry out all decisions and resolutions of the executive committee. Our partner serves as the managing member having the authority to do any act which is necessary or desirable to carry out the purposes of the joint venture, subject to the consent of the executive committee for certain major decisions. The executive committee consists of one member appointed by us and two members appointed by our partner. We may be removed as the administrative member of this joint venture for cause or if we are terminated as the general contractor but may not resign in our capacity as such. No member may transfer its interest in the joint venture without the written consent of the other member, except when such transfer is permitted under the joint venture agreement.

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TNHC—TCN Santa Clarita LP

We have a 10% capital interest in the TNHC—TCN Santa Clarita joint venture. The joint venture owns the Acqua, Terra, Sol and Viento, Villa Metro – Valencia projects located in Santa Clarita, California. TCN Villa Metro LP, an affiliate of Tricon, is our partner in this joint venture. Under the terms of the Joint Venture, we are entitled to receive a percentage of distributions that exceeds our percentage capital interest. In addition, we receive management fees from the joint venture of approximately 3% of gross sales revenue.

We serve as the general partner of the joint venture with discretion to manage its business and affairs on a daily basis. Certain major decisions require the approval of the executive committee composed of one representative appointed by us and two by our partner. Major decisions include, among others, approval of any tax elections, approval of the commencement of construction of each phase, approval of each annual budget, and the incurrence of any joint venture indebtedness or modification of the terms of existing debt. We may be removed as the general partner for cause. No member may transfer or pledge its interest in the joint venture except when such transfer or pledge is permitted under the joint venture agreement. Subject to certain exceptions, both members have a buy-sell right pursuant to which, after the third-year anniversary of the joint venture, either member may initiate procedures requiring the other member to choose between selling its interest to the initiating member or buying the initiating member’s interest.

TNHC-W CV, LLC

We are a member in the TNHC-W CV joint venture, in which we currently have a 50% capital interest and which is under contract to acquire the Calabasas project in Calabasas, California. Watt Communities, LLC is our partner in this joint venture. The existing joint venture is expected to seek additional capital prior to acquiring the site, which may be provided by us or an institutional capital provider. As a result of the need for additional capital, our capital interest in this joint venture will be finalized once the capitalization of the joint venture is determined.

We serve as the manager of the joint venture in charge of its day-to-day operations with the duty to carry out all decisions and resolutions of the management committee. The management committee, consisting of two individuals appointed by us and two appointed by our partner, exercises all powers of the joint venture and is responsible for all significant decisions. We may not take any action on significant decisions without the approval of the representatives of the joint venture partner. The management committee, by unanimous action, has the right to appoint or remove the manager from time to time. In addition, we may resign in our capacity as the manager at any time by written notice to the joint venture members. No member may transfer its interest in the joint venture without the written consent of the other member, except when such transfer is permitted under the joint venture agreement.

TNHC San Juan LLC

We have a 20% capital interest in the TNHC San Juan joint venture. Ora Residential Investments I, L.P., is our partner in this joint venture. The joint venture will develop a project located in San Juan, California. Under the terms of the joint venture, we are entitled to receive a share of distributions that exceeds our percentage capital interest until our partner receives distributions up to a certain level of returns. Thereafter, our share of the distributions will increase up to a maximum percentage as specified in the joint venture agreement. In addition, we receive management fees from the joint venture of up to approximately 3% of gross sales revenue.

We serve as the managing member of the TNHC San Juan joint venture with discretion to manage its business and affairs on a daily basis, except for major decisions that require the prior written consent of our joint venture partner. Major decisions include, among others, the settlement of any claim against or by the joint venture in which the amount in controversy exceeds one hundred thousand dollars, the merger of the joint

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venture into any other entity, the incurrence of secured joint venture indebtedness that exceeds certain threshold and deviation in any material respect from the annual plan. We may be removed as the managing member for cause. No member may transfer or pledge its interest in the joint venture except when such transfer or pledge is permitted under the joint venture agreement. Subject to certain exceptions, both members have a put-call right pursuant to which, upon the occurrence of an event of default or a certain management impasse, either member may initiate procedures requiring the other member to choose between selling its interest to the initiating member or buying the initiating member’s interest. Our joint venture partner also has the option to initiate the put-call procedures if the joint venture fails to acquire a project development loan by January 31, 2014 or if certain events triggering a change of control occurs.

Encore McKinley Village, LLC

We entered into the Encore McKinley Village joint venture through McKinley Village, LLC (which we refer to as “our McKinley entity” for the purpose of this section), an entity owned jointly by us and RCI-McKinley Village, LLC. Our McKinley entity has a 20% capital interest in the Encore McKinley Village joint venture, which owns the McKinley Village project in Sacramento, California. Encore McKinley Associates, LLC is the partner with our McKinley entity in this joint venture. Under the terms of the joint venture, our McKinley entity is entitled to receive a percentage of distributions from the joint venture that is equal to our percentage capital interest. Thereafter, it is entitled to an increased share of distributions up to a maximum percentage as specified in the joint venture agreement, as our partner achieves certain rates of return on its capital contributions. In addition, our McKinley entity receives management fees from the joint venture of approximately 3% of project revenue. The amounts noted above are shared between us and RCI.

Our McKinley entity serves as the administrative member of the Encore McKinley Village joint venture with discretion to manage its business and affairs on a daily basis, except for major decisions that require the prior written consent of our joint venture partner. Major decisions include, among others, the adoption of or any supplement to the business plan, any litigation, arbitration or settlement involving the joint venture, any loan by the joint venture to a member, distribution of any property in kind or any other transaction not in the joint venture’s ordinary course of business. Our McKinley entity may be removed as the managing member for cause. No member may transfer or pledge its interest in the joint venture except when such transfer or pledge is permitted under the joint venture agreement.

THNC Russell Ranch LLC

We have a 35% capital interest in the THNC Russell Ranch joint venture. IHP Capital Partners VI, LLC is our partner in this joint venture. We and our partner are each represented on the executive committee of the joint venture by two representatives. The joint venture will develop lots in a master-planned community located in Folsom, California. Under the terms of the joint venture we are entitled to receive distributions from the joint venture according to our percentage economic interest, which is greater than our capital interest. In addition, we receive management fees from the joint venture of approximately 3% of net revenues.

We serve as the managing member of the THNC Russell Ranch joint venture responsible for implementing the decisions of the members and overseeing the day-to-day operations of the joint venture. Major decisions require the approval of our joint venture partner. Major decisions include, among others, the commencement of any development, the acquisition of any interest in real property, the incurrence of any joint venture indebtedness or modifying the terms of existing debt or the formation of an assessment district or any other financing mechanism for the infrastructure for the projects. We may be removed as the managing member for cause. We may not transfer or pledge our interest in the joint venture without prior written consent of our joint venture partner except when such transfer or pledge is permitted under the joint venture agreement. Subject to certain exceptions, after December 31, 2015 or when there is a failure to fund additional capital, both members have a buy-sell right pursuant to which either member may initiate procedures requiring the other member to choose between selling its interest to the initiating member or buying the initiating member’s interest. In addition, IHP

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has the sole right to initiate such buy-sell procedures upon the occurrence of certain replacement event or loss of control event.

Fee Building Services

Although our primary business focus is building and selling homes for our own account, we also selectively provide construction services to build, market and sell homes for independent third-party property owners with whom we have revenue-sharing agreements on projects, some of which have been or will be marketed under The New Home Company brand name. We refer to these projects as “fee building projects.” Our services with respect to fee building projects may include design, development, construction and sale of the homes, and we may take a project at any stage of development through its completion and sale. We earn revenue on our fee building projects either as a flat fee for the project or as a percentage of the cost or revenue of the project depending upon the terms of the agreement with our customer.

Our Financing Strategy

We intend to employ both debt and equity as part of our ongoing financing strategy, coupled with redeployment of cash flows from continuing operations, to provide us with the financial flexibility to access capital on favorable terms. We expect to use prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. Our existing indebtedness is recourse to us, and we anticipate that future indebtedness will likewise be recourse. As of March 31, 2013, we had approximately $27.8 million of aggregate loan commitments, of which $18.2 million was outstanding. At that date, our aggregate loan commitments consisted of a project-specific revolving loan and a loan from a land seller secured by the land. These amounts also included $1.0 million advanced by IHP under a $5.5 million commitment related to a specific project. Existing indebtedness of our joint ventures is both non-course and limited recourse to us. As of March 31, 2013, the unconsolidated joint ventures had approximately 65 million of aggregate loan commitments, of which 34.2 million was outstanding. Of these commitment amount, 19.8 million was non-recourse and 45.2 million was limited recourse to us. Of the amounts outstanding, 24.4 million was limited recourse to us. Limited recourse guarantees include environmental, completion and loan-to-value maintenance. We consider a number of factors when evaluating our level of indebtedness and, when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. As a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized. However, our charter does not contain a limitation on the amount of debt we may incur, and we may change our target debt levels at any time without the approval of our stockholders.

We intend to finance future acquisitions and developments with the most advantageous source of capital available to us at the time of the transaction, which may include a combination of common equity, secured and unsecured corporate level debt, property-level debt and mortgage financing and other public, private or bank debt.

Our Formation Transactions and Structure

Prior to this offering, we have operated our business through TNHC LLC. Prior to the completion of this offering, we will engage in the following formation transactions:

• TNHC LLC will be converted from a Delaware limited liability company into a Delaware corporation and renamed The New Home Company Inc. Subsequent to our conversion into a corporation we will be subject to taxation as a corporation under U.S. Federal and state income tax laws.

• In connection with the conversion, the membership interests of TNHC LLC will be automatically converted into shares of our common stock, and, as a result, the members of TNHC LLC, which

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members include an entity owned by the members of our management team, will receive an aggregate of shares of our common stock. We will allocate those shares among the members of TNHC LLC in the manner described in footnote (1) below.

See “Description of Capital Stock” for additional information regarding the terms of our common stock and the terms of our charter and bylaws that will be in effect following our formation transactions. Concurrently with the completion of our formation transactions, the operating agreement of TNHC LLC will be terminated. Following the completion of our formation transactions, The New Home Company Inc., which is the issuer of the shares of our common stock offered by this prospectus, will own the assets and conduct the business described in this prospectus.

We carry out our business generally through a number of project-specific, wholly owned subsidiaries and joint ventures. Our fee building business is conducted primarily through our wholly owned subsidiary, TNHC Realty & Construction Inc., through which we also conduct real estate brokerage and contracting activities relating to our business.

The following chart illustrates our ownership and structure immediately prior to the completion of this offering:

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The following chart illustrates our expected ownership and structure immediately following the completion of this offering (assuming no exercise by the underwriters of their option to purchase additional shares):

⁽¹⁾  As part of our formation transactions, the members of The New Home Company LLC (the entity that will be converted into a Delaware corporation and renamed The New Home Company Inc. as part of our formation transactions) (“TNHC LLC”) will receive an aggregate of shares of our common stock in connection with the exchange of their membership interests in TNHC LLC. The members of TNHC LLC include an entity owned by our executive management team and three other non-management institutional investors. In accordance with the TNHC LLC operating agreement, the allocation of            shares of our common stock to be received by the respective members of TNHC LLC as part of our formation transaction depends upon the value per share of our common stock in this offering. The allocation of shares among the members of TNHC LLC reflected in this prospectus is for illustrative purposes and is based upon the midpoint of the price range set forth on the cover page of this prospectus. The actual allocation of shares among the members of TNHC LLC will be based upon the initial public offering price. Such allocation will not change the aggregate number of shares of common stock received by members of TNHC LLC as part of our formation transactions and only effects how many shares are allocated to each respective member. For a more detailed discussion regarding the shares of our common stock that will be received by the members of TNHC LLC, see “Principal and Selling Stockholders.”

⁽²⁾  Excludes: (i)            shares of our common stock issuable upon the vesting of restricted stock units to be granted to, other officers and employees of our management team, other officers and employees (other than Messrs. Webb, Stelmar, Davis and Redwitz) and our director nominees upon the completion of this offering pursuant to our 2013 Long Term Incentive Plan; and (ii)            shares of our common stock issuable upon exercise of options to be granted to the members of our management team upon the completion of this offering pursuant to our 2013 Long Term Incentive Plan. The actual number of restricted stock units and the strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering.

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Government Regulation and Environmental Matters

We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters, which impose restrictive zoning and density requirements, the result of which is to limit the number of homes that can be built within the boundaries of a particular area. Projects that are not entitled may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to government regulations. We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future. Local governments also have broad discretion regarding the imposition of development fees and exactions for projects in their jurisdiction. Projects for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety and welfare issues, which can further delay these projects or prevent their development.

We are also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment. The particular environmental laws which apply to any given homebuilding site vary according to multiple factors, including the site’s location, its environmental conditions and the present and former uses of the site, as well as adjoining properties. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas. In addition, in those cases where an endangered or threatened species is involved, environmental rules and regulations can result in the restriction or elimination of development in identified environmentally sensitive areas. From time to time, the EPA and similar federal or state agencies review homebuilders’ compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs. Further, we expect that increasingly stringent requirements will be imposed on homebuilders in the future. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber. California is especially susceptible to restrictive government regulations and environmental laws.

Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held liable to a governmental entity or to third parties for related damages, including for bodily injury, and for investigation and clean-up costs incurred by such parties in connection with the contamination. A mitigation system may be installed during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition such as methane. Some buyers may not want to purchase a home with a mitigation system.

Competition

Competition in the homebuilding industry is intense, and there are relatively low barriers to entry into our business. Homebuilders compete for, among other things, home-buying customers, desirable land parcels, financing, raw materials and skilled labor. Increased competition could hurt our business, as it could prevent us from acquiring attractive land parcels on which to build homes or make such acquisitions more expensive, hinder our market share expansion, and lead to pricing pressures on our homes that may adversely impact our margins and revenues. If we are unable to successfully compete, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected. Our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. Furthermore, a number of our primary competitors are significantly larger, have a longer operating history and may have greater resources or lower cost of capital than us. Accordingly, they may be able to compete more effectively in one or more of the markets in which we operate. Many of these competitors also have longstanding relationships with trade partners and suppliers in the markets in which we operate. We also compete for sales with individual resales of existing homes and with available rental housing.

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Employees

As of March 31, 2013, we had 100 employees, 48 of whom were executive, management and administrative personnel located in our offices and 52 were located at our projects. Of the latter, 17 were sales and design personnel and 35 were involved in field construction. Although none of our employees are covered by collective bargaining agreements, certain of the trade partners engaged by us are represented by labor unions or are subject to collective bargaining arrangements. We believe that our relations with our employees and trade partners are very good.

Legal Proceedings

We are not involved in any material litigation nor, to our knowledge, is any material litigation threatened against us. However, we may in the future become involved in various legal proceedings arising in the ordinary course of business or otherwise.

Our Offices

Our principal executive offices are located at 95 Enterprise, Suite 325, Aliso Viejo, California 92656. Our main telephone number is (949) 382-7800. Our internet website is thenewhomecompany.com. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.

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MANAGEMENT

Officers, Directors and Director Nominees

Upon the completion of this offering, our board of directors will consist of nine directors. Of these nine directors, we believe that five, constituting a majority, will be considered “independent,” with independence being determined in accordance with the listing standards established by the New York Stock Exchange. Our board of directors will be divided into three classes upon completion of this offering, Class 1, Class 2 and Class 3. At each annual meeting of our stockholders, one class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The initial terms of the Class 1, Class 2 and Class 3 directors will expire upon the election and qualification of successor directors at the annual meetings of our stockholders held during the calendar years 2014, 2015 and 2016, respectively. There will be no cumulative voting in the election of directors. Consequently, at each annual meeting, the successors to the directors whose terms are then expiring will be elected by a plurality of the votes cast at that meeting. Pursuant to an investor rights agreement that we will enter into with our non-management institutional investors prior to the completion of this offering, each non-management institutional investor will have the right to nominate one member of our board for as long as it owns 4% or more of our outstanding common stock (excluding shares of common stock that are subject to issuance upon the exercise or exchange of rights of conversion or any options, warrants or other rights to acquire shares). Each non-management institutional investor will agree to vote all shares of our common stock that it owns in favor of Messrs. Webb or Berchtold in any election in which Messrs. Webb or Berchtold is a director nominee, and each of Messrs. Webb, Stelmar, Davis and Redwitz will agree to vote all shares of our common stock that he owns in favor of the nominees of the non-management institutional investors in any election of directors in which a non-management institutional investor nominee is a director nominee for as long as such non-management institutional investor owns at least 4%.

Set forth below are the names, ages and positions of our directors and officers as of the date of this prospectus, after giving effect to our formation transactions, and the persons who have agreed to become directors upon the completion of this offering, whom we refer to as our director nominees.

Name	Age	Position with the Company
Mr. H. Lawrence Webb	65	Chief Executive Officer and Chairman of our Board of Directors (Class 3 term will expire in 2016)
Mr. Wayne Stelmar	58	Chief Financial Officer
Mr. Joseph D. Davis	63	Chief Investment Officer
Mr. Tom Redwitz	58	Chief Operating Officer
Mr. Kevin Carson	52	President, Northern California
Mr. Andrew J. Jarvis	47	President, TNHC Land LLC
Ms. Joan Marcus-Colvin	52	Senior Vice President, Sales, Marketing and Design
Mr. Robin Koenemann	55	Senior Vice President, Operations
Mr. Mark Kawanami	50	Senior Vice President, Finance
Mr. Brian Olin	38	Senior Vice President, Land and Planning
Mr. David Berman	65	Non-employee Director Nominee (Class 1 term will expire in 2014)
Mr. Douglas C. Neff	64	Non-employee Director Nominee (Class 1 term will expire in 2014)
Mr. Michael Berchtold	49	Non-employee Director Nominee (Class 2 term will expire in 2015)
Mr. J. Scott Watt*	67	Independent Director Nominee (Class 1 term will expire in 2014)
*		Independent Director Nominee (Class 2 term will expire in 2015)
*		Independent Director Nominee (Class 2 term will expire in 2015)
*		Independent Director Nominee (Class 3 term will expire in 2016)
*		Independent Director Nominee (Class 3 term will expire in 2016)

* This individual has agreed to become a member of our board of directors upon the completion of this offering and is expected to be an independent director.

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Biographical Information

The following is a summary of certain biographical information concerning our directors, our officers and our director nominees.

H. Lawrence Webb. Mr. Webb has served as our Chief Executive Officer and a member of our board of managers since 2010 and, following our formation transactions, will serve as Chief Executive Officer and Chairman of our board of directors. Between 1995 and 2008, he was Chief Executive Officer of John Laing Homes. Prior to joining John Laing Homes, he was Division President for Orange, Riverside and San Bernardino Counties for Kaufman & Broad, as well as Orange County President of Greystone Homes. From 2008 to 2009, Mr. Webb served as Co-Chief Restructuring Officer for LandSource. Mr. Webb currently serves on the Policy Advisory Board of Partners In Building, a Houston and Austin, Texas-based homebuilding company. Mr. Webb received his Bachelor of Arts in History from the State University of New York at Cortland and his Master of City and Regional Planning from Harvard University. Mr. Webb’s leadership, vision, skills, deep knowledge of our business and experience in many facets of the homebuilding business lead to our conclusion that Mr. Webb should serve as the Chairman of our board of directors.

Wayne Stelmar. Mr. Stelmar has served as our Chief Financial Officer and a member of our board of managers since 2010 and, following our formation transactions, will serve as Chief Financial Officer. In 1998, when Watt Residential Partners and John Laing Homes merged, he became CFO of John Laing Homes. Prior to joining John Laing Homes, Mr. Stelmar served as CFO of Watt Residential Partners. He joined the Watt Group Inc. in 1988. He has also worked with accounting firms Kenneth Leventhal & Company (later, E&Y Kenneth Leventhal Real Estate Group) and Grant Thornton where he began his career in 1977. Mr. Stelmar is a CPA (inactive) and holds a California real estate broker’s license. Mr. Stelmar received his Bachelor of Science in Accounting from California State University, Northridge.

Joseph D. Davis. Mr. Davis has served as our Chief Investment Officer and a member of our board of managers since 2010 and, following our formation transactions, will serve as Chief Investment Officer. From 1996 to 2007, he served as President of Irvine Community Development Company, where he oversaw the planning, development and marketing of master planned communities owned by The Irvine Company on The Irvine Ranch, Orange County, California. He has held senior management positions at Amfac, Inc., Watt Group Inc., and Chevron Land and Development. Mr. Davis holds California real estate brokers and contractors licenses. Mr. Davis received his Bachelor of Science in Business Administration and his Master of Business Administration from the University of Southern California.

Tom Redwitz. Mr. Redwitz has served as President of our Southern California subsidiary, Chief Operating Officer and a member of our board of managers since 2010 and, following our formation transactions, will serve as Chief Operating Officer. From 2002 to 2009, Mr. Redwitz served as the President of Laing Luxury Homes, a division of John Laing Homes. Mr. Redwitz is a licensed architect and general contractor. He also served as Division President while at Taylor Woodrow from 1996 to 2002 and worked nearly 10 years as an executive for The Irvine Company. Mr. Redwitz received his Associated Bachelor in Architecture from the University of California, Berkeley.

The following is a summary of certain biographical information concerning key employees.

Kevin Carson. Mr. Carson serves as President of our Northern California subsidiary. Prior to joining us in 2010, Mr. Carson served as President of the Sacramento division of John Laing Homes from 1999 to 2009, where he oversaw the overall operations of that division. Prior to joining John Laing Homes, Mr. Carson held several roles, including Division President of Crosswind Communities, President of the Sacramento division of Ryland Homes, and Vice President of Land Acquisition and Development for Dunmore Homes. Mr. Carson received his Bachelor of Arts in Community and Regional Planning from California State University, Chico and his Master of Arts in Urban Planning from Miami University in Oxford, Ohio.

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Andrew J. Jarvis. Mr. Jarvis serves as President of TNHC Land LLC, our land holding company. Prior to joining us in 2010, Mr. Jarvis served as Vice President of Development and Hospitality for Emaar Properties from 2007 to 2009, Vice President of Land Acquisition and Development for John Lang Homes, Luxury from 2002 to 2007, and Vice President of Land and Planning for Taylor Woodrow Homes from 1995 to 2002. Mr. Jarvis received his Bachelor of Arts in Architectural Engineering from the University of Colorado, Boulder and his Master of Business Administration in Finance from the University of California, Irvine.

Joan Marcus-Colvin. Ms. Marcus-Colvin serves as our Senior Vice President of Sales, Marketing and Design. Prior to joining us in 2010, Ms. Marcus-Colvin served as Senior Director of Interior Design for Emaar Design Studio LLC from 2007 to 2009 and as Vice President of Sales, Marketing and Design for John Laing Homes, Luxury from 2002 to 2007. Ms. Marcus-Colvin holds our California real estate broker’s license. Ms. Marcus-Colvin received her Bachelor of Arts in Political Science from the University of California, Los Angeles.

Robin Koenemann. Mr. Koenemann serves as our Senior Vice President of Operations. Prior to joining us in 2010, Mr. Koenemann served as Vice President of Operations for John Laing Homes, Luxury from 2002 to 2009 and as Vice President of Construction at Capital Pacific Homes/J.M. Peters from 1992 to 2002. Mr. Koenemann currently maintains a California State Contractor’s License “B.” Mr. Koenemann served in the United States Navy from 1975 to 1979.

Mark Kawanami. Mr. Kawanami serves as our Senior Vice President of Finance. Prior to joining us in 2010, Mr. Kawanami served as Vice President of Finance of John Laing Homes from 1998 to 2009. Prior to joining John Laing Homes, Mr. Kawanami held multiple roles, including Vice President of Finance for American Family Communities, Corporate Controller for California Pacific Homes and Director of Finance for Creative Design Consultants. Prior to entering the real estate business, Mr. Kawanami spent 3 years at KPMG where he earned his CPA; he is currently a member (inactive) of the American Institute of Certified Public Accountants. Mr. Kawamani received his Bachelor of Arts in Economics from the University of California, Los Angeles.

Brian Olin. Mr. Olin serves as our Senior Vice President of Land and Planning. Prior to joining us in 2011, Mr. Olin served in various positions, including President of the Bay Area Land Division beginning in 2005, at Lennar Corporation from 1999 to 2011. Mr. Olin received his Bachelor of Science in Economics and Business Administration from Saint Mary’s College of California.

The following is a summary of certain biographical information concerning our non-employee director nominees.

David Berman. Mr. Berman will serve as a member of our board of directors effective upon the completion of this offering. Mr. Berman is Chairman and Chief Executive Officer of Tricon Capital Group Inc., the company he co-founded in 1988. From 1985 to 1988, Mr. Berman served as Executive Vice President of Lakeview Estates Limited, where he was responsible for land development and single-family homebuilding. Prior to 1985, Mr. Berman served as Vice President for real estate acquisitions and equity lending at First City Development Corporation and as Vice President for real estate lending at what is now Citibank Canada. Mr. Berman received his Bachelor of Science and his Master of Business Administration from the University of the Witwatersrand in Johannesburg, South Africa. Mr. Berman’s hands-on experience in the homebuilding business, his extensive background in lending and finance of real estate, his experience in growing a business, his knowledge of our business and his leadership position with one of our institutional investors lead to our conclusion that Mr. Berman should serve as a member of our board of directors.

Douglas C. Neff. Mr. Neff will serve as a member of our board of directors effective upon the completion of this offering. Mr. Neff is a Managing Partner and President of IHP Capital Partners, which positions he has served in since 1992. Mr. Neff also serves as Chairman of IHP Capital Partners’s Investment Committee and has primary responsibility for the company’s operations. From 1985 until the founding of IHP Capital Partners in 1992, Mr. Neff was a Partner of The O’Donnell Group, a regional developer, owner and manager of commercial

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and industrial real estate. Prior to 1985, Mr. Neff was Treasurer of The Irvine Company and a Vice President in the Real Estate Industries Group at Wells Fargo Bank in San Francisco. Mr. Davis received his Bachelor of Arts in American Studies from Amherst College and his Master of Business Administration from the University of Chicago. Mr. Neff’s background in real estate and finance, his extensive experience in real estate transactions, his deep knowledge of our markets, his knowledge of our business and his leadership position with one of our institutional investors lead to our conclusion that Mr. Neff should serve as a member of our board of directors.

Michael J. Berchtold. Mr. Berchtold is a private investor and financial advisor. Mr. Berchtold worked for Morgan Stanley from 1987 to 2007 in a variety of investment banking roles in New York, Los Angeles, Tokyo, Singapore and Hong Kong. For more than 15 years, Mr. Berchtold was based in Asia where he served as Morgan Stanley’s Head of Investment Banking for Asia Pacific for seven years and as President of Asia Pacific for four years. Mr. Berchtold has served on the Board of Visitors and Executive Committee of the UCLA Anderson School of Management since 2007 and also serves on the Advisory Board of the UCLA Anderson Center for Global Management. Mr. Berchtold received his Bachelor of Arts in History from the University of California, Los Angeles and his Master of Business Administration from the Anderson School of Management at the University of California, Los Angeles. Mr. Berchtold’s leadership skills, his finance and capital markets experience, his strategic perspective and his understanding of our business lead to our conclusion that Mr. Berchtold should serve on our board of directors.

J. Scott Watt. Mr. Watt will serve as a member of our board of directors effective upon the completion of this offering. Mr. Watt is President and Chief Executive Officer of the Watt Group Inc. Since 1976, Mr. Watt has served in various capacities for companies affiliated with the Watt Group Inc., including as President of W &B Builders, President of Watt Investment Properties and Senior Vice President of Forward Planning for the Watt Group Inc. Mr. Watt received his undergraduate degree from the University of Southern California and his Master of Education from the University of Miami. Mr. Watt’s broad experience in the homebuilding business, his experience in managing businesses, his knowledge of our business and his leadership position with one of our institutional investors lead to our conclusion that Mr. Watt should serve as a member of our board of directors.

Family Relationships

There are no family relationships among any of our directors or executive officers.

Board of Directors

The number of members of our board of directors will be determined from time-to-time by action of our board of directors. Immediately following the completion of this offering, our board of directors will consist of nine persons. After the completion of this offering, we expect our board of directors to determine that five of our directors, constituting a majority, satisfy the listing standards for independence of the New York Stock Exchange and Rule 10A-3 under the Exchange Act.

Our board of directors believes its members collectively have or will have the experience, qualifications, attributes and skills to effectively oversee the management of our company, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an appreciation of the issues facing our company, a willingness to devote the necessary time to board duties, a commitment to representing the best interests of our company and our stockholders and a dedication to enhancing stockholder value.

Role of our Board of Directors in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors administers this oversight function directly, with support from its standing committees to be established upon the completion of this offering, our audit committee, our compensation committee and our

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nominating and corporate governance committee, each of which will address risks specific to its area of oversight. In particular, our audit committee will have the responsibility to consider and discuss our major financial risk exposures and the steps our management takes to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our audit committee will also monitor compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our compensation committee will assess and monitor whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our nominating and corporate governance committee will provide oversight with respect to corporate governance and ethical conduct and will monitor the effectiveness of our corporate governance guidelines, including whether such guidelines are successful in preventing illegal or improper liability-creating conduct.

Committees of our Board of Directors

Following the completion of this offering, our board will establish four committees: our audit committee, our compensation committee, our nominating and corporate governance committee and our executive committee. Each of these committees will consist of three members, which members, with the exception of the members of the executive committee, satisfy the New York Stock Exchange’s independence standards.

Audit Committee

Upon the completion of this offering, our board of directors will establish an audit committee, which will be comprised of three independent directors,             ,             and             . We expect that our board of directors will determine that each of these members will be “financially literate” under the rules of the New York Stock Exchange.             will serve as the chairperson of the audit committee. Our audit committee, pursuant to its written charter, will, among other matters, oversee (1) our financial reporting, auditing and internal control activities; (2) the integrity and audits of our financial statements; (3) our compliance with legal and regulatory requirements; (4) the qualifications and independence of our independent auditors; (5) the performance of our internal audit function and independent auditors; and (6) our overall risk exposure and management. Duties of the audit committee will also include the following:

• annually review and assess the adequacy of the audit committee charter and the performance of the audit committee;

• be responsible for the appointment, retention and termination of our independent auditors and determine the compensation of our independent auditors;

• review with the independent auditors the plans and results of the audit engagement;

• evaluate the qualifications, performance and independence of our independent auditors;

• have sole authority to approve in advance all audit and non-audit services by our independent auditors, the scope and terms thereof, and the fees therefor;

• review the adequacy of our internal accounting controls;

• meet at least quarterly with our executive officers, internal audit staff and our independent auditors in separate executive sessions; and

• prepare the audit committee report required by SEC regulations to be included in our annual proxy statement.

We expect that             will be designated by our board of directors as our audit committee financial expert, as that term is defined in the rules of the SEC.

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Compensation Committee

Upon the completion of this offering, our board of directors will establish a compensation committee, which will be comprised of three independent directors,             ,             and             , each of whom will be a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.             will serve as the chairperson of our compensation committee. The compensation committee, pursuant to its written charter, will, among other matters:

• assist our board of directors in developing and evaluating potential candidates for executive officer positions and overseeing the development of executive succession plans;

• administer, review and make recommendations to our board of directors regarding our compensation plans, including our 2013 Long-Term Incentive Plan;

• annually review and approve our corporate goals and objectives with respect to compensation for executive officers and, at least annually, evaluate each executive officer’s performance in light of such goals and objectives to set his or her annual compensation, including salary, bonus and equity and non-equity incentive compensation, subject to approval by our board of directors;

• provide oversight of management’s decisions regarding the performance, evaluation and compensation of other officers;

• review our incentive compensation arrangements to confirm that incentive pay does not encourage unnecessary risk-taking and to review and discuss, at least annually, the relationship between risk management policies and practices, business strategy and our executive officers’ compensation;

• assist management in complying with our proxy statement and annual report disclosure requirements;

• discuss with management the compensation discussion and analysis required by SEC regulations; and

• prepare a report on executive compensation to be included in our annual proxy statement.

Our compensation committee will have the authority to retain and terminate any compensation consultant to be used to assist in the evaluation of executive officer compensation.

Nominating and Corporate Governance Committee

Upon the completion of this offering, our board of directors will establish a nominating and corporate governance committee, which will be comprised of three independent directors,             ,             and             .             will serve as the chairperson of our nominating and corporate governance committee. The nominating and corporate governance committee, pursuant to its written charter, will, among other matters:

• identify individuals qualified to become members of our board of directors and ensure that our board of directors has the requisite expertise and its membership consists of persons with sufficiently diverse and independent backgrounds;

• develop, and recommend to our board of directors for its approval, qualifications for director candidates and periodically review these qualifications with our board of directors;

• review the committee structure of our board of directors and recommend directors to serve as members or chairs of each committee of our board of directors;

• review and recommend committee slates annually and recommend additional committee members to fill vacancies as needed;

• develop and recommend to our board of directors a set of corporate governance guidelines applicable to us and, at least annually, review such guidelines and recommend changes to our board of directors for approval as necessary; and

• oversee the annual self-evaluations of our board of directors and management.

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Executive Committee

Upon the completion of this offering, our board of directors will establish an executive committee, which will be comprised of Messrs. Webb, Berchtold and             . Mr. Webb will serve as the chairperson of our executive committee. Our executive committee will have the authority to review and approve any land acquisition with a purchase price of up to $35 million, approve the incurrence of any indebtedness with a principal amount of up to $            , as well as the exercise of any other duties that may be delegated to our executive committee from time to time by our board of directors.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee is, or has ever been, an officer or employee of our company.

Code of Business Conduct and Ethics

Our board of directors will adopt a code of business conduct and ethics that will apply to our officers, directors and any employees. Among other matters, our code of business conduct and ethics will be designed to deter wrongdoing and to promote the following:

• honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;

• full, fair, accurate, timely and understandable disclosure in our communications with and reports to our stockholders, including reports filed with the SEC, and other public communications;

• compliance with applicable governmental laws, rules and regulations;

• prompt internal reporting of violations of the code to appropriate persons identified in the code; and

• accountability for adherence to the code of business conduct and ethics.

Any waiver of the code of business conduct and ethics for our executive officers, directors or any employees may be made only by our nominating and corporate governance committee and will be promptly disclosed as required by law and New York Stock Exchange regulations.

Limitations on Liabilities and Indemnification of Directors and Officers

For information concerning limitations of liability and indemnification applicable to our directors and officers, see “Description of Capital Stock—Limitations on Liability, Indemnification of Officers and Directors and Insurance.”

Director Compensation

For a discussion of our director compensation arrangements, see “Executive and Director Compensation—Director Compensation.”

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EXECUTIVE AND DIRECTOR COMPENSATION

Fiscal 2012 Summary Compensation Table

The following table summarizes information regarding the compensation awarded to, earned by or paid to H. Lawrence Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer and Thomas Redwitz, our Chief Operating Officer. We refer to these individuals in this section as our named executive officers.

Name and Principal Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)		All Other Compensation ($)		Total ($)
H. Lawrence Webb		2012	$	350,000		—		—		—	$	350,000
Chief Executive Officer
Wayne Stelmar		2012	$	350,000		—		—		—	$	350,000
Chief Financial Officer
Joseph Davis		2012	$	350,000		—		—		—	$	350,000
Chief Investment Officer
Thomas Redwitz		2012	$	350,000		—		—		—	$	350,000
Chief Operating Officer

Narrative to Summary Compensation Table

Our named executive officers are currently party to employment agreements with us that will be terminated upon completion of this offering. As discussed below under “—Employment Agreements,” upon the completion of this offering, we will enter into new employment agreements with each of our named executive officers.

Employment Agreements

Effective upon the completion of this offering, we will enter into employment agreements with each of Messrs. Webb, Stelmar, Davis and Redwitz. The employment agreements will have an initial term expiring on the              anniversary of the effective date of the employment agreement. Each employment agreement will provide for automatic             -year extensions after the expiration of the initial term, unless either party provides the other with at least             days’ prior written notice of non-renewal. The employment agreements will require each named executive officer to dedicate his full business time and attention to the affairs of our company.

The employment agreements will provide for, among other things:

• an annual base salary of $            , $            , $            and $            , respectively, for Messrs. Webb, Stelmar, Davis and Redwitz;

• eligibility for annual cash performance bonuses equal to a target bonus based on the satisfaction of performance goals to be established by our compensation committee;

• participation in our 2013 Long-Term Incentive Plan and any subsequent equity incentive plans approved by our board of directors; and

• participation in any employee benefit plans and programs that are maintained from time to time for our other senior executive officers, including life insurance coverage with an aggregate death benefit equal to $            million.

The employment agreements will contain customary non-competition provisions that apply until            and non-solicitation provisions that apply during the term of the agreements and for            years after the termination of their employment if their employment is terminated by us for “cause” (as defined in the employment agreements) or if they terminate their employment without “good reason” (as defined in the employment agreements) or            years after the termination of their employment if we terminate their employment without

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cause of if they terminate their employment for good reason or due to disability. The employment agreements also will contain standard confidentiality provisions that apply during the term of the agreements and for            years after the termination of their employment.

We may terminate the employment of a named executive officer at any time with or without cause, and the executive may terminate his employment with or without good reason. If we terminate a named executive officer’s employment for cause, or if the named executive officer resigns without good reason, the named executive officer will be entitled to receive any earned but unpaid annual base salary, any earned but unpaid prior-year bonus, reimbursement of expenses incurred prior to the date of termination, accrued vacation and any other paid-time-off and any benefits that have been earned and accrued prior to the date of termination. In addition, any outstanding awards granted to the named executive officer under our 2013 Long-Term Incentive Plan or any subsequent equity incentive plan approved by our board of directors will vest, terminate or become exercisable, as the case may be, in accordance with their terms.

If we terminate a named executive officer’s employment without cause or if the named executive officer terminates his employment agreement for good reason or due to disability or death, the named executive officer will be entitled to the severance benefits described below. The severance benefits include the following:

• in each case, the named executive officer will be entitled to receive any earned but unpaid annual base salary, any earned but unpaid prior-year bonus, reimbursement of expenses incurred prior to the date of termination, accrued vacation and any other paid-time-off and any benefits that have been earned and accrued prior to the date of termination;

• in each case, we shall reimburse the COBRA premium under our health and dental plans; and

• if the termination is not due to disability or death, the named executive officer will be entitled to receive a cash payment in an amount equal to the sum of (1) the named executive officer’s            months’ annual base salary, plus (2) the average actual bonus earned annually by the named executive officer during the previous calendar years.

Director Compensation

For the fiscal year ended December 31, 2012, members of the board of managers of TNHC LLC received no compensation for services rendered as such members.

Upon the completion of this offering, our board of directors will establish a compensation program for our non-employee directors. Pursuant to this compensation program, we will pay the following fees to each of our non-employee directors:

• an annual retainer of $            at least half of which will be in the form of restricted stock units (priced based upon the closing price on the date of grant) or options (priced based upon a Black-Scholes valuation), in the discretion of the directors, with such restricted stock units and/or options vesting on the -year anniversary of the date of grant; directors may elect to receive more than %of their annual retainer in restricted stock units and/or options;

• $            for each in-person meeting attended (although if more than one meeting occurs on one day, directors will receive only $            );

• an initial grant of $            of restricted stock units upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus), which restricted stock units will vest in equal installments annually over three years. The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering. Once vested, the restricted stock units will be settled for an equal number of shares of our common stock;

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• an additional annual cash retainer of $            to the chair of our audit committee and an additional cash retainer of $            for the other members of the audit committee;

• an additional annual cash retainer of $            to the chair of our compensation committee and an additional cash retainer of $            for the other members of such committee; and

• an additional annual cash retainer of $            to the chair of our nominating and corporate governance committee and an additional cash retainer of $            for the other members of such committee.

We will also reimburse our non-employee directors for reasonable out-of-pocket expenses incurred in connection with the performance of their duties as directors, including without limitation travel expenses in connection with their attendance in-person at board and committee meetings. Pursuant to our 2013 Long-Term Incentive Plan, any non-employee director elected or appointed to our board of directors for the first time following the completion of this offering will receive an initial grant of $            of restricted stock units, which restricted stock units will vest in equal installments annually over three years. Once vested, the restricted stock units will be settled for an equal number of shares of our common stock. Directors who are employees will not receive any compensation for their services as directors.

Director Stock Ownership Requirement

Each of our independent directors (other than            ) will be required, within            years of becoming a member of our board, to own shares of our common stock equal to            times the annual retainer payable to our non-employee directors by the director’s            anniversary of joining our board.

2013 Long-Term Incentive Plan

Prior to the completion of this offering, our board will have adopted, and our stockholders will have approved, our 2013 Long-Term Incentive Plan to attract and retain directors, officers, employees and consultants. Our 2013 Long-Term Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, common stock, restricted stock, restricted stock units and performance awards.

Administration of our 2013 Long-Term Incentive Plan and Eligibility

Our 2013 Long-Term Incentive Plan will be administered by our compensation committee, which may delegate certain of its authority under our 2013 Long-Term Incentive Plan to our board of directors or, subject to applicable law, to our Chief Executive Officer or such other executive officer as our compensation committee deems appropriate; provided, that our compensation committee may not delegate its authority under our 2013 Long-Term Incentive Plan to our Chief Executive Officer or any other executive officer with regard to the selection for participation in our 2013 Long-Term Incentive Plan of an officer, director or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, price or amount of an award to such an officer, director or other person.

Our compensation committee has the authority to make awards to eligible participants, which includes our officers, directors, employees and consultants, and persons expected to become our officers, directors, employees or consultants. Our compensation committee also has the authority to determine what form the awards will take, the amount and timing of the awards and all other terms and conditions of the awards. Our compensation committee has reserved the right to amend or replace any previously granted option or stock appreciation right without stockholder approval in a manner that is considered a repricing under stock exchange listing rules.

Share Authorization

The number of shares of our common stock that may be issued under our 2013 Long-Term Incentive Plan is            shares, of which no more than            shares of our common stock in the aggregate may be issued in

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connection with incentive stock options (which generally are stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)). The number of shares of our common stock available under our 2013 Long-Term Incentive Plan shall be reduced by the sum of the aggregate number of shares of common stock which become subject to outstanding options, outstanding stock appreciation rights, outstanding stock awards and outstanding performance-related awards. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under our 2013 Long-Term Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under our 2013 Long-Term Incentive Plan.

In the event of any equity restructuring that causes the per share value of shares of our common stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary dividend, then our compensation committee will appropriately adjust the number and class of securities available under our 2013 Long-Term Incentive Plan and the terms of each outstanding award under our 2013 Long-Term Incentive Plan. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization or partial or complete liquidation, our compensation committee may make such equitable adjustments as it determines to be appropriate and equitable to prevent dilution or enlargement of rights of participants. The decision of our compensation committee regarding any such adjustment shall be final, binding and conclusive.

Stock Options

Our 2013 Long-Term Incentive Plan authorizes the grant of incentive stock options and options that do not qualify as incentive stock options, except that incentive stock options will be granted only to persons who are our employees or employees of one of our subsidiaries, in accordance with Section 422 of the Code. The exercise price of each option will be determined by our compensation committee, provided that the price cannot be less than 100% of the fair market value of the shares of our common stock on the date on which the option is granted (or 110% of the shares’ fair market value on the grant date in the case of an incentive stock option granted to an individual who is a “ten percent stockholder” under Sections 422 and 424 of the Code). The term of an option cannot exceed ten years from the date of grant (or five years in the case of an incentive stock option granted to a “ten percent stockholder”).

Stock Appreciation Rights

Our 2013 Long-Term Incentive Plan authorizes the grant of stock appreciation rights. A stock appreciation right provides the recipient with the right to receive, upon exercise of the stock appreciation right, cash, shares of our common stock or a combination of the two. The amount that the recipient will receive upon exercise of the stock appreciation right generally will equal the excess of the fair market value of the shares of our common stock on the date of exercise over the shares’ fair market value on the date of grant. Stock appreciation rights will become exercisable in accordance with terms determined by our compensation committee. Stock appreciation rights may be granted in tandem with an option grant or as independent grants. The term of a stock appreciation right cannot exceed, in the case of a tandem stock appreciation right, the expiration, cancellation or other termination of the related option and, in the case of a free-standing stock appreciation right, ten years from the date of grant.

Stock Awards

Our 2013 Long-Term Incentive Plan also provides for the grant of common stock, restricted stock and restricted stock units. Our compensation committee will determine the number of shares of common stock subject to a restricted stock award or restricted stock unit and the restriction period, performance period (if any), the performance measures (if any) and the other terms applicable to a restricted stock award under our 2013 Long-Term Incentive Plan. A restricted stock unit confers on the participant the right to receive one share of

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common stock or, in lieu thereof, the fair market value of such share of common stock in cash. The holders of awards of restricted stock will be entitled to receive dividends, and the holders of awards of restricted stock units may be entitled to receive dividend equivalents.

Performance Awards

Our 2013 Long-Term Incentive Plan also authorizes the grant of performance awards. Performance awards represent the participant’s right to receive an amount of cash, shares of our common stock, or a combination of both, contingent upon the attainment of specified performance measures within a specified period. Our compensation committee will determine the applicable performance period, the performance goals and such other conditions that apply to the performance award.

Change in Control

Subject to the terms of the applicable award agreement, upon a “change in control” (as defined in our 2013 Long-Term Incentive Plan), our compensation committee may, in its discretion, determine whether some or all outstanding options and stock appreciation rights shall become exercisable in full or in part, whether the restriction period and performance period applicable to some or all outstanding restricted stock awards and restricted stock unit awards shall lapse in full or in part and whether the performance measures applicable to some or all outstanding awards shall be deemed to be satisfied. Our compensation committee may further require that shares of stock of the corporation resulting from such a change in control, or a parent corporation thereof, be substituted for some or all of our shares of common stock subject to an outstanding award and that any outstanding awards, in whole or in part, be surrendered to us by the holder, to be immediately cancelled by us, in exchange for a cash payment, shares of capital stock of the corporation resulting from or succeeding us or a combination of both cash and such shares of stock.

Termination; Amendment

Our 2013 Long-Term Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend our 2013 Long-Term Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation. Our compensation committee may amend the terms of any outstanding award under our 2013 Long-Term Incentive Plan at any time. No amendment or termination of our 2013 Long-Term Incentive Plan or any outstanding award may adversely affect any of the rights of an award holder without the holder’s consent.

Initial Awards

Upon the completion of this offering, we will grant the following awards under our 2013 Long-Term Incentive Plan to the members of our management team, other officers and employees and our director nominees. In determining the initial awards to be granted, consideration was given to the form and amount of awards typically granted in connection with initial public offerings and the recommendations of Semler, Brossy Consulting Group, LLC, a compensation consultant that has been retained to assist us in making such determinations.

• Each of Messrs. H. Lawrence Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer and Thomas Redwitz, our Chief Operating Officer will be granted options to purchase            shares of our common stock (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus), which options will vest on the third anniversary of the date of grant, and which options will expire in            years. The actual strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering.

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• Our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees will be granted an aggregate of $            million of restricted stock units (or an aggregate of            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus) and options to purchase            shares of our common stock (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus), which restricted stock units and options will vest ratably over            years, and which options will expire in            years. The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering. Once vested, the restricted stock units will be settled for an equal number of shares of our common stock.

• Each of our director nominees will be granted $            of restricted stock units (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus), which restricted stock units will vest ratably over            years. The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering. Once vested, the restricted stock units will be settled for an equal number of shares of our common stock.

Registration Statement on Form S-8

Shortly after this offering, we intend to file a registration statement on Form S-8 to register the total number of shares of our common stock that may be issued under our 2013 Long-Term Incentive Plan, including the restricted stock units to be granted to the members of our management team, other officers and employees and our director nominees, as well as the options to purchase shares of our common stock to be granted to the members of our management team, in each case upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan.

Rule 10b5-1 Sales Plan

Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate a Rule 10b5-1 plan in some circumstances. Our directors and executive officers also may buy or sell additional shares outside a Rule 10b5-1 plan when they are not in possession of material nonpublic information, subject to compliance with the terms of our policy on insider trading and communications with the public. Our directors and executive officers may not establish any such plan prior to the expiration of the lock-up agreements described under “Underwriting.”

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Upon the completion of this offering, our executive officers, directors, director nominees and other related parties will receive material financial and other benefits, including the following:

Employment Agreements

H. Lawrence Webb, Wayne Stelmar, Joseph Davis and Thomas Redwitz will serve as our Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and Chief Operating Officer, respectively. Upon the completion of this offering, we will enter into employment agreements with each of these officers, which employment agreements will provide for salary, bonus and other benefits and severance upon a termination of employment under certain circumstances. We may enter into similar employment arrangements with certain executive officers that we hire in the future. See “Executive and Director Compensation—Employment Agreements” for a description of the material terms of the employment agreements.

Grants Under our 2013 Long-Term Incentive Plan

Each of Messrs. H. Lawrence Webb, our Chief Executive Officer, Wayne Stelmar, our Chief Financial Officer, Joseph Davis, our Chief Investment Officer and Thomas Redwitz, our Chief Operating Officer, will be granted options to purchase            shares of our common stock (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus) upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan, which options will vest ratably on the third anniversary of the date of grant, and which options will expire in            years. The actual strike price and the number of shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering.

Our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees will be granted an aggregate of            million of restricted stock units (or an aggregate of            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus) and options to purchase              shares of our common stock (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus) upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan, which restricted stock units and options will vest ratably over            years and which options will expire in            years. The actual number of restricted stock units and the strike price and the number of shares subject to options will be based upon the price at which the shares are sold to the public in this offering. Once vested, the restricted stock units will be settled for an equal number of shares of our common stock.

Each of our director nominees will be granted $            of restricted stock units (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus), upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan, which restricted stock units will vest ratably over            years. The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering. Once vested, the restricted stock units will be settled for an equal number of shares of our common stock.

Indemnification Agreements

Upon the completion of this offering, we will enter into an indemnification agreement with each of our officers and directors. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. See “Description of Capital Stock—Limitations on Liability, Indemnification of Officers and Directors and Insurance.”

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Registration Rights

We will enter into a registration rights agreement with the members of TNHC LLC, including the members of our management team, with respect to the shares of our common stock that they will receive as part of our formation transactions. We refer to these shares collectively as the “registrable shares.” Pursuant to the registration rights agreement, we will grant the members of TNHC LLC and their direct and indirect transferees shelf registration rights requiring us to file a shelf registration statement and to maintain the effectiveness of such registration statement so as to allow sales thereunder from time to time, demand registration rights to have the resale of the registrable shares registered, and, in certain circumstances, the right to “piggy-back” the registrable shares in registration statements we might file in connection with certain future public offerings.

Notwithstanding the foregoing, any registration will be subject to cutback provisions, and we will be permitted to suspend the use, from time to time, of the prospectus that is part of the registration statement (and therefore suspend sales under the registration statement) for certain periods, referred to as “blackout periods.”

Joint Ventures

During the years ended December 31, 2012 and 2011, we incurred construction-related costs on behalf of our unconsolidated joint ventures totaling $2,231,559 and $411,235, respectively. As of December 31, 2012 and 2011, $51,160 and $40,549 are reflected as due from affiliates in our consolidated balance sheets, respectively.

We have entered into agreements with our unconsolidated joint ventures to provide management services related to the underlying projects. Pursuant to such management agreements, we receive overhead fees based on each project’s revenues. During the years ended December 31, 2012 and 2011, we earned and received $2,949,365 and $844,411, respectively, in overhead fees, which have been recorded as fee building revenue in our consolidated statements of operations.

During the year ended December 31, 2012, we received $113,563 from one of our unconsolidated joint ventures for certain loan guaranties provided over a 12-month period by us on behalf of the unconsolidated joint venture. We deferred these fees as unearned income at the point the guarantee was executed and the cash was received. For the year ended December 31, 2012, we have recognized $85,172 of these fees as guarantee fee income, in our consolidated statements of operations. As of December 31, 2012, the remaining deferred portion of the fees was $28,391, which is reflected as deferred income from affiliate in our consolidated balance sheets.

IHP, one of TNHC LLC’s members and, subsequent to the completion of our formation transactions, one of our shareholders, issued an unsecured promissory note to us on December 13, 2012. The note provides for a commitment of $5,500,000, of which $1,000,000 had been funded as of December 31, 2012 and is included in notes payable to member in our consolidated balance sheets. The note bears interest at 14% per annum and matures on June 13, 2013.

Investor Rights Agreement

Pursuant to an investor rights agreement that we will enter into with our non-management institutional investors prior to the completion of this offering, each non-management institutional investor will have the right to nominate one member of our board for as long as it owns 4% or more of our outstanding common stock (excluding shares of common stock that are subject to issuance upon the exercise or exchange of rights of conversion or any options, warrants or other rights to acquire shares). Each non-management institutional investor will agree to vote all shares of our common stock that it owns in favor of Messrs. Webb or Berchtold in any election in which Messrs. Webb or Berchtold is a director nominee, and each of Messrs. Webb, Stelmar, Davis and Redwitz will agree to vote all shares of our common stock that he owns in favor of the nominees of the non-management institutional investors in any election of directors in which a non-management institutional investor nominee is a director nominee for as long as such non-management institutional investor owns at least 4%.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock immediately prior to and immediately after the completion of this offering by (1) each of our directors and director nominees, (2) each of our executive officers, (3) all of our directors, director nominees and executive officers as a group, (4) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock and (5) our institutional investors.

To our knowledge, each person named in the table has sole voting and investment power with respect to all of the securities shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. The number of securities shown represents the number of securities the person “beneficially owns,” as determined by the rules of the SEC. The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over that security. A security holder is also deemed to be, as of any date, the beneficial owner of all securities over which such security holder has the right to acquire voting or investment power within 60 days after that date, including through (1) the exercise of any option, warrant or right, (2) the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination of a trust, discretionary account or similar arrangement.

The percentages reflect beneficial ownership immediately prior to and immediately after the completion of this offering as determined in accordance with Rule 13d-3 under the Exchange Act and are based on            shares of our common stock outstanding as of the date immediately prior to the completion of this offering and            shares of our common stock outstanding as of the date immediately following the completion of this offering, in each case after giving effect to our formation transactions. Our institutional investors have granted the underwriters an option to purchase up to            additional shares of our common stock. Except as noted below, the address for all beneficial owners in the table below is 95 Enterprise, Suite 325, Aliso Viejo, California 92656.

	Amount and Nature of Beneficial Ownership
	Immediately Prior to this Offering					Immediately After this Offering(1)		Immediately After this Offering (Assuming Full Exercise of the Underwriters’ Option to Purchase Additional Shares)
Name and Address of Beneficial Owner	Shares Beneficially Owned		Percentage			Shares Beneficially Owned	Percentage	Shares Beneficially Owned	Percentage
H. Lawrence Webb (1)(2)(3)
Wayne Stelmar (1)(2)(4)		—
Joseph Davis (1)(2)(5)		—
Thomas Redwitz (1)(2)(6)		—
David Berman (7)(13)		—
Douglas C. Neff (8)(11)
Michael Berchtold (9)
J. Scott Watt (10)(12)
All directors, director nominees and executive officers as a group (     persons) (3)(4)(5)(6)(7)(8)(9)(10)
More than 5% Stockholders and Selling Stockholders:
TNHC Partners LLC (1)(2)				25	%
IHP Capital Partners VI, LLC (11)				25	%
Watt/TNHC LLC (12)				25	%
TCN/TNHCLP (7)(13)				25	%

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* Represents less than 1% of the number of shares of our common stock outstanding.

⁽¹⁾  As part of our formation transactions, the members of TNHC LLC will receive an aggregate of            shares of our common stock in connection with the exchange of their membership interest in TNHC LLC. The members of TNHC LLC include an entity owned by our executive management team and our three non-management institutional investors. See “Note Regarding Ownership of Shares Reflected in this Prospectus.”

⁽²⁾  Messrs. Webb, Stelmar, Davis and Redwitz are the only members of TNHC Partners LLC and may be deemed to share voting power and dispositive power over the shares of our common stock owned by TNHC Partners LLC. Each of Messrs. Webb, Stelmar, Davis and Redwitz disclaims beneficial ownership of the shares of our common stock owned by TNHC Partners LLC except to the extent of any pecuniary interest therein. The address of TNHC Partners LLC is c/o The New Home Company Inc., 95 Enterprise, Suite 325, Aliso Viejo, California 92656.

⁽³⁾  Excludes            shares of our common stock issuable upon the exercise of options to be granted to Mr. Webb upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual strike price and number of shares subject to options will be based upon the price at which the shares are sold to the public in this offering.

⁽⁴⁾  Excludes            shares of our common stock issuable upon the exercise of options to be granted to Mr. Stelmar upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual strike price and number of shares subject to options will be based upon the price at which the shares are sold to the public in this offering.

⁽⁵⁾  Excludes             shares of our common stock issuable upon the exercise of options to be granted to Mr. Davis upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual strike price and number of shares subject to options will be based upon the price at which the shares are sold to the public in this offering.

⁽⁶⁾  Excludes             shares of our common stock issuable upon the exercise of options to be granted to Mr. Redwitz upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (with a strike price based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual strike price and number of shares subject to options will be based upon the price at which the shares are sold to the public in this offering.

⁽⁷⁾  Excludes $            million of restricted stock units to be granted to Mr. Berman upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering. Mr. Berman is Chairman and Chief Executive Officer of Tricon Capital Group, Inc., one of our non-management institutional investors.

⁽⁸⁾  Excludes $            million of restricted stock units to be granted to Mr. Neff upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering. Mr. Neff is a Managing Partner and President of IHP Capital Partners, one of our non-management institutional investors.

⁽⁹⁾  Excludes $            million of restricted stock units to be granted to Mr. Berchtold upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual number of restricted stock units will be based upon the price at which the shares are sold to the public in this offering.

⁽¹⁰⁾  Excludes $            million of restricted stock units to be granted to Mr. Watt upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan (or            restricted stock units based upon the midpoint of the price range set forth on the cover page of this prospectus). The actual number of restricted

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stock units will be based upon the price at which the shares are sold to the public in this offering. Mr. Watt is President and Chief Executive Officer of Watt Group Inc., one of our non-management institutional investors.

⁽¹¹⁾              has voting and dispositive power over the shares of our common stock held by IHP Capital Partners VI LLC.            disclaims beneficial ownership of the shares of our common stock owned by IHP Capital Partners VI LLC except to the extent of any pecuniary interest therein. The address of IHP Capital Partners VI LLC is c/o The New Home Company Inc., 95 Enterprise, Suite 325, Aliso Viejo, California 92656.

⁽¹²⁾              has voting and dispositive power over the shares of our common stock held by Watt/TNHC LLC.             disclaims beneficial ownership of the shares of our common stock owned by Watt/TNHC LLC except to the extent of any pecuniary interest therein. The address of Watt/TNHC LLC is c/o The New Home Company Inc., 95 Enterprise, Suite 325, Aliso Viejo, California 92656.

⁽¹³⁾              has voting and dispositive power over the shares of our common stock held by TCN/TNHC LP.            disclaims beneficial ownership of the shares of our common stock owned by TCN/TNHC LP except to the extent of any pecuniary interest therein. The address of TCN/TNHC LP is c/o The New Home Company Inc., 95 Enterprise, Suite 325, Aliso Viejo, California 92656.

Note Regarding Ownership of Shares Reflected in this Prospectus

As part of our formation transactions, the members of TNHC LLC will receive an aggregate of            shares of our common stock in connection with the exchange of their membership interests in TNHC LLC. The members of TNHC LLC include an entity owned by our executive management team and our three non-management institutional investors. In accordance with the TNHC LLC operating agreement, the allocation of shares of our common stock to be received by the respective members of TNHC LLC as part of our formation transaction depends upon the value per share of our common stock in this offering. The allocation of shares among the members of TNHC LLC reflected in this prospectus is for illustrative purposes and is based upon the midpoint of the price range set forth on the cover page of this prospectus. The actual allocation of shares among the members of TNHC LLC will be based upon the initial public offering price. Such allocation will not change the aggregate number of shares of common stock received by members of TNHC LLC as part of our formation transactions and only effects how many shares are allocated to each respective member.

Assuming an offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, the number of shares allocated to the entity owned by our executive management team would be            shares and the number of shares allocated to our non-management institutional investors would be            shares. If the initial public offering price of shares of common stock in our initial public offering is $1.00 higher than the midpoint (or $            per share), our executive management team will be allocated            shares and our non-management institutional investors will be allocated            shares. If the initial public offering price of shares of common stock is $1.00 lower than the midpoint (or $            per share), our executive management team will be allocated            shares and our non-management institutional investors will be allocated            shares.

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DESCRIPTION OF CAPITAL STOCK

The following description is intended as a summary of our certificate of incorporation (which we refer to as our “charter”) and our bylaws, which will become effective prior to the completion of this offering and the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of the DGCL.

General

Prior to the completion of this offering, TNHC LLC will be converted from a Delaware limited liability company into a Delaware corporation and renamed The New Home Company Inc. and the members of TNHC LLC will receive an aggregate of            shares of our common stock in connection with the conversion of their membership interests in TNHC LLC. Upon the completion of this offering and our formation transactions, our authorized capital stock will consist of 500,000,000 shares of common stock, par value of $0.01 per share, and 50,000,000 shares of preferred stock. Immediately prior to this offering, after giving effect to our formation transactions, there will be            shares of our common stock outstanding. Upon the completion of this offering, as a result of the issuance of            shares in this offering by us, there will be            shares of our common stock issued and outstanding (assuming that the underwriters do not exercise their option to purchase additional shares) and no shares of preferred stock issued and outstanding.

Common Stock

Shares of our common stock have the following rights, preferences and privileges:

• Voting Rights. Each outstanding share of common stock entitles its holder to one vote on all matters submitted to a vote of our stockholders, including the election of directors. There are no cumulative voting rights. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes cast by the shares of common stock present in person or represented by proxy and entitled to vote.

• Dividends. Subject to the rights of the holders of any preferred stock which may be outstanding from time to time, the holders of common stock are entitled to receive dividends as, when and if dividends are declared by our board of directors out of assets legally available for the payment of dividends. We currently intend to retain our future earnings, if any, to finance the development and expansion of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments and such other factors as our board of directors deems relevant.

• Liquidation. In the event of a liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, after payment of our liabilities and obligations to creditors and any holders of preferred stock, our remaining assets, if any, will be distributed ratably among the holders of shares of common stock on a per share basis.

• Rights and Preferences. Our common stock has no preemptive, redemption, conversion or subscription rights. The rights, powers, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

• Merger. In the event we merge or consolidate with or into another entity, holders of each share of common stock generally will be entitled to receive the same per share consideration.

We intend to apply to list the shares of our common stock on the New York Stock Exchange under the symbol “NWHM.”

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Preferred Stock

Our charter will provide that our board of directors has the authority, without action by the stockholders, to designate and issue up to 50,000,000 shares of preferred stock in one or more classes or series and to fix the powers, rights, preferences and privileges of each class or series, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any class or series. The rights fixed as to any class or series of preferred stock may be greater than the rights of the holders of the common stock. There will be no shares of preferred stock outstanding immediately after the completion of this offering. Any issuance of shares of preferred stock could adversely affect the voting power and liquidation rights of holders of common stock, and the likelihood that the holders will receive dividend payments and payments upon liquidation could have the effect of delaying, deferring or preventing a change in control that might otherwise be favorable to our common stockholders. We have no present plans to issue any shares of preferred stock.

Anti-Takeover Effects of Our Charter, Our Bylaws and Delaware Law

Some provisions of Delaware law and our charter and bylaws will contain provisions that could have the effect of delaying, deterring or preventing another party from acquiring or seeking to acquire control of us. These provisions are intended to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage anyone seeking to acquire control of us to negotiate first with our board of directors. However, these provisions may also delay, deter or prevent a change in control or other takeover of our company that our stockholders might consider to be in their best interests, including transactions that might result in a premium being paid over the market price of our common stock, and also may limit the price that investors are willing to pay in the future for our common stock. These provisions may also have the effect of preventing changes in our management.

Our charter will divide our board of directors into three classes. The initial term of the directors who are members of Class 1 will expire in 2014, the initial term of the directors who are members of Class 2 will expire in 2015, and the initial term of the Class 3 directors will expire in 2016. Beginning in 2014, our stockholders will elect directors for three year terms upon the expiration of their current terms. Our stockholders will elect only one class of directors each year. We believe that classification of our board of directors will help to assure the continuity of our business strategies and policies. The classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of our stockholders will generally be required to effect a change in a majority of our board of directors.

Our Charter and Bylaws

Our charter and bylaws will include anti-takeover provisions that:

• divide our directors into three classes, with the term of one class expiring each year, which could delay a change in our control;

• authorize our board of directors, without further action by the stockholders, to issue up to 50,000,000 shares of preferred stock in one or more classes or series, and to fix the number of shares constituting each class or series and establish the rights and other terms of that class or series;

• require that actions to be taken by our stockholders may be taken only at an annual or special meeting of our stockholders and not by written consent;

• specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors or our chief executive officer;

• establish advance notice procedures for stockholders to submit nominations of candidates for election to our board of directors and other proposals to be brought before a stockholders’ meeting;

• provide that our bylaws may be amended by our board of directors without stockholder approval;

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• allow our directors to establish the size of our board of directors by action of our board, subject to a minimum of three members;

• provide that vacancies on our board of directors or newly created directorships resulting from an increase in the number of our directors may be filled only by a majority of directors then in office, even though less than a quorum;

• do not give the holders of our common stock cumulative voting rights with respect to the election of directors; and

• prohibit us from engaging in certain business combinations with any “interested stockholder” unless specified conditions are satisfied as described below under “—Business Combinations.”

Business Combinations

We have opted out of Section 203 of the DGCL, which regulates corporate takeovers. However, our charter contains provisions that are similar to Section 203 of the DGCL. Specifically, our charter provides that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the person became an interested stockholder, unless:

• prior to the time that person became an interested stockholder, our board of directors approved either the business combination or the transaction which resulted in the person becoming an interested stockholder;

• upon consummation of the transaction which resulted in the person becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding certain shares; or

• at or subsequent to the time the person became an interested stockholder, the business combination is approved by our board of directors and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.

Generally, a business combination includes a merger, consolidation, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an interested stockholder is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our voting stock. This provision could prohibit or delay mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us in transactions that may otherwise be favorable to our stockholders.

Limitations on Liability, Indemnification of Officers and Directors and Insurance

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our charter and bylaws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as our director or officer, or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. Our charter and bylaws also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the DGCL. We are also expressly authorized to carry directors’ and officers’ insurance to protect us, our directors, officers and certain employees for some liabilities. The limitation of liability and indemnification provisions in our charter may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief, such as injunction or rescission, in the event of a breach of a director’s duty of care. The provisions will

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also not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding against any of our directors, officers or employees for which indemnification is sought.

We expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.

Upon the completion of this offering, we will enter into an indemnification agreement with each of our officers and directors. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We believe that the limitation of liability and indemnification provisions in our charter and bylaws and the indemnification agreements will facilitate our ability to continue to attract and retain qualified individuals to serve as directors and officers.

Authorized but Unissued Shares

Our authorized but unissued shares of common stock will be available for future issuance without your approval. We may use additional shares for a variety of purposes, including future offerings to raise additional capital, to fund acquisitions and as employee compensation. The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Transfer Agent and Registrar

The transfer agent and registrar for the shares of our common stock will be American Stock Transfer & Trust Company, LLC.

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SHARES ELIGIBLE FOR FUTURE SALE

General

Upon the completion of this offering, we will have outstanding         shares of our common stock.

Of these shares, the         shares sold in this offering (            shares if the underwriters fully exercise their option to purchase additional shares) will be freely transferable without restriction or further registration under the Securities Act, except any shares held or acquired by our affiliates. The remaining         shares of our common stock issued as part of our formation transactions (         shares if the underwriters fully exercise their option to purchase additional shares) will be “restricted shares” as defined in Rule 144 of the Securities Act.

Prior to this offering, there has been no market for shares of our common stock. Although we intend to apply to list the shares of our common stock on the New York Stock Exchange under the symbol “NWHM,” an active trading market for the shares of our common stock may never develop or if one develops, it may not be sustained following this offering. No assurance can be given as to (1) the likelihood that an active market for common stock will develop, (2) the liquidity of any such market, (3) the ability of the stockholders to sell their shares or (4) the prices that stockholders may obtain for any of their shares. No prediction can be made as to the effect, if any, that future sales of shares of our common stock, or the availability of shares of our common stock for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock.”

Rule 144

After giving effect to our formation transactions and this offering,         shares of our outstanding common stock (or, if the underwriters fully exercise their option to purchase additional shares,         shares) will be “restricted securities” under the meaning of Rule 144 under the Securities Act, and may not be sold in the absence of registration under the Securities Act or an exemption from registration, including the exemption provided by Rule 144.

In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale of restricted securities for which a six-month holding period has elapsed since the restricted securities were acquired from us or any of our affiliates may sell those securities, subject only to the availability of current public information about us. After a one-year holding period has elapsed, such a non-affiliated person may sell those restricted securities without further restriction under Rule 144.

Generally, an affiliate of ours who holds restricted securities for which a six-month holding period has elapsed may sell those restricted securities pursuant to Rule 144, except that:

• the number of securities sold, when taken together with the number of securities sold by that affiliate and certain related persons within the preceding three months, does not exceed the greater of:

• 1% of the shares of our common stock then outstanding, which will equal approximately         shares immediately after this offering; or

• the average weekly trading volume of our common stock on the New York Stock Exchange during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC;

• we must have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and have filed all required reports (other than current reports on Form 8-K) during that time period; and

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• certain manner-of-sale and notice provisions are satisfied.

The         shares of our common stock that will be outstanding immediately before this offering will become eligible for sale, pursuant to Rule 144, without registration, approximately as follows:

•         shares of common stock will become eligible for sale in the public market under Rule 144, beginning 90 days after the effective date of the registration statement relating to this prospectus, subject to the volume limitation, public notice, manner-of-sale and current public information requirements of Rule 144; and

• the remaining shares         of common stock will become eligible under Rule 144 for sale in the public market from time to time after the effective date of the registration statement relating to this prospectus upon expiration of their applicable holding periods, subject to the volume limitation, public notice, manner-of-sale and current public information requirements of Rule 144.

The above does not override the contractual restrictions on sales pursuant to the lock-up agreements described below.

2013 Long-Term Incentive Plan

We have adopted an equity incentive plan. The number of shares of our common stock that may be issued under our 2013 Long-Term Incentive Plan is         shares. Assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, upon the completion of this offering, we expect to grant an aggregate of         restricted stock units to our officers (other than Messrs. Webb, Stelmar, Davis and Redwitz) and employees and our director nominees, as well as options to purchase an aggregate of shares of our common stock to the members of our management team, other officers and employees, in each case pursuant to our 2013 Long-Term Incentive Plan. The actual number of restricted stock units and the strike price and the number of         shares of common stock subject to options will be based upon the price at which the shares are sold to the public in this offering. We expect to have         shares of our common stock reserved for future issuance under our 2013 Long-Term Incentive Plan. For a description of our 2013 Long-Term Incentive Plan and the initial awards to be made pursuant to such plan, see “Executive and Director Compensation—2013 Long-Term Incentive Plan.”

Shortly after this offering, we intend to file a registration statement on Form S-8 to register the issuance of the total number of shares of our common stock that may be issued under our 2013 Long-Term Incentive Plan, including shares of common stock issuable upon the vesting of the restricted stock units to be granted to the members of our management team, other officers and employees and our director nominees, as well as the shares of our common stock issuable upon exercise of the options to be granted to the members of our management team, in each case upon the completion of this offering pursuant to our 2013 Long-Term Incentive Plan.

Registration Rights

We will enter into a registration rights agreement with the members of TNHC LLC, including the members of our management team, with respect to the shares of our common stock that they will receive as part of our formation transactions. We refer to these shares collectively as the “registrable shares.” Pursuant to the registration rights agreement, we will grant the members of TNHC LLC and their direct and indirect transferees shelf registration rights requiring us to file a shelf registration statement and to maintain the effectiveness of such registration statement so as to allow sales thereunder from time to time, demand registration rights to have the resale of the registrable shares registered, and, in certain circumstances, the right to “piggy-back” the registrable shares in registration statements we might file in connection with certain future public offerings.

Notwithstanding the foregoing, any registration will be subject to cutback provisions, and we will be permitted to suspend the use, from time to time, of the prospectus that is part of the registration statement (and therefore suspend sales under the registration statement) for certain periods, referred to as “blackout periods.”

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Lock-Up Agreements

In connection with this offering, we and our officers and directors, TNHC Partners LLC and our non-management institutional investors and others have agreed that for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Citigroup Global Markets Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock, subject to certain exceptions. Citigroup Global Markets Inc., in its sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. If the restrictions under the lock-up agreements are waived, shares of our common stock may become available for resale into the market, subject to applicable law, which could reduce the market price for our common stock. See “Underwriting.”

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CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain material U.S. federal income tax consequences to you of the acquisition, ownership and disposition of shares of our common stock offered pursuant to this prospectus. This discussion is not a complete analysis of all of the potential U.S. federal income tax consequences relating thereto, nor does it address any estate and gift tax consequences or any tax consequences arising under any state, local or foreign tax laws, or any other U.S. federal tax laws. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS all as in effect as of the date of this prospectus. These authorities may change, possibly retroactively, or be interpreted differently, resulting in U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of the shares of our common stock, or that any such contrary position would not be sustained by a court.

This discussion is limited to holders who purchase shares of our common stock pursuant to this prospectus and who hold the shares of our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the U.S. federal income tax laws, including, without limitation:

• financial institutions, banks and thrifts;

• insurance companies;

• tax-exempt organizations;

• “S” corporations, partnerships or other pass-through entities;

• traders in securities that elect to mark to market;

• regulated investment companies and real estate investment trusts;

• broker-dealers or dealers in securities or currencies;

• United States expatriates;

• persons subject to the alternative minimum tax;

• “controlled foreign corporations,” “passive foreign investment companies” and corporations that accumulate earnings to avoid U.S. federal income tax;

• persons holding our stock as a hedge against currency risks or as a position in a straddle; or

• U.S. holders (as defined below) whose functional currency is not the United States dollar.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership, and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the specific U.S. federal income tax consequences to them.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF SHARES OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS.

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For purposes of this discussion, a “U.S. holder” is any beneficial owner of shares of our common stock who, for U.S. federal income tax purposes, is:

• an individual who is a citizen or resident of the United States;

• a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or in the District of Columbia;

• an estate the income of which is subject to United States federal income taxation regardless of its source; or

• a trust, if a United States court can exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or if the trust has a valid election in place to be treated as a United States person.

A “non-U.S. holder” is any beneficial owner of our common stock that is neither a “U.S. holder” nor a partnership.

Taxation of U.S. Holders

Distributions on Shares of Our Common Stock

If we make cash or other property distributions on shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Subject to certain limitations, these distributions may be eligible for the dividends-received deduction in the case of U.S. holders that are corporations. In general, a dividend distribution to a corporate U.S. holder may qualify for the 70% dividends received deduction if the U.S. holder owns less than 20% of the voting power and value of our stock. Dividends paid to non-corporate U.S. holders generally will qualify for taxation at reduced rates if such U.S. holders meet certain holding period and other applicable requirements. The reduced rate will not, however, apply to dividends received to the extent that the U.S. holder elects to treat dividends as “investment income,” which may be offset by investment expense. Distributions in excess of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles, will constitute a return of capital and will first be applied against and reduce a U.S. holder’s tax basis in the shares of our common stock, but not below zero. Distributions in excess of our current and accumulated earnings and profits and in excess of a U.S. holder’s tax basis in its shares of our common stock will be taxable as capital gain realized on the sale or other disposition of the shares of our common stock and will be treated as described under “—Sale or Other Taxable Dispositions of Shares of Our Common Stock” below.

Sale or Other Taxable Dispositions of Shares of Our Common Stock

If a U.S. holder sells or disposes of shares of our common stock, such U.S. holder generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the U.S. holder’s adjusted basis in the shares of our common stock for U.S. federal income tax purposes. This gain or loss generally will be long-term capital gain or loss if the U.S. holder has held the shares of our common stock for more than one year. The deductibility of capital losses is subject to limitations.

Backup Withholding and Information Reporting

Information reporting will generally apply to a U.S. holder with respect to payments of dividends on shares of our common stock and to certain payments of proceeds on the sale or other disposition of shares of our

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common stock unless the U.S. holder is an exempt recipient. Certain U.S. holders may be subject to U.S. backup withholding on payments of dividends on shares of our common stock and certain payments of proceeds on the sale or other disposition of shares of our common stock unless the beneficial owner of shares of our common stock furnishes the payor or its agent with a taxpayer identification number, certified under penalties of perjury, and certain other information, or otherwise establishes, in the manner prescribed by law, an exemption from backup withholding.

U.S. backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a credit against a U.S. holder’s U.S. federal income tax liability, which may entitle the U.S. holder to a refund, provided the U.S. holder timely furnishes the required information to the IRS.

Medicare Tax

A U.S. person that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. person’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. person’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000 depending on the individual’s circumstances). Net investment income generally includes dividends, and net gains from the disposition of common stock, unless such income or gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). A U.S. holder that is an individual, estate or trust should consult its tax advisor regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our common stock.

Taxation of Non-U.S. Holders

Distributions on Shares of Our Common Stock

Distributions that are treated as dividends (see “—Taxation of U.S. Holders—Distributions on Shares of Our Common Stock”) generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends, or such lower rate specified by an applicable income tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such non-U.S. holder’s qualification for the reduced rate. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide us or our paying agent with the required certification, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

If a non-U.S. holder holds shares of our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on the shares of our common stock are effectively connected with such non-U.S. holder’s U.S. trade or business (and if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States), the non-U.S. holder will be exempt from U.S. federal withholding tax. To claim the exemption, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form).

Although exempt from U.S. federal withholding tax, any dividends paid on shares of our common stock that are effectively connected with a non-U.S. holder’s U.S. trade or business (and if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally will be subject to U.S. federal income tax on a net income basis at the regular graduated U.S. federal income tax rates in much the same manner as if such non-U.S. holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.

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Distributions that are not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder’s adjusted tax basis in its common stock, but not below zero. Distributions in excess of our current and accumulated earnings and profits and in excess of a non-U.S. holder’s tax basis in its shares of our common stock may be subject to U.S. federal income tax as gain realized on the sale or other disposition of the shares of our common stock as described under “—Sale or Other Taxable Dispositions of Shares of Our Common Stock” below.

Sale or Other Taxable Dispositions of Shares of Our Common Stock

Subject to the discussion of backup withholding and withholding tax relating to foreign accounts below, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of the common stock, unless:

• the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States, and if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States;

• the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition, and certain other requirements are met; or

• our common stock constitutes a “United States real property interest” (“USRPI”) within the meaning of the Foreign Investment in Real Property Tax Act (“FIRPTA”) by reason of our status as a “United States real property holding corporation” (“USRPHC”) for U.S. federal income tax purposes.

Gain described in the first bullet point above will be subject to U.S. federal income tax on a net income basis at the regular graduated U.S. federal income tax rates in much the same manner as if such non-U.S. holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.

Gain described in the second bullet point above will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset by United States source capital losses (even though the individual is not considered a resident of the United States) provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

With respect to the third bullet point above, because of our anticipated holdings of United States real property interests following the completion of our formation transactions, we believe we will be and will remain a USRPHC for U.S. federal income tax purposes. Because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests, it is possible we may not remain a USRPHC in the future. As a USRPHC, if a class of our stock is regularly traded on an established securities market (such as the New York Stock Exchange), such stock will be treated as a USRPI only with respect to a non-U.S. holder that actually or constructively holds more than five percent of such class of stock at any time during the shorter of the five-year period preceding the date of disposition or the holder’s holding period for such stock. We anticipate that our common stock will be regularly traded on an established securities market following this offering. However, no assurance can be given in this regard and no assurance can be given that our common stock will remain regularly traded in the future. Non-U.S. holders should consult their tax advisors concerning the consequences of disposing of shares of our common stock.

If gain on the sale or other taxable disposition of shares of our common stock were subject to taxation under FIRPTA as a sale of a USRPI, the non-U.S. holder would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum

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tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale or other taxable disposition of shares of our common stock is subject to tax under FIRPTA, and if the shares of our common stock are not regularly traded on an established securities market, the purchaser of the stock would be required to withhold and remit to the IRS 10% of the purchase price. A non-U.S. holder also will be required to file a U.S. federal income tax return for any taxable year in which it realizes a gain from the disposition of our common stock that is subject to U.S. federal income tax.

Backup Withholding Tax and Information Reporting

We must report annually to each non-U.S. holder of shares of our common stock and to the IRS the amount of payments on the shares of our common stock paid to such non-U.S. holder and the amount of any tax withheld with respect to those payments. These information reporting requirements apply even if no withholding was required because the payments were effectively connected with the non-U.S. holder’s conduct of a United States trade or business, or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Backup withholding, however, generally will not apply to distribution payments to a non-U.S. holder of shares of our common stock provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Additional Withholding Tax Relating to Foreign Accounts

Withholding taxes may apply to certain types of payments made to “foreign financial institutions” (as specially defined in the Code) and certain other non-United States entities. Specifically, a 30% withholding tax may be imposed on dividends on, and gross proceeds from the sale or other disposition of, shares of our common stock paid to a foreign financial institution or to a non-financial foreign entity, unless (1) the foreign financial institution undertakes certain diligence and reporting, (2) the non-financial foreign entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have entered into an intergovernmental agreement with the United States governing these withholding taxes and reporting requirements may be subject to different rules.

Final Treasury Regulations provide that the withholding provisions described above will generally apply to payments of dividends made on or after January 1, 2014 and to payments of gross proceeds from a sale or other disposition of stock on or after January 1, 2017.

The preceding discussion of certain U.S. federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to particular tax consequences to it of purchasing, holding and disposing of shares of our common stock, including the applicability and effect of any state, local or foreign tax laws, and of any pending or subsequent changes in applicable laws.

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UNDERWRITING

Citigroup Global Markets Inc. and J.P. Morgan Securities LLC are acting as joint book-running managers of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter’s name.

Underwriter	Number of Shares
Citigroup Global Markets Inc.
J.P. Morgan Securities LLC
Zelman Partners LLC
Total

The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $             per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us and the selling stockholders that the underwriters do not intend to make sales to discretionary accounts.

If the underwriters sell more shares than the total number set forth in the table above, the selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to              additional shares at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter’s initial purchase commitment. Any shares sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.

We and our officers and directors, TNHC Partners LLC and our non-management institutional investors, and others have agreed that, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Citigroup Global Markets Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Citigroup Global Markets Inc., in its sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.

At our request, the underwriters have reserved up to            % of the shares for sale at the initial public offering price to persons who are directors, officers or employees, or who are otherwise associated with us, through a directed share program. The number of shares available for sale to the general public will be reduced by the number of directed shares purchased by participants in the program. Except for persons who have entered into lock-up agreements as contemplated in the immediately preceding paragraph, each person buying shares through the directed share program has agreed that, for a period of 180 days from the date of this prospectus, he or she will not, without the prior written consent of Citigroup Global Markets Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock with respect to shares purchased in the program. However, for persons purchasing shares through the directed share program who have entered into a lock-up agreement as contemplated in the immediately preceding paragraph, that lock-up agreement shall

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govern with respect to their purchases. Citigroup Global Markets Inc., in its sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. Any directed shares not purchased will be offered by the underwriters to the general public on the same basis as all other shares offered. We have agreed to indemnify the underwriters and their control persons against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed shares.

Prior to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares was determined by negotiations among us, our non-management institutional investors and the underwriters. Among the factors considered in determining the initial public offering price were our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.

We intend to apply to list the shares on the New York Stock Exchange under the symbol “NWHM.”

The following table shows the underwriting discounts and commissions that we and the selling stockholders are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option.

	Paid by Us			Paid by Selling Stockholders
	No Exercise	Full Exercise		No Exercise		Full Exercise
Per share	$		$		$		$
Total	$		$		$		$

We estimate that our portion of the total expenses of this offering will be $            .

In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.

• Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering.

• “Covered” short sales are sales of shares in an amount up to the number of shares represented by the underwriters’ over-allotment option.

• “Naked” short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters’ over-allotment option.

• Covering transactions involve purchases of shares either pursuant to the underwriters’ over-allotment option or in the open market in order to cover short positions.

• To close a naked short position, the underwriters must purchase shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

• To close a covered short position, the underwriters must purchase shares in the open market or must exercise the over-allotment option. In determining the source of shares to close the covered

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short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.

• Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum.

Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the New York Stock Exchange, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

We and the selling stockholders have agreed to indemnify the underwriters and their control persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters or their control persons may be required to make because of any of those liabilities.

Notice to Prospective Investors in the European Economic Area

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “relevant member state”), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the “relevant implementation date”), an offer of shares described in this prospectus may not be made to the public in that relevant member state other than:

• to any legal entity which is a qualified investor as defined in the Prospectus Directive;

• to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors, as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or

• in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

For purposes of this provision, the expression an “offer of securities to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the

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expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.

The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.

Notice to Prospective Investors in the United Kingdom

This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a “relevant person”). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents

Notice to Prospective Investors in France

Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:

• released, issued, distributed or caused to be released, issued or distributed to the public in France; or

• used in connection with any offer for subscription or sale of the shares to the public in France.

Such offers, sales and distributions will be made in France only:

• to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with, articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier;

• to investment services providers authorized to engage in portfolio management on behalf of third parties; or

• in a transaction that, in accordance with article L.411-2-II-1 or -2° or -3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).

The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.

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Notice to Prospective Investors in Hong Kong

The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Japan

The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

• a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

• a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

• to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;

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• where no consideration is or will be given for the transfer; or

• where the transfer is by operation of law.

Notice to Prospective Investors in Australia

No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia(“Corporations Act”)) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission (“ASIC”). This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:

• you confirm and warrant that you are either:

• a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;

• a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;

• a person associated with the company under section 708(12) of the Corporations Act; or

• a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act, any offer made to you under this document is void and incapable of acceptance; and

• you warrant and agree that you will not offer any of the common stock for resale in Australia within 12 months of that common stock being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.

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LEGAL MATTERS

Certain legal matters in connection with this offering, including the validity of the shares of our common stock offered hereby, will be passed upon for us by Sidley Austin LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, Los Angeles, California.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements as of and for the years ended December 31, 2012 and 2011 and the period from August 18, 2010 through December 31, 2010 and the consolidated financial statements of our predecessor as of and for the period from January 1, 2010 through August 17, 2010, as set forth in its report. We have included financial statements of us and our predecessor in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on its authority as an expert in accounting and auditing.

Ernst & Young, LLP has audited the consolidated financial statements of our unconsolidated joint venture investee LR8 Investors, LLC as of and for the years ended December 31, 2012 and 2011 and the period from September 22, 2010 through December 31, 2010, as set forth in its report. We have included financial statements of LR8 Investors, LLC in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on its authority as an expert in accounting and auditing.

Unless otherwise indicated, all statistical and economic market data included in this prospectus, and in particular in the sections entitled “Summary,” “Market Opportunity” and “Our Business,” is derived from market information prepared for us by JBREC, a nationally recognized independent research provider and consulting firm, and is included in this prospectus in reliance on JBREC’s authority as an expert in such matters. We have paid JBREC a fee of $41,000 for its services, plus an amount charged at an hourly rate for additional information we may require from JBREC from time to time in connection with its services.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock being offered by this prospectus. This prospectus, which constitutes part of that registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. Some items included in the registration statement are omitted from the prospectus in accordance with the rules and regulations of the SEC. For further information with respect to us and the common stock offered by this prospectus, we refer you to the registration statement and the accompanying exhibits.

A copy of the registration statement and the accompanying exhibits and any other document we file may be inspected without charge at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the public reference room upon the payment of the fees prescribed by the SEC. The public may obtain information on the operation of the public reference facilities in Washington, D.C. by calling the SEC at 1-800-SEC-0330. Our filings with the SEC are available to the public from the SEC’s website at www.sec.gov.

Upon the completion of this offering, we will be subject to the information and periodic reporting requirements of the Exchange Act applicable to a company with securities registered pursuant to Section 12 of the Exchange Act. In accordance therewith, we will file proxy statements, periodic information and other information with the SEC. All documents filed with the SEC are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at thenewhomecompany.com. You may access our reports, proxy statements and other information free of charge at this website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in and is not a part of this prospectus.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
The New Home Company LLC and The New Home Company Predecessor
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012 and 2011		F-3
Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012 (Unaudited), for the Years Ended December 31, 2012 and 2011, for the Period from August 18, 2010 (Inception) Through December 31, 2010 and for the Period from January 1, 2010 Through August 17, 2010		F-4
Consolidated Statements of Members’ Equity for the Three Months Ended March 31, 2013 (Unaudited), for the Years Ended December 31, 2012 and 2011, for the Period from August 18, 2010 (Inception) Through December 31, 2010 and for the Period from January 1, 2010 Through August 17, 2010		F-5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (Unaudited), for the Years Ended December 31, 2012 and 2011, for the Period from August 18, 2010 (Inception) Through December 31, 2010 and for the Period from January 1, 2010 Through August 17, 2010		F-6
Notes to Consolidated Financial Statements		F-7
LR8 Investors, LLC (our unconsolidated investee)
Report of Independent Registered Public Accounting Firm		F-29
Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012 and 2011		F-30
Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012 (Unaudited), for the Years Ended December 31, 2012 and 2011, and for the Period from September 22, 2010 (Inception) Through December 31, 2010		F-31
Consolidated Statements of Members’ Capital for the Three Months Ended March 31, 2013 (Unaudited), for the Years Ended December 31, 2012 and 2011, and for the Period from September 22, 2010 (Inception) Through December 31, 2010		F-32
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (Unaudited), for the Years Ended December 31, 2012 and 2011, and for the Period from September 22, 2010 (Inception) Through December 31, 2010		F-33
Notes to Consolidated Financial Statements		F-34

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members

The New Home Company LLC

We have audited the accompanying consolidated balance sheets of The New Home Company LLC as of December 31, 2012 and 2011, and the related consolidated statements of operations, members’ equity, and cash flows for the years ended December 31, 2012 and 2011, for the period from August 18, 2010 (inception) through December 31, 2010, and for the predecessor entity of The New Home Company LLC (The New Home Company Predecessor) for the period from January 1, 2010 through August 17, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The New Home Company LLC at December 31, 2012 and 2011, and the consolidated results of its operations, members’ equity, and cash flows for the years ended December 31, 2012 and 2011 and for the period from August 18, 2010 (inception) through December 31, 2010, and of The New Home Company Predecessor for the period from January 1, 2010 through August 17, 2010, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Irvine, California

April 19, 2013

F-2

THE NEW HOME COMPANY LLC

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2013		2012		2011
	(Unaudited)
Assets
Cash and cash equivalents	$	5,113,645	$	6,007,928	$	5,446,764
Restricted cash		118,062		144,120		77,087
Contracts and accounts receivable		4,797,652		6,049,676		59,317
Due from affiliates		—		51,160		40,549
Real estate inventories		39,743,736		39,268,764		28,890,573
Investment in unconsolidated joint ventures		23,598,335		12,424,229		4,854,584
Property and equipment, net of accumulated depreciation		428,952		323,139		243,208
Other assets		992,348		241,700		149,708
Total assets	$	74,792,730	$	64,510,716	$	39,761,790
Liabilities and members’ equity
Accounts payable	$	6,230,006	$	7,955,033	$	442,046
Accrued expenses and other liabilities		2,842,305		3,259,091		2,084,693
Notes payable to member		1,000,000		1,000,000		—
Notes payable		17,239,273		16,721,878		9,383,462
		27,311,584		28,936,002		11,910,201
Commitments and contingencies (Note 12)
Members’ equity		47,481,146		35,574,714		27,851,589
Total liabilities and members’ equity	$	74,792,730	$	64,510,716	$	39,761,790

See accompanying notes.

F-3

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

CONSOLIDATED STATEMENTS OF OPERATIONS

							Year Ended December 31,						Period From August 18, 2010 (Inception) Through December 31,			Predecessor
	Three Months Ended March 31,															Period From January 1, 2010 Through August 17,
	2013			2012			2012			2011			2010			2010
	(Unaudited)
Revenue:
Home sales	$	4,666,531		$	4,110,937		$	24,197,956		$	25,624,111		$	5,319,408		$	538,598
Fee building, including overhead fees from unconsolidated joint ventures of $965,462, $444,069, $2,949,365, $844,411, $0 and $0, respectively		13,472,550			2,719,748			28,268,675			16,522,946			11,494,347			12,941,110
Land sales		—			—			2,940,100			—			—			—
		18,139,081			6,830,685			55,406,731			42,147,057			16,813,755			13,479,708
Expenses:
Cost of homes sales		3,729,627			3,417,550			20,779,338			21,774,199			4,423,236			399,995
Fee building		12,938,813			2,652,779			26,505,042			16,762,666			11,331,286			12,764,497
Cost of land sales		—			—			3,261,891			—			—			—
Abandoned project costs		159,587			—			408,642			128,798			—			—
Equity in net (income) loss of unconsolidated joint ventures		(271,856	)		38,789			(349,445	)		38,916			—			—
Selling and marketing		277,020			323,262			1,677,058			1,748,430			453,799			134,002
General and administrative		963,104			934,299			3,999,949			3,522,617			689,781			328,295
		17,796,295			7,366,679			56,282,475			43,975,626			16,898,102			13,626,789
Income (loss) from operations		342,786			(535,994	)		(875,744	)		(1,828,569	)		(84,347	)		(147,081	)
Guaranty fee income		28,391			—			85,172			—			—			—
Other income (expense), net		—			6,361			(15,048	)		(14,750	)		(10,596	)		(6,048	)
Income (loss) before taxes		371,177			(529,633	)		(805,620	)		(1,843,319	)		(94,943	)		(153,129	)
Provision for taxes		(64,745	)		—			(71,255	)		(10,149	)		—			—
Net income (loss)	$	306,432		$	(529,633	)	$	(876,875	)	$	(1,853,468	)	$	(94,943	)	$	(153,129	)
Unaudited proforma income (loss) and earnings per share (Note 15):
Net income (loss)	$			$			$			$			$			$
Basic	$			$			$			$			$			$
Diluted	$			$			$			$			$			$
Unaudited proforma weighted average common shares outstanding (Note 15):
Basic
Diluted

See accompanying notes.

F-4

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

	TNHC Partners LLC			Watt/TNHC LLC			IHP Capital Partners VI, LLC			TCN/TNHC LP			Total Members’ Equity
Balance at December 31, 2009	$	5,338,385		$	—		$	—		$	—		$	5,338,385
Net loss from January 1, 2010 through August 17, 2010		(153,129	)		—			—			—			(153,129	)
Balance at August 17, 2010		5,185,256			—			—			—			5,185,256
Contributions upon formation		60,000			6,000,000			6,000,000			—			12,060,000
Fair value adjustment to predecessor		754,744			—			—			—			754,744
Contributions post-formation		600,000			600,000			600,000			—			1,800,000
Net loss from August 18, 2010 through December 31, 2010		(31,647	)		(31,648	)		(31,648	)		—			(94,943	)
Balance at December 31, 2010		6,568,353			6,568,352			6,568,352			—			19,705,057
Contributions		1,850,000			1,850,000			1,850,000			8,450,000			14,000,000
Distributions		(1,000,000	)		(1,000,000	)		(1,000,000	)		(1,000,000	)		(4,000,000	)
Net loss		(462,873	)		(462,873	)		(462,873	)		(464,849	)		(1,853,468	)
Balance at December 31, 2011		6,955,480			6,955,479			6,955,479			6,985,151			27,851,589
Contributions		2,150,000			2,150,000			2,150,000			2,150,000			8,600,000
Net loss		(219,041	)		(219,040	)		(219,040	)		(219,754	)		(876,875	)
Balance at December 31, 2012		8,886,439			8,886,439			8,886,439			8,915,397			35,574,714
Contributions (Unaudited)		2,900,000			2,900,000			2,900,000			2,900,000			11,600,000
Net income (Unaudited)		76,561			76,561			76,561			76,749			306,432
Balance at March 31, 2013 (Unaudited)	$	11,863,000		$	11,863,000		$	11,863,000		$	11,892,146		$	47,481,146

See accompanying notes.

F-5

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

CONSOLIDATED STATEMENTS OF CASH FLOWS

																Predecessor
	Three Months Ended March 31,						Year Ended December 31,						Period From August 18, 2010 (Inception) Through December 31,			Period From January 1, 2010 Through August 17,
	2013			2012			2012			2011			2010			2010
	(Unaudited)
Operating activities:
Net income (loss)	$	306,432		$	(529,633	)	$	(876,875	)	$	(1,853,468	)	$	(94,943	)	$	(153,129	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of contracts intangible		—			—			—			420,244			334,500			—
Depreciation		40,985			31,931			138,833			144,090			39,433			23,583
Equity in net (income) loss of unconsolidated joint ventures		(271,856	)		38,789			(349,445	)		38,916			—			—
Distributions of earnings from unconsolidated joint ventures		333,406			—			451,504			—			—			—
Net changes in operating assets and liabilities:
Restricted cash		26,058			(19,314	)		(67,033	)		226,072			(303,159	)		—
Contracts and accounts receivable		1,252,024			(1,432,578	)		(5,990,359	)		2,895,795			(2,156,760	)		(778,949	)
Due from affiliates		51,160			—			(10,611	)		(30,365	)		(10,184	)		—
Real estate inventories		(474,972	)		773,293			(878,191	)		(7,174,728	)		(11,045,143	)		(6,119,775	)
Other assets		(750,648	)		55,979			(91,992	)		(81,303	)		(11,251	)		59,213
Accounts payable		(1,725,027	)		1,757,152			7,512,987			(2,766,092	)		2,674,175			353,464
Accrued expenses and other liabilities		(416,786	)		(129,099	)		1,174,398			1,285,566			(428,085	)		1,121,051
Net cash (used in) provided by operating activities		(1,629,224	)		546,520			1,013,216			(6,895,273	)		(11,001,417	)		(5,494,542	)
Investing activities:
Purchases of property and equipment		(146,798	)		(6,046	)		(218,764	)		(120,207	)		(105,857	)		(210,441	)
Contributions to unconsolidated joint ventures		(15,958,558	)		(727,100	)		(10,431,175	)		(3,225,000	)		(1,668,500	)		—
Distributions of equity from unconsolidated joint ventures		4,722,902			—			2,759,471			—			—			—
Net cash used in investing activities		(11,382,454	)		(733,146	)		(7,890,468	)		(3,345,207	)		(1,774,357	)		(210,441	)
Financing activities:
Borrowings from notes payable		3,567,626			1,549,995			10,828,173			15,917,765			6,308,275			—
Repayments of notes payable		(3,050,231	)		(2,889,747	)		(12,989,757)			(12,352,739	)		(5,989,839	)		—
Proceeds from issuance of unsecured notes to member		—			—			1,000,000			—			—			5,500,000
Cash contributions from members		11,600,000			—			8,600,000			14,000,000			13,860,000			—
Cash distribution to members		—			—			—			(4,000,000	)		—			—
Net cash provided by (used in) financing activities		12,117,395			(1,339,752	)		7,438,416			13,565,026			14,178,436			5,500,000
Net (decrease) increase in cash and cash equivalents		(894,283	)		(1,526,378	)		561,164			3,324,546			1,402,662			(204,983	)
Cash and cash equivalents – beginning of period		6,007,928			5,446,764			5,446,764			2,122,218			719,556			924,539
Cash and cash equivalents – end of period	$	5,113,645		$	3,920,386		$	6,007,928		$	5,446,764		$	2,122,218		$	719,556
Supplemental disclosures of cash flow information
Interest paid, net of amounts capitalized	$	—		$	—		$	—		$	—		$	—		$	—
Taxes paid	$	100,000		$	—		$	3,380		$	18,990		$	—		$	—
Supplemental disclosures of non cash transaction
Note payable with land seller	$	—		$	—		$	9,500,000		$	—		$	—		$	—
Assets contributed and liabilities assumed at formation of the Company (Note 1)
Real estate projects held for development and sale	$	—		$	—		$	—		$	—		$	10,670,702		$	—
Contracts intangible and other assets	$	—		$	—		$	—		$	—		$	1,810,918		$	—
Accounts payable and accrued liabilities	$	—		$	—		$	—		$	—		$	(1,761,175	)	$	—
Unsecured notes payable to member	$	—		$	—		$	—		$	—		$	(5,500,000	)	$	—

See accompanying notes.

F-6

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Summary of Significant Accounting Policies

Organization

The New Home Company LLC (the “Company”), a Delaware limited liability company, and its subsidiaries are primarily engaged in all aspects of residential real estate development, including acquiring land and designing, constructing and selling homes located in California.

The Company intends to file a Registration Statement on Form S-1 with the Securities and Exchange Commission with respect to an initial public offering (the “Offering”). Prior to the consummation of the Offering, which is expected to be completed in 2013, the Company will engage in certain formation transactions pursuant to which the Company will be reorganized from a Delaware limited liability company into a Delaware corporation and renamed The New Home Company, Inc.

The New Home Company Predecessor (the “Predecessor”), a Delaware limited liability company, was formed with an effective date of August 26, 2009. The Predecessor was capitalized through cash contributions by its sole member, TNHC Partners LLC (“TNHCP”). The Predecessor began operations on August 31, 2009 specializing in homebuilding and fee building services.

Effective August 18, 2010, the Predecessor amended and restated its operating agreement (the “Operating Agreement”) and concurrently admitted Watt/TNHC LLC (“Watt”) and IHP Capital Partners VI, LLC (“IHP”) as members. Watt and IHP each contributed cash of $6,000,000 in exchange for a 33.33%, or 66.67% in total, capital interest. The transaction was deemed to be a change in control whereby TNHCP, Watt, and IHP gained control of the Company as a collective group by collaborating on all key decisions that could have a significant economic impact. Accordingly, the net assets of the Predecessor contributed by TNHCP, in exchange for a 33.33% capital interest, were recorded at a fair value of $6,000,000 and primarily consisted of three real estate projects, one fee building agreement, working capital and fixed assets, as noted below:

Cash	$	779,555
Real estate inventories		10,670,702
Contracts intangible and other assets		1,810,918
Notes payable to member		(5,500,000	)
Accounts payable and accrued liabilities		(1,761,175	)
Net assets contributed by TNHCP	$	6,000,000

In accordance with the Operating Agreement, each member committed to make capital contributions of up to $10,000,000 to the Company. The capital percentages were 33.3% for each member and the economic ownership percentages were 50%, 25% and 25% for TNHCP, Watt, and IHP, respectively. As of December 31, 2010, TNHCP, Watt and IHP had each funded $6,600,000 of their $10,000,000 capital commitment.

Effective January 1, 2011, the Company admitted TCN/TNHC LP (“Tricon”) as a member of the Company. On January 6, 2011, Tricon made an initial cash contribution of $6,600,000. Tricon also committed to make capital contributions of up to $10,000,000 to the Company. As a result of this transaction, capital percentages were adjusted to 25% for each member, and the economic ownership percentages were adjusted to 50%, 16.67%, 16.67% and 16.66% for TNHCP, Watt, IHP and Tricon, respectively. As of December 31, 2012, TNHCP, Watt, IHP, and Tricon had each funded $9,600,000 of their $10,000,000 capital commitment.

Effective January 25, 2013, the Company amended its Operating Agreement increasing each member’s capital commitment from $10,000,000 to $12,500,000. As of March 31, 2013 (unaudited), TNHCP, Watt, IHP, and Tricon had each fully funded their capital commitment.

F-7

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net income and net losses are allocated among the members pursuant to the provisions of the Operating Agreement.

Distributions to the members are made pursuant to the Operating Agreement. Through March 31, 2013 (unaudited) and December 31, 2012 and 2011, $4,000,000 in distributions had been made resulting from the admission of Tricon in January 2011.

Each member’s liability is limited in accordance with the provisions of the Delaware Limited Liability Company Act for limited liability companies. The term of the Company shall continue until it is dissolved or its affairs are wound up in accordance with the Operating Agreement.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated upon consolidation.

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” refer to the Company and its predecessor.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies. Accordingly, actual results could differ materially from these estimates.

Segment Reporting

ASC 280, Segment Reporting (“ASC 280”) established standards for the manner in which public enterprises report information about operating segments. In accordance with ASC 280, we have determined that our homebuilding division and our fee building division are our operating segments. Corporate is a non-operating segment.

Cash and Cash Equivalents and Concentration of Credit Risk

We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short term liquid investments with an initial maturity date of less than three months. The Company’s cash balances exceed federally insurable limits. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.

Restricted Cash

Restricted cash of $118,062, $144,120 and $77,087 as of March 31, 2013 (unaudited) and December 31, 2012 and 2011 is held in accounts reserved for payments of subcontractor costs incurred in connection with various fee building projects.

F-8

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Real Estate Inventories and Cost of Sales

We capitalize pre-acquisition, land, development and other allocated costs, including interest, during development and home construction. Pre-acquisition costs, including non-refundable land deposits, are expensed to abandoned project costs when we determine continuation of the respective project is not probable. During the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, the Company reduced its real estate inventory balance by $159,587, $0, $408,642, $128,798, $0 and $0, respectively, for projects no longer being pursued. The associated expense is reflected as abandoned project costs in the accompanying consolidated statements of operations.

Land, development and other common costs are typically allocated to real estate inventories using a methodology that approximates the relative-sales-value method. Home construction costs per production phase are recorded using the specific identification method. Cost of sales for homes closed includes the allocation of construction costs of each home and all applicable land acquisition, land development and related common costs (both incurred and estimated to be incurred) based upon the relative-sales-value of the home within each community. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated on a relative-sales-value method to remaining homes in the community. Inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to fair value. We review our real estate assets at each community on a periodic basis and whenever indicators of impairment exist. Real estate assets include projects actively selling and projects under development or held for future development. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, significant decreases in gross margins and sales absorption rates, costs in excess of budget, and actual or projected cash flow losses.

If there are indicators of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value.

When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow

F-9

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to community and over time. If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. For the three months ended March 31, 2013 and 2012 (unaudited), the year ended December 31, 2011, the period from August 18, 2010 (inception) to December 31, 2010, and the period from January 1, 2010 to August 17, 2010, no impairment adjustments relating to homebuilding real estate inventories were recorded. During the second quarter of the year ended December 31, 2012, the Company initiated a change in use to sell certain finished lots not under construction for one of its communities in Northern California. This change in use resulted in an impairment of $350,000 for the related land held for sale, which is reflected in cost of land sales in the accompanying statement of operations. These lots held for sale were sold, with no further adjustments required, to an independent third party in the third quarter of the year ended December 31, 2012. The remaining finished lots under construction for the same project were completed and sold to the respective homebuyers, including the model homes during the year ended December 31, 2012, which sales generated a positive margin.

Capitalization of Interest

We follow the practice of capitalizing interest to inventories owned during the period of development and to investments in unconsolidated homebuilding and land development joint ventures in accordance with ASC 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories owned is included in cost of home sales as related units or lots are sold. Interest capitalized to investments in unconsolidated homebuilding joint ventures is included as a reduction of income from unconsolidated joint ventures when the related homes or lots are sold to third parties. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us. Qualified assets represent projects that are actively selling or under development as well as investments in unconsolidated joint ventures accounted for under the equity method.

Revenue Recognition

Home Sales and Profit Recognition

In accordance with ASC 360, Property, Plant, and Equipment, revenues from home sales and other real estate sales are recorded and a profit is recognized when the respective units are closed. Home sales and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is closed. When it is determined that the earnings process is not complete, the sale and the related profit are deferred for recognition in future periods. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”

Fee Building

The Company enters into fee building agreements to provide services whereby it will build and in some cases market and sell homes on behalf of independent third-party property owners. The independent third-party

F-10

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

property owner funds all project costs incurred by the Company to build and sell the homes. The Company primarily enters into cost plus fee contracts where it charges independent third-party property owners for all direct and indirect costs plus a negotiated management fee. For these types of contracts, the Company recognizes revenue based on the actual total costs it has expended and the applicable management fee. The management fee is typically a fixed fee based on a percentage of the cost or home sales revenue of the project depending on the terms of the agreement with the independent third-party property owner. In accordance with ASC 605, Revenue Recognition, revenues from fee building services are recognized over a cost-to-cost approach in applying the percentage-of-completion method. Under this approach, revenue is earned in proportion to total costs incurred, divided by total costs expected to be incurred. The total estimated cost plus the management fee represents the total contract value. The Company recognizes revenue based on the actual labor and other direct costs incurred, plus the portion of the management fee it has earned to date. In the course of providing its services, the Company routinely subcontracts for services and incurs other direct costs on behalf of its clients. These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in the Company’s revenue and cost of revenue. Under certain agreements, the Company is eligible to receive additional incentive compensation as certain financial thresholds defined in the agreement are achieved. The Company recognizes revenue for any incentive compensation when such financial thresholds are probable of being met and such compensation is deemed to be collectible, generally at the date the amount is communicated to us by the independent third-party property owner.

The Company also enters into fee building and management contracts with third parties and its unconsolidated joint ventures where it provides construction supervision services and does not bear risks for any services outside of its own. In accordance with ASC 605, revenues from these services are recognized over a proportional performance method. Under this approach, revenue is earned in proportion to total efforts, generally direct labor hours, expected to be provided to the client or on a straight line basis if pattern of performance cannot be determined while costs are recognized as incurred.

As of and for the three months ended March 31, 2013 (unaudited) and the years ended December 31, 2012 and 2011, one customer comprised 89%, 95% and 93%, respectively, of the Company’s fee building revenue and 85%, 95% and 42%, respectively, of the related receivables.

Variable Interest Entities

The Company accounts for variable interest entities in accordance with ASC 810, Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.

Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some

F-11

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as real estate inventories, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a VIE may have been created. As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, the Company was not required to consolidate any VIEs. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

Investments in Unconsolidated Joint Ventures

We first analyze our homebuilding and land development joint ventures to determine if they are variable interest entities under the provisions of ASC 810 (as discussed above) when determining whether the entity should be consolidated. If we conclude that our homebuilding and land development joint ventures are not variable interest entities then, in accordance with the provisions of ASC 810, limited partnerships or similar entities must be further evaluated under the presumption that the general partner, or the managing member in the case of a limited liability company, is deemed to have a controlling interest and therefore must consolidate the entity unless the limited partners or non-managing members have: (1) the ability, either by a single limited partner or through a simple majority vote, to dissolve or liquidate the entity, or kick-out the managing member/general partner without cause, or (2) substantive participatory rights that are exercised in the ordinary course of business. Under the provisions of ASC 810, we may be required to consolidate certain investments in which we hold a general partner or managing member interest.

As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, the Company concluded that all of its homebuilding and land development joint ventures were variable interest entities. However, the Company concluded that they were not the primary beneficiary and accounted for these entities under the equity method of accounting.

Our current equity investment balance and future capital contributions required represents the maximum exposure for our unconsolidated home and land development joint ventures. Under the joint venture operating agreements, future capital contributions are determined based on the operating budgets and needs of the joint venture, which will likely vary throughout the life of each joint venture based on the circumstances unique to the project. In addition to required contributions, the Company began providing guaranties during the year ended December 31, 2012 for debt held by certain of its unconsolidated joint ventures. As of March 31, 2013 (unaudited) and December 31, 2012, our unconsolidated joint ventures had outstanding debt secured by financial guaranties of $24,498,977 and $25,034,540, respectively, of which 5% was guaranteed by the Company.

Investments in our unconsolidated joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses generated by the joint venture upon the delivery of lots or homes to third parties. Our proportionate share of intra entity profits and losses are eliminated until the related asset has been sold by the unconsolidated joint venture to third parties. Our ownership interests in our unconsolidated joint ventures vary, but are generally less than or equal to 50 percent.

We review inventory projects within our unconsolidated joint ventures for impairments consistent with our real estate inventories. We also review our investments in unconsolidated joint ventures for evidence of other than temporary decline in value. To the extent we deem any portion of our investment in unconsolidated joint ventures as not recoverable, we impair our investment accordingly. For the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, no impairments relating to investment in unconsolidated joint ventures were recorded.

F-12

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Selling and Marketing Expense

Selling and marketing costs incurred to sell real estate projects are capitalized if they are reasonably expected to be recovered from the sale of the project or from incidental operations and are incurred for tangible assets that are used directly through the selling period to aid in the sale of the project or services that have been performed to obtain regulatory approval of sales. All other selling expenses and other marketing costs are expensed in the period incurred.

Warranty Reserves

We offer warranties on our homes that generally provide for one-year warranties to cover various defects in workmanship or materials or to cover structural construction defects. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Amounts are accrued based upon the Company’s historical rates. Due to the Company’s limited history related to homebuilding sales, the Company also considers the historical experience of its peers in determining the amount of its warranty reserve. In addition, the Company receives warranty payments from its clients for certain of its fee building projects where it has the contractual risk of construction. These payments are recorded as warranty reserve accruals. Indirect warranty overhead salaries and related costs are charged to the reserve in the period incurred. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary. Our warranty accrual is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

Acquired Intangible Assets

Upon consummation of a business combination as defined in ASC 805, Business Combinations, the Company performed an assessment to determine the value of the acquired company’s tangible and identifiable intangible assets and liabilities. In its assessment, the Company determined whether identifiable intangible assets exist, which typically include backlog and customer relationships. The identified intangible assets are amortized over the shorter of their economic or useful life.

Contracts and Accounts Receivable

Contracts and accounts receivable primarily represents the fees earned but not collected and reimbursable project costs incurred in connection with fee building agreements. The Company periodically evaluates the collectability of its contracts receivable and if it is determined that a receivable might not be fully collectible, an allowance is recorded for the amount deemed uncollectible. This allowance for doubtful accounts is estimated based on management’s evaluation of the contracts involved and the financial condition of its clients. Factors considered in evaluations include, but are not limited to:

• client type;

• historical contract performance;

• historical collection and delinquency trends;

• client credit worthiness; and

• general economic conditions.

As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, no allowance was recorded related to contracts and accounts receivable.

F-13

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives ranging from three to seven years. Leasehold improvements are stated at cost and are amortized using the straight-line method over the shorter of either their estimated useful lives or the probable term of the lease.

Income Taxes

The Company is a limited liability company which is treated as a partnership for income tax purposes and is subject to certain minimal taxes and fees; however, income taxes on taxable income or losses realized by the Company are the obligation of the members. The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluation was performed for the tax years ended December 31, 2012, 2011, and 2010.

The Company has a subsidiary that is treated as a C Corporation. Federal and state income taxes are provided for this entity in accordance with the provisions of ASC 740, Income Taxes. The provision for, or the benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on whether it is more likely than not that some or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which those temporary differences become deductible. Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the consolidated financial position or results of operations.

The Company follows certain accounting guidance with respect to how uncertain tax positions should be accounted for and disclosed in the consolidated financial statements. The guidance requires the assessment of tax positions taken or expected to be taken in the tax return and to determine whether the tax positions are “more-likely-than-not” of being sustained upon examination by the applicable taxing authority. Tax positions deemed to meet the more-likely-than-not criteria would be recoded as a tax benefit or expense in the current year. We are required to assess open tax years, as defined by the statute of limitations, for all major jurisdictions, including federal and certain states. Open tax years are those that are open for examination by taxing authorities. We have no examinations in progress and believe that there are no uncertain tax positions that do not meet the more-likely-than-not level of authority.

Recently Issued Accounting Standards

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. The Company’s adoption of these provisions of ASU 2011-04 on January 1, 2012 did not have an impact on the consolidated financial statements.

F-14

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.    Contracts and Accounts Receivable

Contracts and accounts receivable consist of the following:

	March 31, 2013			December 31,
				2012			2011
	(unaudited)
Contracts receivable:
Costs incurred on fee building projects	$	12,938,813		$	26,505,042		$	16,762,666
Estimated earnings		533,737			1,313,156			(239,720	)
Revenue related to fee building warranty adjustment		—			450,477			—
		13,472,550			28,268,675			16,522,946
Less: billings during the period		(8,984,628	)		(22,023,895	)		(16,463,629	)
Non cash impact of fee building warranty adjustment		—			(450,477	)		—
		4,487,922			5,794,303			59,317
Other receivables:
Escrow receivables		309,730			255,373			—
	$	4,797,652		$	6,049,676		$	59,317

Accounts payable at March 31, 2013 (unaudited) and December 31, 2012 and 2011 include $3,905,087, $5,466,602 and $14,619, respectively, related to costs incurred under the Company’s fee building contracts.

3.    Contracts Intangible

The formation of the Company was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. As such, the Company allocated amounts to acquired tangible and intangible assets and liabilities based upon their fair values.

Contracts intangible represents the fair value attributable to a fee building contract contributed by TNHCP at formation. Contracts intangible was amortized over the life of the related fee building project, which was completed as of December 31, 2011, and consisted of the following:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Contracts intangible	$	—	$	—	$	754,744
Beginning accumulated amortization		—		—		(334,500	)
Amortization expense		—		—		(420,244	)
Ending accumulated amortization		—		—		(754,744	)
Contracts intangible, net	$	—	$	—	$	—

F-15

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.    Real Estate Inventories

Real estate inventories are summarized as follows:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Deposits and pre-acquisition costs	$	7,685,408	$	11,946,919	$	3,790,177
Land held and land under development		16,350,521		15,555,113		3,655,946
Homes completed or under construction		14,642,617		10,439,835		19,065,717
Model homes		1,065,190		1,326,897		2,378,733
	$	39,743,736	$	39,268,764	$	28,890,573

(All of our deposits and pre-acquisition costs are non-refundable,) except for $500,000, $250,000 and $150,000 as of March 31, 2013 (unaudited) and December 31, 2012 and 2011, respectively. As of December 31, 2012, deposits and pre-acquisition costs included $6,885,376 incurred in connection with the anticipated formation of an unconsolidated joint venture. Such amount was contributed to the unconsolidated joint venture during the three months ended March 31, 2013 (unaudited).

Model homes, homes completed, and homes under construction include all costs associated with home construction, including land, development, indirects, permits, and vertical construction. Land under development includes costs incurred during site development such as land, development, indirects, and permits. Land is classified as held for future development if no significant development has occurred.

Interest is capitalized on inventory during development and other qualifying activities. Interest capitalized as cost of inventory is included in cost of sales as related units are closed. For the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, interest incurred, capitalized and expensed was as follows:

													Period from August 18, 2010 (Inception) Through December 31,			Predecessor
	Three Months Ended March 31,						Year Ended December 31,									Period from January 1, 2010 Through August 17,
	2013			2012			2012			2011			2010			2010
	(unaudited)
Interest incurred	$	273,999		$	94,649		$	639,103		$	388,282		$	141,612		$	121,836
Interest expense		—			—			—			—			—			—
Capitalized interest in beginning inventory		493,486			182,628			182,628			220,050			121,836			—
Interest capitalized as a cost of inventory		273,999			94,649			639,103			388,282			141,612			121,836
Inventory previously capitalized as cost of inventory, included in cost of sales		(73,427	)		(57,743	)		(328,245	)		(425,704	)		(43,398	)		—
Capitalized interest in ending inventory	$	694,058		$	219,534		$	493,486		$	182,628		$	220,050		$	121,836

F-16

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.    Investment in Unconsolidated Joint Ventures

As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, the Company had ownership interests in six, five and two unconsolidated homebuilding joint ventures, respectively, with ownership percentages ranging from 5% to 50%. The combined balance sheets for our unconsolidated homebuilding joint ventures accounted for under the equity method are as follows (unaudited):

	March 31, 2013		December 31,
			2012		2011
Cash and cash equivalents	$	26,189,117	$	3,355,575	$	817,658
Restricted cash		5,744,122		5,249,000		—
Real estate inventories		172,310,403		163,595,376		91,668,286
Other assets		1,092,579		1,055,822		136,200
Total Assets	$	205,336,221	$	173,255,773	$	92,622,144
Accounts payable and accrued liabilities	$	8,349,493	$	7,952,065	$	5,610,963
Notes payable		34,287,802		36,721,776		16,000,000
Total Liabilities		42,637,295		44,673,841		21,610,963
The Company’s equity		23,598,335		12,424,229		4,854,584
Other partners’ equity		139,100,591		116,157,703		66,156,597
Total equity		162,698,926		128,581,932		71,011,181
Total liabilities and equity	$	205,336,221	$	173,255,773	$	92,622,144

The combined statements of operations for our unconsolidated homebuilding joint ventures accounted for under the equity method are as follows (unaudited):

											Period from August 18, 2010 (Inception) Through December 31,		Predecessor
	Three Months Ended March 31,					Year Ended December 31,							Period from January 1, 2010 Through August 17,
	2013		2012			2012		2011			2010		2010
Revenues	$	30,764,001	$	—		$	56,018,517	$	—		$	—	$	—
Cost of sales and expenses		24,603,007		606,826			47,365,766		766,819			—		—
Income (loss) of unconsolidated joint ventures	$	6,160,994	$	(606,826	)	$	8,652,751	$	(766,819	)	$	—	$	—
Income (loss) from unconsolidated joint ventures reflected in the accompanying consolidated statement of operations	$	271,856	$	(38,789	)	$	349,445	$	(38,916	)	$	—	$	—

The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to the underlying projects (collectively referred to as the “Management Agreements”). Pursuant to the Management Agreements, the Company receives an overhead fee based on each project’s revenues from its unconsolidated joint ventures. During the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010

F-17

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

and the period from January 1, 2010 through August 17, 2010, the Company earned and received $965,462, $444,069, $2,949,365, $844,411, $0 and $0, respectively, in management fees, which have been recorded as fee building revenues in the accompanying consolidated statements of operations.

6.    Property and Equipment

Property and equipment consists of the following:

	March 31, 2013			December 31,
				2012			2011
	(unaudited)
Computer equipment	$	412,990		$	297,677		$	188,454
Furniture and fixtures		191,104			174,965			111,931
Software		110,577			108,119			87,211
Leasehold improvements		102,596			89,708			64,109
		817,267			670,469			451,705
Less: accumulated depreciation		(388,315	)		(347,330	)		(208,497	)
	$	428,952		$	323,139		$	243,208

For the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, the Company incurred depreciation expense of $40,985, $31,931, $138,833, $144,090, $39,433 and $23,583, respectively.

7.    Other Assets

Other assets consist of the following:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Prepaid rent	$	88,444	$	92,142	$	46,541
Deferred tax asset		—		39,045		—
Capitalized costs, fundraising		814,975		—		—
Other		88,929		110,513		103,167
	$	992,348	$	241,700	$	149,708

F-18

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.    Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Accrued payroll	$	49,003	$	506,133	$	288,719
Incentive compensation		—		540,000		—
Employee benefits		365,584		295,811		212,785
Accrued professional fees		725,000		—		—
Income taxes payable		39,100		113,400		3,100
Warranty reserve		793,682		759,840		1,090,923
Completion reserve		553,104		503,906		441,231
Accrued building fees		—		380,153		—
Deferred fees from unconsolidated joint ventures		—		28,391		—
Other accrued expenses		316,832		131,457		47,935
	$	2,842,305	$	3,259,091	$	2,084,693

During the year ended December 31, 2012, the Company elected to institute a fully discretionary employee incentive compensation plan. The accrual for the year ended December 31, 2012 is $540,000, which has been included in general and administrative expenses in the accompanying consolidated statements of operations. The Company did not have an incentive compensation accrual for the three months ended March 31, 2013 and 2012 (unaudited), the year ended December 31, 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010.

Changes in our warranty accrual are detailed in the table set forth below:

	Three  Months Ended March  31, 2013			Year Ended December 31,
				2012			2011
	(unaudited)
Beginning warranty liability	$	759,840		$	1,090,923		$	27,100
Warranty provision for homebuilding projects		47,109			214,777			235,165
Warranty payments for homebuilding projects		(4,297	)		(10,811	)		(1,782	)
Warranty provision for fee building projects		—			—			923,303
Warranty payments for fee building projects		(8,970	)		(84,572	)		(92,863	)
Adjustment to warranty accrual for fee building projects		—			(450,477	)		—
Ending warranty liability	$	793,682		$	759,840		$	1,090,923

As a result of an assessment of historical and anticipated rates of warranty costs related to fee building projects, management reduced the reserve by $450,477 during the year ended December 31, 2012, which has been included in fee building revenue in the accompanying consolidated statements of operations.

F-19

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.    Notes Payable

Notes payable consisted of the following:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Note payable with land seller	$	9,500,000	$	9,500,000	$	—
Acquisition and development loans		3,457,850		4,251,426		4,314,469
Construction loans		4,281,423		2,970,452		5,068,993
Related party promissory note (Note 13)		1,000,000		1,000,000		—
	$	18,239,273	$	17,721,878	$	9,383,462

During the year ended December 31, 2012, the Company entered into a note with a land seller, secured by real estate, which bears interest at 7.0% per annum. The note matures on February 15, 2015 and requires certain mandatory pay downs totaling $1,000,000 based on the occurrence of certain project-related events. Interest is payable monthly and the remaining principal is due at maturity.

The Company enters into secured acquisition and development loan agreements to purchase and develop land parcels. In addition, the Company enters into secured construction loan agreements for the construction of its model and production homes. The acquisition and development loans will be repaid as lots are released from the loans based upon a specific release price, as defined in each respective loan agreement. The construction loans will be repaid with proceeds from home closings based upon a specific release price, as defined in each respective loan agreement. The loans have maturity dates ranging from September 2013 to October 2014 and bear interest at variable rates of Prime plus 1.55% or applicable LIBOR plus 3.25% per annum. As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, the weighted average interest rate was 5.9%, 6.0% and 4.2%, respectively, per annum.

IHP issued an unsecured promissory note to the Company on December 13, 2012. The note provides for a commitment of $5,500,000, of which $1,000,000 had been funded as of March 31, 2013 (unaudited). The Company has $4,500,000 available to draw on the commitment as of March 31, 2013 (unaudited). This unsecured promissory note bears interest at 14% per annum and matures on June 13, 2013.

Notes payable have stated maturities as follows for the years ending December 31:

2013	$	4,457,850
2014		4,281,423
2015		9,500,000
	$	18,239,273

F-20

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10.    Income Taxes

For the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, major components of income tax expense were as follows:

										Period from August 18, 2010 (Inception) Through December 31,		Predecessor
	Three Months Ended March 31,				Year Ended December 31,							Period from January  1, 2010 Through August 17,
	2013		2012		2012			2011		2010		2010
	(unaudited)
Current:
Federal	$	27,754	$	—	$	110,300		$	6,349	$	—	$	—
State		7,304		—		—			3,800		—		—
Total current		35,058		—		110,300			10,149		—		—
Deferred:
Federal		14,807		—		—			—		—		—
State		14,880		—		(39,045	)		—		—		—
Total deferred		29,687		—		(39,045	)		—		—		—
	$	64,745	$	—	$	71,255		$	10,149	$	—	$	—

The Company has considered the positive and negative evidence in evaluating the realizability of its deferred tax asset. Notwithstanding that the Company has incurred net losses on a consolidated basis from inception through December 31, 2012, its sole taxable subsidiary recognized net income (and net taxable income) for the same periods, and is projected to continue to generate income in future periods sufficient to utilize its deferred tax assets.

At March 31, 2013 (unaudited) and December 31, 2012 and 2011, the tax effects of temporary differences that give rise to significant portions of deferred taxes were as follows:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Deferred tax asset:
State tax credit	$	—	$	39,045	$	—
Deferred tax liabilities:
Miscellaneous tax items		29,687		—		—
	$	29,687	$	39,045	$	—

F-21

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, the effective tax rate differed from the federal statutory rate due to the following:

																Predecessor
	Three Months Ended March 31,						Year Ended December 31,						Period from August 18, 2010 (Inception) Through December 31,			Period  from January 1, 2010 Through August 17,
	2013			2012			2012			2011			2010			2010
	(unaudited)
Income (loss) before taxes	$	371,177		$	(529,633	)	$	(805,620	)	$	(1,843,319	)	$	(94,943	)	$	(153,129	)
Less: Non-taxable entities income (loss)(a)		245,997			(553,580	)		(1,096,334	)		(1,893,703	)		(98,411	)		(183,270	)
Income before taxes of taxable entities	$	125,180		$	23,947		$	290,714		$	50,384		$	3,468		$	30,141
Federal statutory rate		34	%		34	%		34	%		15	%		15	%		15	%
Income tax expense computed at statutory rate	$	(42,561	)	$	(8,142	)	$	(98,842	)	$	(7,558	)	$	(520	)	$	(4,521	)
Changes in taxes resulting from:
State tax expense, net of federal benefits		(7,304	)		—			—			(3,800	)		—			—
State tax credits and other reconcling items		(14,880	)		8,142			27,587			1,209			520			4,521
Total provision for income taxes	$	(64,745	)	$	—		$	(71,255	)	$	(10,149	)	$	—		$	—
Effective tax rate		52	%		N/A			25	%		20	%		N/A			N/A

^(a)  Non-taxable entities represent income or loss related to consolidated limited liability companies in which the taxable income or loss is reflected on the respective partners’ tax return.

The federal statutory tax rate of the Company’s sole taxable subsidiary increased from 15% to 34% because its income on a separate company basis increased to over $100,000 for the year ended December 31, 2012 but was at or under $50,000 for the year ended December 31, 2011, the period from August 18, 2010 (inception) to December 31, 2010 and the period from January 1, 2010 to August 17, 2010, causing it to be taxed in different tax brackets for those years.

11.    Fair Value Disclosures

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

• Level 1 – Quoted prices for identical instruments in active markets

• Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date

F-22

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

• Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, contracts and accounts receivable, due from affiliates, accounts payable, accrued expenses and other liabilities, and notes payable, including notes payable to member.

The Company considers the carrying value of cash and cash equivalents, restricted cash, contracts and accounts receivable, accounts payable, and accrued expenses and other liabilities to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. The fair value of amounts due from affiliates and notes payable to member is not determinable due to the related party nature of such amounts.

At March 31, 2013 (unaudited) and December 31, 2012 and 2011, as required by ASC 820, the following presents net book values and estimated fair values of notes:

	Liabilities at Fair Value as of March 31, 2013
	Total		Level 1		Level 2		Level 3		Book Value
	(unaudited)
Note payable with land seller	$	9,500,000	$	—	$	—	$	9,500,000	$	9,500,000
Acquisition and development loans		3,457,850		—		—		3,457,850		3,457,850
Construction loans		4,281,423		—		—		4,281,423		4,281,423
	$	17,239,273	$	—	$	—	$	17,239,273	$	17,239,273

	Liabilities at Fair Value as of December 31, 2012
	Total		Level 1		Level 2		Level 3		Book Value
Note payable with land seller	$	9,500,000	$	—	$	—	$	9,500,000	$	9,500,000
Acquisition and development loans		4,251,426		—		—		4,251,426		4,251,426
Construction loans		2,970,452		—		—		2,970,452		2,970,452
	$	16,721,878	$	—	$	—	$	16,721,878	$	16,721,878
	Liabilities at Fair Value as of December 31, 2011
	Total		Level 1		Level 2		Level 3		Book Value
Acquisition and development loans	$	4,314,469	$	—	$	—	$	4,314,469	$	4,314,469
Construction loans		5,068,993		—		—		5,068,993		5,068,993
	$	9,383,462	$	—	$	—	$	9,383,462	$	9,383,462

Estimated fair values of the note payable with land seller, acquisitions and development loans and construction loans, at March 31, 2013 (unaudited) and December 31, 2012 and 2011 were based on cash flow models discounted at market interest rates that considered underlying risks of the debt.

Nonfinancial assets and liabilities include items such as inventory and long lived assets that are measured at fair value when acquired and resulting from impairment, if deemed necessary. During the three months ended March 31, 2013 and 2012 (unaudited), the year ended December 31, 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, the

F-23

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Company did not record any fair value adjustments to those nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. During the year ended December 31, 2012, the Company recorded a fair value adjustment of $350,000 resulting from an impairment charge on its real estate inventories, as more fully described in Note 1.

12.    Commitments and Contingencies

Lawsuits, claims and proceedings have been or may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.

In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, we will disclose their nature with an estimate of possible range of losses or a statement that such loss is not reasonably estimable. At March 31, 2013 (unaudited) and December 31, 2012 and 2011, the Company did not have any accruals for asserted or unasserted matters.

We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, the Company had outstanding surety bonds totaling $875,079, $179,998 and $87,794, respectively. The beneficiaries of the bonds are various municipalities and other organizations. In the unlikely event that any such surety bond issued by a third party is called because the required improvements are not completed, the Company could be obligated to reimburse the issuer of the bond.

Rent expense for the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010 was $106,756, $34,309, $244,217, $174,827, $64,136 and $60,329, respectively. As of March 31, 2013, future minimum lease payments under noncancelable operating lease agreements are as follows:

2013	$	312,587
2014		449,203
2015		465,169
2016		169,441
2017		38,528
	$	1,434,928

13.    Related Party Transactions

During the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from

F-24

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

January 1, 2010 through August 17, 2010, the Company incurred construction-related costs on behalf of its unconsolidated joint ventures totaling $910,364, $315,841, $2,231,559, $411,235, $10,184 and $0 respectively. As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, $0, $51,160 and $40,549 are reflected as due from affiliates in the accompanying consolidated balance sheets, respectively.

The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to the underlying projects. Pursuant to the Management Agreements, the Company receives an overhead fee based on each project’s revenues. During the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010, the Company earned and received $965,462, $444,069, $2,949,365, $844,411, $0 and $0, respectively, in overhead fees, which have been recorded as fee building revenue in the accompanying consolidated statements of operations.

Under one of its Management Agreements, a portion of the Company’s management fee revenue is deferred until each member of the joint venture has received a specified return. As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, this hurdle had not been achieved; therefore, no amount under the contingent portion of the management fee has been recognized by the Company.

The Company has entered into loan guaranties on behalf of certain of its unconsolidated joint ventures in order to secure performance under the loans and maintain certain loan-to-value ratios. Concurrent with the execution of the guaranties, the Company entered into agreements with its partners in each of the unconsolidated joint ventures whereby the Company and the partners are apportioned liability under the guaranties according to their respective percentage interest. In addition, the agreements provide the Company, to the extent the partner has an unpaid liability under the guaranties, the right to receive distributions from the unconsolidated joint venture that would otherwise be made to the partner. The loans underlying the guaranties comprise acquisition and development loans, construction revolvers, and model loans, and the guaranties remain in force until the loans are satisfied, which is expected to occur over a period between October 2013 and April 2014. Due to the nature of the loans, the outstanding balance at any given time is subject to a number of factors including the status of site improvements, the mix of horizontal and vertical development underway, the timing of phase build outs, and the period necessary to complete the escrow process for homebuyers. With respect to guaranties regarding specific performance, the Company is not generally subject to financial liability, but is only required to complete the project that is funded by the beneficiary of the guarantee. As of March 31, 2013 (unaudited) and December 31, 2012, $24,498,977 and $25,034,540, respectively, was outstanding under the loans, in which the Company is subject to financial liability equal to 5% of the outstanding balances. In connection with providing the loan guaranties, the Company received $113,563 from the unconsolidated joint ventures and deferred these fees as unearned income at the point the guaranties were executed and the cash was received. For the three months ended March 31, 2013 (unaudited) and the year ended December 31, 2012, the Company has recognized $28,391 and $85,172, respectively, of these fees as guaranty fee income in the accompanying consolidated statements of operations. As of December 31, 2012, the remaining deferred portion of the fees was $28,391, which is reflected as accrued expenses and other liabilities (Note 8) in the accompanying consolidated balance sheets.

IHP, one of the Company’s members, issued an unsecured promissory note to the Company on December 13, 2012. The note provides for a commitment of $5,500,000, of which $1,000,000 had been funded as of March 31, 2013 (unaudited) and December 31, 2012 and is included in notes payable to member in the accompanying consolidated balance sheets (Note 9).

F-25

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14.    Segment Information

The Company’s operations are organized into two reportable segments: homebuilding and fee building. In accordance with ASC 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply.

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented. Financial information relating to reportable segments was as follows:

												Predecessor
	Three Months Ended March 31,				Year Ended December 31,					Period From August 18, 2010 (Inception) Through December 31,		Period From January 1, 2010 Through August 17,
	2013		2012		2012		2011			2010		2010
	(unaudited)
Revenues
Homebuilding	$	4,666,531	$	4,110,937	$	27,138,056	$	25,624,111		$	5,319,408	$	538,598
Fee building		13,472,550		2,719,748		28,268,675		16,522,946			11,494,347		12,941,110
Total	$	18,139,081	$	6,830,685	$	55,406,731	$	42,147,057		$	16,813,755	$	13,479,708
Gross profit
Homebuilding	$	936,904	$	693,387	$	3,096,827	$	3,849,912		$	896,172	$	138,603
Fee building		533,737		66,969		1,763,633		(239,720	)		163,061		176,613
Total	$	1,470,641	$	760,356	$	4,860,460	$	3,610,192		$	1,059,233	$	315,216

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Assets
Homebuilding	$	70,186,746	$	58,265,760	$	39,584,837
Fee building		4,605,984		6,244,956		176,953
Total	$	74,792,730	$	64,510,716	$	39,761,790

F-26

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

15.    Unaudited Pro Forma Income (Loss) per Share

Unaudited pro forma basic and diluted net income (loss) per share for the three months ended March 31, 2013 and 2012, the years ended December 31, 2012 and 2011, the period from August 18, 2010 (inception) through December 31, 2010 and the period from January 1, 2010 through August 17, 2010 gives effect to the conversion of the Company’s members’ equity into common stock as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. The number of shares to be converted is based on the actual initial public offering price of $             per share. In addition, the pro forma amounts give effect to reflect any income tax adjustments as if the Company was a taxable entity as of the beginning of the period. The pro forma income tax adjustment reflects that the Company would have filed a consolidated tax return as a corporation reflecting a consolidated net income (loss) for the periods presented. On a pro forma basis, the Company would have been required to set up a valuation allowance against the net tax asset associated with its losses, thereby resulting in no tax provision or benefit for the periods presented. Any deferred tax assets associated with the losses would have a full valuation allowance applied against them.

	Three Months Ended March 31,					Years Ended December 31,
	2013		2012			2012			2011
Income (loss) before taxes	$	371,177	$	(529,633	)	$	(805,620	)	$	(1,843,319	)
Pro forma income tax provision to reflect the conversion to a C Corporation		—		—			—			—
Pro forma net income (loss)	$	371,177	$	(529,633	)	$	(805,620	)	$	(1,843,319	)
Pro forma weighted-average shares to reflect the conversion of members’ equity
Pro forma weighted-average shares used to compute pro forma basic and diluted net income (loss) per share

16.    Subsequent Events

On March 1, 2013, the Company entered into a joint venture (TNHC Newport LLC) with an unrelated third-party to acquire approximately 4.5 acres in Newport Beach, CA. On April 2, 2013, TNHC Newport LLC acquired the land and as a result, the Company made an additional investment in the joint venture of $7,719,250.

On March 28, 2013, the Company acquired 20 lots in Thousand Oaks, CA with a purchase price of $2,750,000.

During March 2013, the Company became a party to certain loan to value maintenance and completion guaranties related to two joint ventures and is indemnified by members of the joint ventures. The Company does not believe that it is probable it will have to perform under the guaranties.

Effective April 16, 2013, the members executed an amendment to the Operating Agreement increasing the aggregate capital commitment from $50,000,000 to $60,000,000. This capital was called and funded in April 2013.

F-27

THE NEW HOME COMPANY LLC AND THE NEW HOME COMPANY PREDECESSOR

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In May 2013 the Company formed the TNHC San Juan Capistrano unconsolidated joint venture and it acquired a site to develop 33 lots in San Juan Capistrano, California. Upon acquisition, our aggregate investment in that unconsolidated joint venture was $2.3 million. The Company also formed the Russell Ranch unconsolidated joint venture in May 2013, which acquired a site to develop 870 lots in Sacramento, California. Upon acquisition, our aggregate investment in that unconsolidated joint venture was $3.5 million. In May 2013, the Company formed the McKinley unconsolidated joint venture to acquire a site to develop 330 lots in Sacramento, California.

F-28

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members

LR8 Investors, LLC

We have audited the accompanying consolidated balance sheets of LR8 Investors, LLC as of December 31, 2012 and 2011, and the related consolidated statements of operations, members’ capital, and cash flows for the years ended December 31, 2012 and 2011, and the period from September 22, 2010 (inception) through December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of LR8 Investors, LLC at December 31, 2012 and 2011, and the consolidated results of its operations, members’ capital, and cash flows for the years ended December 31, 2012 and 2011, and for the period from September 22, 2010 (inception) through December 31, 2010, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Irvine, California

April 19, 2013

F-29

LR8 INVESTORS, LLC

CONSOLIDATED BALANCE SHEETS

	March 31, 2013		December 31,
			2012		2011
	(Unaudited)
Assets
Cash	$	2,165,425	$	1,170,076	$	96,122
Restricted cash		5,249,000		5,249,000		—
Real estate inventories		70,254,880		79,190,159		65,755,834
Other assets		751,554		728,297		136,200
Total assets	$	78,420,859	$	86,337,532	$	65,988,156
Liabilities and members’ capital
Accounts payable	$	4,276,832	$	4,516,863	$	2,056,958
Due to affiliates		749,972		431,748		34,068
Accrued expenses and other liabilities		1,170,340		1,049,500		3,002,449
Notes payable		25,103,516		31,137,340		16,000,000
		31,300,660		37,135,451		21,093,475
Commitments and contingencies (Note 7)
Members’ capital		47,120,199		49,202,081		44,894,681
Total liabilities and members’ capital	$	78,420,859	$	86,337,532	$	65,988,156

See accompanying notes.

F-30

LR8 INVESTORS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,					Year Ended December 31,					Period From September 22, 2010 (Inception) to December 31,
	2013		2012			2012		2011			2010
	(Unaudited)
Revenues:
Home sales	$	27,324,301	$	—		$	49,821,399	$	—		$	—
Design studio option sales		3,439,700		—			6,197,118		—			—
		30,764,001		—			56,018,517		—			—
Cost of sales:
Homes sales		20,148,923		—			37,113,105		—			—
Design studio option sales		2,388,819		—			4,435,131		—			—
		22,537,742		—			41,548,236		—			—
Gross profit		8,226,259		—			14,470,281		—			—
Selling and marketing expenses		507,062		73,281			1,361,282		10,383			—
Selling and marketing expenses incurred from affiliates		236,711		—			750,090		—			—
Amortization expense		28,391		—			85,172		—			—
Overhead fees to affiliates		785,977		364,595			2,468,337		764,936			—
Net income (loss)	$	6,668,118	$	(437,876	)	$	9,805,400	$	(775,319	)	$	—

See accompanying notes.

F-31

LR8 INVESTORS, LLC

CONSOLIDATED STATEMENTS OF MEMBERS’ CAPITAL

	The New Home Company Southern California LLC			MFCI8 LR, LLC			Total
Balance at September 22, 2010 (Inception)	$	—		$	—		$	—
Contributions		1,668,500			31,701,500			33,370,000
Balance at December 31, 2010		1,668,500			31,701,500			33,370,000
Contributions		615,000			11,685,000			12,300,000
Net loss		(38,766	)		(736,553	)		(775,319	)
Balance at December 31, 2011		2,244,734			42,649,947			44,894,681
Contributions		1,050,100			19,951,900			21,002,000
Distributions		(1,325,000	)		(25,175,000	)		(26,500,000	)
Net income		490,270			9,315,130			9,805,400
Balance at December 31, 2012		2,460,104			46,741,977			49,202,081
Distributions (Unaudited)		(437,500	)		(8,312,500	)		(8,750,000	)
Net income (Unaudited)		333,406			6,334,712			6,668,118
Balance at March 31, 2013 (Unaudited)	$	2,356,010		$	44,764,189		$	47,120,199

See accompanying notes.

F-32

LR8 INVESTORS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,						Year Ended December 31,						Period From September 22, 2010 (Inception) to December 31,
	2013			2012			2012			2011			2010
	(Unaudited)
Operating activities:
Net income (loss)	$	6,668,118		$	(437,876	)	$	9,805,400		$	(775,319	)	$	—
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization expense		28,391			—			85,172			—			—
Net changes in operating assets and liabilities:
Real estate inventories		8,935,279			(11,002,551	)		(13,434,325	)		(17,185,699	)		(48,570,135	)
Other assets		(51,648	)		(128,000	)		(677,269	)		(136,200	)		—
Accounts payable		(240,031	)		1,096,805			2,459,905			1,983,935			73,023
Due to affiliates		318,224			(34,068	)		397,680			23,884			10,184
Accrued expenses and other liabilities		120,840			(74,665	)		(1,952,949	)		3,002,449			—
Net cash provided by (used in) operating activities		15,779,173			(10,580,355	)		(3,316,386	)		(13,086,950	)		(48,486,928	)
Financing activities
Proceeds from issuance of secured notes		12,321,077			—			72,620,866			—			16,000,000
Cash collateral on secured notes		—			—			(5,249,000	)		—			—
Repayments of secured notes		(18,354,901	)		—			(57,483,526	)		—			—
Members’ capital contributions		—			11,002,000			21,002,000			12,300,000			33,370,000
Members’ capital distributions		(8,750,000	)		—			(26,500,000	)		—			—
Net cash (used in) provided by financing activities		(14,783,824	)		11,002,000			4,390,340			12,300,000			49,370,000
Net increase (decrease) in cash		995,349			421,645			1,073,954			(786,950	)		883,072
Cash at beginning of period		1,170,076			96,122			96,122			883,072			—
Cash at end of period	$	2,165,425		$	517,767		$	1,170,076		$	96,122		$	883,072

See accompanying notes.

F-33

LR8 INVESTORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Summary of Significant Accounting Policies

LR8 Investors, LLC, a Delaware limited liability company (the “Company”), was formed with an effective date of September 22, 2010. The Company was capitalized through cash contributions by its members, The New Home Company Southern California LLC (“TNHC”) and MFCI8 LR, LLC (“Westbrook”) (collectively referred to herein as the “Members”). On December 22, 2010, the Company, through a wholly owned subsidiary, acquired approximately 51 acres of land located in Irvine, California, for the development and sale of approximately 169 homes in a community known as Lambert Ranch (the “Project”).

Subject to the operating agreement, distributions of net cash flow to the Members shall be in the following order of priority:

1) To the Members in proportion to their respective percentage interests (Westbrook 95% and TNHC 5%), until each Member has received aggregate distributions necessary to provide each Member with a 15% IRR on its capital contributions;

2) To the Members in the following proportion: 85% to Westbrook and 15% to TNHC, until each Member has received aggregate distributions necessary to provide each Member with a 20% IRR and a 1.5x multiple on its capital contributions;

3) To the Members in the following proportion: 80% to Westbrook and 20% to TNHC, until each Member has received aggregate distributions necessary to provide each Member with a 25% IRR and a 1.65x multiple on its capital contributions; and

4) To the Members, in the following proportion: 70% to Westbrook and 30% to TNHC.

Subject to the operating agreement, income and loss is allocated to the Members based on the hypothetical distribution that the Members would receive if, on the last day of the year, all Company assets were sold and all liabilities were satisfied at book value.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. Management believes the Company has sufficient cash and access to capital to fund its operations.

Reclassification

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned and controlled subsidiary. The accounting policies of the subsidiary are substantially the same as those of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of commitments and contingencies. Actual results could differ materially from those estimates.

F-34

LR8 INVESTORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Cash

The Company considers all highly-liquid investments that are readily convertible to cash, with original maturity dates of three months or less, to be cash and cash equivalents. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash deposited with financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses related to uninsured cash balances.

Restricted Cash

Restricted cash of $5,249,000, $5,249,000 and $0 as of March 31, 2013 (unaudited) and December 31, 2012 and 2011, respectively, is held in various accounts and serves as additional collateral for certain notes payable.

Real Estate Inventories and Cost of Sales

Real estate inventories are carried at cost. Development costs, including land, land development, direct costs of construction, indirect costs, interest and property taxes incurred during the development period, are capitalized. Capitalization of development costs ends when the assets are substantially complete and ready for sale.

Costs of home sales are allocated based on specific identification, relative fair value before construction or relative sales value, depending on the nature of the costs and/or project. Project specific costs are amortized to cost of sales as homes are closed based upon a method that approximates relative sales value. A provision for warranty costs is included in cost of homes sold at the time the sale of a home is recorded. Selling and marketing costs are expensed in the period incurred.

Real estate inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case the inventories are written down to fair value in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires that real estate assets be tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

Impairment of assets is measured by comparing the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. These evaluations for impairment are significantly impacted by estimates of the amounts and timing of revenues, costs and expenses, and other factors. If real estate assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with the real estate assets, or other valuation techniques.

At March 31, 2013 (unaudited) and December 31, 2012 and 2011, the Company determined that the carrying amounts of its real estate inventories were not impaired based upon undiscounted future cash flow of the underlying Project.

Revenue Recognition

In accordance with ASC 360, revenues from home sales and other real estate sales are recorded and a profit is recognized when the respective units are closed. Home sales and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives

F-35

LR8 INVESTORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

are a reduction of revenues when the respective unit is closed. When it is determined that the earnings process is not complete, the sale and the related profit are deferred for recognition in future periods. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”

Income Taxes

As a limited liability company, the Company is subject to certain minimal taxes and fees; however, income taxes on income or loss reported by the Company are the obligation of the Members.

The Company applies the provisions of ASC 740, Accounting for Uncertainty in Income Taxes (“ASC 740”). Based on its evaluation, under ASC 740, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluation was performed for the tax years ended December 31, 2012, 2011 and 2010.

2.    Real Estate Inventories

Real estate inventories consist of the following:

	March  31, 2013		December 31,
			2012		2011
	(unaudited)
Land and land development	$	19,786,583	$	24,456,777	$	57,903,207
Construction in progress		39,188,815		43,456,152		7,852,627
Model homes		11,279,482		11,277,230		—
	$	70,254,880	$	79,190,159	$	65,755,834

Construction in progress consists primarily of construction costs for homes and common area facilities, which are in various stages of development.

For the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011 and for the period from September 22, 2010 (inception) to December 31, 2010, the Company incurred, capitalized and amortized interest costs as follows:

	Three Months Ended March 31,					Year Ended December 31,					Period From September 22, 2010 (Inception) to December 31, 2010
	2013			2012		2012			2011
	(unaudited)
Interest included in beginning real estate inventories	$	1,962,533		$	1,340,495	$	1,340,495		$	32,028	$	—
Interest incurred and capitalized		415,731			302,805		1,980,418			1,308,467		32,028
Interest amortized to cost of sales		(744,580	)		—		(1,358,380	)		—		—
Interest included in ending real estate inventories	$	1,633,684		$	1,643,300	$	1,962,533		$	1,340,495	$	32,028

F-36

LR8 INVESTORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.    Other Assets

Other assets consist of the following:

	March  31, 2013		December 31,
			2012		2011
	(unaudited)
Cash collateral - performance bonds	$	709,656	$	674,906	$	111,200
Unamortized loan fees (Note 5)		—		28,391		—
Refundable deposits		25,000		25,000		25,000
Prepaid commissions		16,898		—		—
	$	751,554	$	728,297	$	136,200

4.    Accrued Expenses and Other Liabilities

Accrued Expenses and other liabilities consist of the following:

	March 31,		December 31,
	2013		2012		2011
	(unaudited)
Warranty reserve	$	853,926	$	560,206	$	—
Completion reserve		316,414		489,294		—
Taxes due to the City of Irvine		—		—		2,821,117
Insurance premiums		—		—		181,332
	$	1,170,340	$	1,049,500	$	3,002,449

We offer warranties on our homes that generally provide for one-year warranties to cover various defects in workmanship or materials or to cover structural construction defects. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Due to the Company’s limited history related to homebuilding sales, the Company considers the historical experience of its peers in determining the amount of its warranty reserve. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary. Our warranty accrual is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

Changes in the Company’s warranty liability are as follows:

	Three Months Ended March 31,			Years Ended December 31,
	2013			2012		2011
	(unaudited)
Beginning warranty liability	$	560,206		$	—	$	—
Warranty provision		307,654			560,206		—
Warranty payments		(13,934	)		—		—
Ending warranty liability	$	853,926		$	560,206	$	—

F-37

LR8 INVESTORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The completion reserve includes project costs for homes that have closed but for which invoices from vendors have not been received. The Company periodically assesses the adequacy of its completion reserve and adjusts the amounts as necessary.

5.    Related Party Transactions

During the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011 and the period from September 22, 2010 (inception) to December 31, 2010, TNHC incurred personnel-related costs on the Company’s behalf totaling $699,650, $278,456, $1,718,734, $411,235 and $10,184, respectively. The Company capitalized $462,939, $278,456, $1,070,738, $411,235 and $10,184 of these amounts to real estate inventories for the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011 and the period from September 22, 2010 (inception) to December 31, 2010, respectively, and charged the remaining $236,711, $0, $750,090, $0 and $0 to selling and marketing expense incurred from affiliates in the accompanying consolidated statements of operations. As of March 31, 2013 (unaudited) and December 31, 2012 and 2011, $0, $11,609 and $34,068, respectively, is included in due to affiliates in the accompanying consolidated balance sheets.

Pursuant to the Development Management Agreement as referenced in the Operating Agreement, TNHC shall receive an overhead fee from the Company in an amount equal to 3.0% of the Project revenues. This amount will be paid as follows:

1) 0.75% of the projected gross sales revenue of the Project, paid in equal monthly installments beginning with the commencement of grading work, based upon a 23 month period;

2) 0.75% of the projected gross sales revenue of the Project, paid in equal monthly installments beginning with the commencement of the construction of the model homes, based upon a 28 month period;

3) 0.75% of the gross sales revenue from each home sold, payable upon the close of escrow;

4) 0.75% of the gross sales revenue from each home sold, payable upon each Member having reached a 15% IRR on its capital contributions.

During the three months ended March 31, 2013 and 2012 (unaudited), the years ended December 31, 2012 and 2011 and the period from September 22, 2010 (inception) to December 31, 2010, TNHC earned $785,977, $364,595, $2,468,337, $764,936 and $0, respectively, in overhead fees, which have been recorded by the Company as overhead fees to affiliates in the accompanying consolidated statements of operations. At March 31, 2013 (unaudited) and December 31, 2012 and 2011, $749,972, $420,139 and $0, respectively, was due to TNHC for such fees and have been included in due to affiliates in the accompanying consolidated balance sheets.

During the year ended December 31, 2012, the Company paid TNHC $113,563 for certain loan guaranties provided on behalf of the Company for a 12-month period. The Company capitalized these fees to other assets and recorded amortization expense of $28,391 and $85,172 for the three months ended March 31, 2013 (unaudited) and the year ended December 31, 2012, respectively in the accompanying consolidated statement of operations. As of December 31, 2012, the unamortized portion of the fees included in other assets was $28,391.

F-38

LR8 INVESTORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.    Notes Payable

The Company had notes payable secured by real estate outstanding as follows:

	March 31, 2013		December 31,
			2012		2011
	(unaudited)
Construction note payable; matures April 2014 and bears interest at a rate of applicable LIBOR plus 5.5% (5.75% at March 31, 2013) (unaudited)	$	17,627,410	$	18,260,812	$	—
Model note payable; matures April 2014 and bears interest at a rate of applicable LIBOR plus 5.5% (5.75% at March 31, 2013) (unaudited)		6,871,567		6,773,728		—
Acquisition and development note payable; matures October 2013 and bears interest at a rate of applicable LIBOR plus 6.5% (6.75% at March 31, 2013) (unaudited)		604,539		6,102,800		—
Land seller notes; matured on March 31, 2012 and bore interest at the rate of 8.0%		—		—		16,000,000
	$	25,103,516	$	31,137,340	$	16,000,000

The principal amount of maturities of notes payable is as follows:

2013	$	604,539
2014		24,498,977
	$	25,103,516

7.    Commitments and Contingencies

The Company’s commitments and contingencies include the usual obligations and litigation incurred by real estate developers in the normal course of business. In the opinion of management, none of these matters are believed to be probable or reasonably possible of occurring, and none are believed to have a material effect on the Company’s financial position and results of operations.

The Company obtains performance bonds in the normal course of business to ensure completion of the infrastructure of the Project. At March 31, 2013 (unaudited) and December 31, 2012, the Company had $7,860,452 and $7,760,972, respectively, in performance bonds outstanding with various cities, governmental entities, and others, for which the Company had disbursed $709,656 and $674,906 in cash collateral to third parties. The Company was in compliance with all performance standards under such bonds as of March 31, 2013 (unaudited) and December 31, 2012.

F-39

            Shares

The New Home Company Inc.

Common Stock

PRELIMINARY PROSPECTUS

            , 2013

Joint Book-Running Managers

Citigroup J.P. Morgan

Co-Manager

Zelman Partners LLC

Through and including             , 2013 (25 days after the date of this prospectus), all dealers that effect transactions in shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than the underwriting discount, payable in connection with the sale of common stock being registered. All amounts shown are estimates, except the Securities and Exchange Commission registration fee and the Financial Industry Regulatory Authority filing fee.

Securities and Exchange Commission registration fee	$
Financial Industry Regulatory Authority filing fee
New York Stock Exchange listing fee
Legal fees and expenses
Accountants’ fees and expenses
Printing expenses
Transfer agent and registrar fees and expenses
Miscellaneous
Total	$

Item 14. Indemnification of Directors and Officers.

Delaware General Corporation Law. Under Section 145 of the Delaware General Corporation Law, which we refer to as the “DGCL,” a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding (1) if such person acted in good faith and in a manner that person reasonably believed to be in or not opposed to the best interests of the corporation and (2) with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe such conduct was unlawful. In actions brought by or in the right of the corporation, a corporation may indemnify such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner that person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the Court of Chancery or other such court shall deem proper. To the extent that such person has been successful on the merits or otherwise in defending any such action, suit or proceeding referred to above or any claim, issue or matter therein, he or she is entitled to indemnification for expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith. The indemnification and advancement of expenses provided for or granted pursuant to Section 145 of the DGCL is not exclusive of any other rights of indemnification or advancement of expenses to which those seeking indemnification or advancement of expenses may be entitled, and a corporation may purchase and maintain insurance against liabilities asserted against any former or current director, officer, employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not the power to indemnify is provided by the statute.

II-1

Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for any breach of the director’s duty of loyalty to the corporation or its stockholders, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation (which we refer to as our “charter”) provides for such limitation of liability.

Our Charter. Article X of our charter provides that we shall, to the fullest extent authorized by the DGCL, indemnify any person made, or is threatened to be made, a party to, or is otherwise involved in, any action, suit or proceeding (whether civil, criminal or otherwise) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Company. We may, by action of our board of directors, provide indemnification to employees and agents of the Company to such extent and to such effect as our board of directors shall determine to be appropriate and authorized by the DGCL. Article X of our charter also provides that no director of the Company shall be personally liable to the Company or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the Company or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, or (4) for any transaction from which the director derived an improper personal benefit.

Our Bylaws. Article VII of our bylaws provides that we shall, to the fullest extent permitted by law, indemnify any person made or threatened to be made a party or that is otherwise involved in any action, suit or proceeding (whether civil, criminal or otherwise) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise. We shall not be required to indemnify any person in connection with an action, suit or proceeding initiated by such person, including a counterclaim or crossclaim, unless such action, suit or proceeding was authorized by our board of directors. We may, by action of our board of directors, provide indemnification to such employees and agents of the Company to such extent and to such effect as our board of directors shall determine to be appropriate and authorized by Delaware law.

Indemnification Agreements. In addition to the provisions of our charter and bylaws described above, upon the completion of this offering, we will enter into an indemnification agreement with each of our officers and directors. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

Insurance. We expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.

Item 15. Recent Sales of Unregistered Securities.

During the three years preceding the filing of this registration statement, we sold unregistered securities to a limited number of persons, as described below:

• As part of our formation transactions, the members of TNHC LLC will receive an aggregate of shares of our common stock in connection with the conversion of their membership interests in TNHC LLC. The members of TNHC LLC include the members of our management team and certain non-management institutional investors. Such issuance will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof because the shares were issued in transaction that did not involve any public offering.

II-2

• On or about August 18, 2010, Institutional Housing Partners and Watt Residential LLC each contributed $10 million capital to TNHC LLC and each received 33 1/3 capital percentage interest in TNHC LLC. Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof because the capital percentages issued were issued in a transaction that did not involve any public offering.

• On or about January 7, 2011, Tricon Capital contributed $10 million capital to TNHC LLC and received 25% capital percentage interest in TNHC LLC. Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof because the capital percentages issued were issued in a transaction that did not involve any public offering.

• In April 2013, TNHC Partners LLC, Institutional Housing Partners, Watt Residential LLC and Tricon Capital each contributed $2,500,000 capital to TNHC LLC and received additional proportionate capital percentage interest in TNHC LLC. Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof because the capital percentages issued were issued in a transaction that did not involve any public offering.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

The following documents are filed as exhibits to this Registration Statement:

Exhibit   Number	Exhibit Description
1.1*	Form of Underwriting Agreement
2.1*	Form of Plan of Conversion of TNHC LLC, to be effective prior to the completion of this offering
3.1*	Form of Certificate of Incorporation of The New Home Company Inc., to be effective prior to the completion of this offering
3.2*	Form of Bylaws of The New Home Company Inc., to be effective prior to the completion of this offering
4.1*	Specimen Common Stock Certificate of The New Home Company Inc.
5.1*	Opinion of Sidley Austin LLP regarding the validity of the securities being registered
10.1*	Form of 2013 Long-Term Incentive Plan
10.2*	Form of Registration Rights Agreement among The New Home Company Inc. and the members of TNHC LLC, to be effective prior to the completion of this offering
10.3*	Form of Investor Rights Agreement, among The New Home Company Inc., IHP Capital Partners VI, LLC, Watt/TNHC LLC, TCN/TNHC LP and Messrs. Webb, Stelmar, Davis and Redwitz to be effective prior to the completion of this offering
10.4*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and H. Lawrence Webb, to be effective upon the completion of this offering
10.5*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and Wayne Stelmar, to be effective upon the completion of this offering
10.6*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and Joseph Davis, to be effective upon the completion of this offering
10.7*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and Thomas Redwitz, to be effective upon the completion of this offering
10.8*	Form of Indemnification Agreement between The New Home Company Inc. and each of its directors and officers, to be effective upon the completion of this offering
10.9	Reimbursement and Indemnity Agreement dated April 2, 2012 by and among MFCI8 LR, LLC, The New Home Company Southern California LLC, and TNHC LLC.

II-3

Exhibit   Number	Exhibit Description
10.10	Development Management Agreement dated September 22, 2010 among LR8 Owner, LLC, TNHC Realty and Construction, Inc. and The New Home Company of Southern California LLC
10.11	Development Management Agreement dated June 30, 2011 among Larkspur Land 8 Owner, LLC, TNHC Realty and Construction Inc. and the New Home Company Northern California LLC
10.12	Amended and Restated Limited Liability Company Agreement of TNHC Newport LLC dated March 1, 2013 by The New Home Company Southern California LLC
10.13	Limited Liability Company Agreement of LR8 Investors, LLC dated September 22, 2010 between MFCI8 LR, LLC and The New Home Company Southern California LLC
10.14	First Amendment dated January 11, 2011 to Limited Liability Company Agreement of LR8 Investors, LLC, dated September 22, 2010 between MFCI8 LR, LLC and The New Home Company Southern California LLC
10.15	Limited Liability Company Agreement of TNHC-HW San Jose LLC dated May 23, 2012 between HW San Jose, LLC and The New Home Company Northern California LLC
21.1*	List of subsidiaries of The New Home Company Inc., upon completion of this offering
23.1*	Consent of Ernst & Young LLP
23.2*	Consent of John Burns Real Estate Consulting, LLC
23.3*	Consent of Sidley Austin LLP (included in Exhibit 5.1)
24.1*	Power of Attorney (included in the signature page of the initial filing of this Registration Statement)
99.1*	Consent of H. Lawrence Webb to be named as a Director
99.2*	Consent of David Berman to be named as a Director
99.3*	Consent of Douglas C. Neff to be named as a Director
99.4*	Consent of Michael Berchtold to be named as a Director
99.5*	Consent of J. Scott Watt to be named as an Independent Director
99.6*	Consent of                      to be named as an Independent Director
99.7*	Consent of                      to be named as an Independent Director
99.8*	Consent of                      to be named as an Independent Director
99.9*	Consent of                      to be named as an Independent Director

* To be filed by amendment.

(b) Financial Statement Schedules

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or the notes thereto.

Item 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

II-4

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Aliso Viejo, in the State of California, on this                      day of                     , 2013.

The New Home Company LLC
By:
	Name:
	Title:

We, the undersigned officers and members of the board of managers of The New Home Company, LLC, hereby severally constitute and appoint              and             , and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
H. Lawrence Webb	Chief Executive Officer and Members of the Board of Managers	, 2013
	(Principal Executive Officer)
Wayne Stelmar	Chief Financial Officer and Members of the Board of Managers (Principal Financial Officer and Principal Accounting Officer)	, 2013
David Berman	Member of the Board of Managers	, 2013
Douglas C. Neff	Member of the Board of Managers	, 2013
J. Scott Watt	Member of the Board of Managers	, 2013
Joseph D. Davis	Member of the Board of Managers	, 2013
Tom Redwitz	Member of the Board of Managers	, 2013

II-6

INDEX TO EXHIBITS

Exhibit   Number	Exhibit Description
1.1*	Form of Underwriting Agreement
2.1*	Form of Plan of Conversion of TNHC LLC, to be effective prior to the completion of this offering
3.1*	Form of Certificate of Incorporation of The New Home Company Inc., to be effective prior to the completion of this offering
3.2*	Form of Bylaws of The New Home Company Inc., to be effective prior to the completion of this offering
4.1*	Specimen Common Stock Certificate of The New Home Company Inc.
5.1*	Opinion of Sidley Austin LLP regarding the validity of the securities being registered
10.1*	Form of 2013 Long-Term Incentive Plan
10.2*	Form of Registration Rights Agreement among The New Home Company Inc. and the members of TNHC LLC, to be effective prior to the completion of this offering
10.3*	Form of Investor Rights Agreement, among The New Home Company Inc., IHP Capital Partners VI, LLC, Watt/TNHC LLC, TCN/TNHC LP and Messrs. Webb, Stelmar, Davis and Redwitz to be effective prior to the completion of this offering
10.4*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and H. Lawrence Webb, to be effective upon the completion of this offering
10.5*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and Wayne Stelmar, to be effective upon the completion of this offering
10.6*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and Joseph Davis, to be effective upon the completion of this offering
10.7*	Form of Senior Officer Employment Agreement by and between The New Home Company Inc. and Thomas Redwitz, to be effective upon the completion of this offering
10.8*	Form of Indemnification Agreement between The New Home Company Inc. and each of its directors and officers, to be effective upon the completion of this offering
10.9	Reimbursement and Indemnity Agreement dated April 2, 2012 by and among MFCI8 LR, LLC, The New Home Company Southern California LLC, and TNHC LLC.
10.10	Development Management Agreement dated September 22, 2010 among LR8 Owner, LLC, TNHC Realty and Construction, Inc. and The New Home Company of Southern California LLC
10.11	Development Management Agreement dated June 30, 2011 among Larkspur Land 8 Owner, LLC, TNHC Realty and Construction Inc. and the New Home Company Northern California LLC
10.12	Amended and Restated Limited Liability Company Agreement of TNHC Newport LLC dated March 1, 2013 by The New Home Company Southern California LLC
10.13	Limited Liability Company Agreement dated September 22, 2010 of LR8 Investors LLC between MFCI8 LR, LLC and The New Home Company Southern California LLC
10.14	First Amendment dated January 11, 2011 to Limited Liability Company Agreement of LR8 Investors, LLC, dated September 22, 2010 between MFCI8 LR, LLC and The New Home Company Southern California LLC

II-7

Exhibit Number	Exhibit Description
10.15	Limited Liability Company Agreement of TNHC-HW San Jose LLC dated May 23, 2012 between HW San Jose, LLC and The New Home Company Northern California LLC
21.1*	List of subsidiaries of The New Home Company Inc., upon completion of this offering
23.1*	Consent of Ernst & Young LLP
23.2*	Consent of John Burns Real Estate Consulting, LLC
23.3*	Consent of Sidley Austin LLP (included in Exhibit 5.1)
24.1*	Power of Attorney (included in the signature page of the initial filing of this Registration Statement)
99.1*	Consent of H. Lawrence Webb to be named as a Director
99.2*	Consent of David Berman to be named as a Director
99.3*	Consent of Douglas C. Neff to be named as a Director
99.4*	Consent of Michael Berchtold to be named as a Director
99.5*	Consent of J. Scott Watt to be named as an Independent Director
99.6*	Consent of                      to be named as an Independent Director
99.7*	Consent of                      to be named as an Independent Director
99.8*	Consent of                      to be named as an Independent Director
99.9*	Consent of                      to be named as an Independent Director

* To be filed by amendment.

II-8

EX-10

Exhibit 10.9

REIMBURSEMENT AND INDEMNITY AGREEMENT

REIMBURSEMENT AND INDEMNITY AGREEMENT dated as of April 2, 2012 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), by and among MFCI8 LR, LLC, a Delaware limited liability company (“WB Indemnitor”), The New Home Company Southern California LLC, a Delaware limited liability company (“TNHC”) and The New Home Company LLC, a Delaware limited liability company (the “TNHC Guarantor”). WB Indemnitor and the TNHC Guarantor are sometimes referred to herein as the “Indemnitors,” and individually as the “Indemnitor.” The WB Indemnitor, TNHC and TNHC Guarantor are sometimes referred to as the “Parties” and individually as a “Party.”

RECITALS:

WHEREAS, WB Indemnitor and TNHC (each a “Member” and, collectively the “Members”) are members of LR8 Investors, LLC, a Delaware limited liability company (the “Company”), which was formed pursuant to that certain Certificate of Formation filed with the Secretary of State of Delaware on September 20, 2010, and which is governed by that certain Limited Liability Company Agreement of LR8 Owner, LLC, dated as of September 22, 2010 (as it may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “LLC Agreement”);

WHEREAS, Company is the holder of all membership interests of LR8 Owner, LLC, a Delaware limited liability company (“Borrower”);

WHEREAS, on the date hereof, Borrower has obtained loans in the original principal amounts of (i) $26,600,000.00 (the “A&D Loan”), $38,000,000.00 (the “Revolver Loan”), and $7,425,000.00 (the “Model Loan”, and together with the A&D Loan and the Revolver Loan, the “Loans”) from Housing Capital Company, a Minnesota partnership (the “Lender”);

WHEREAS, in connection with the Loans, the TNHC Guarantor has been required to enter into (a) that certain Completion Guaranty dated as of date hereof related to the A&D Loan (the “A&D Guaranty”), (b) that certain Completion Guaranty dated as of the date hereof related to the Revolver Loan (the “Revolver Guaranty”), (c) that certain Completion Guaranty dated as of the date hereof related to the Model Loan (the “Model Guaranty”), (d) that certain Loan to Value Maintenance Agreement dated as of the date hereof related to the Revolver Loan (the “Revolver LTV Guaranty”) and (e) that certain Loan to Value Maintenance Agreement dated as of the date hereof related to the Model Loan (the “Model LTV Guaranty”) and together with the A&D Guaranty, the Revolver Guaranty, the Model Guaranty and the Revolver LTV Guaranty, as each may be amended, restated, replaced, supplemented or otherwise modified from time to time, collectively, the “Guaranties”), in favor of the Lender in order to secure the performance of the Borrower and maintain certain loan to value ratios for the duration of the Loans, as further described in each of the Guaranties (the “Guaranteed Obligations”); and

WHEREAS, in connection with the Loans, the Company has been required to enter into (a) that certain Pledge Agreement dated as of the date hereof related to the Revolver Loan (the “Revolver Pledge Agreement”), and (b) that certain Pledge Agreement dated as of the date

hereof related to the Model Loan (the “Model Pledge Agreement, and together with the Revolver Pledge Agreement, collectively the “Pledge Agreements”).

WHEREAS, the parties hereto wish to allocate their respective maximum obligations for the responsibilities for the Guaranteed Obligations and to provide for indemnification with respect to liability in excess of such liability.

NOW, THEREFORE, the parties hereto hereby agree as follows:

1.        Defined Terms. Capitalized terms used herein and not defined herein shall have the meaning given such terms in the LLC Agreement.

2.        Loan Fees. In consideration for the TNHC Guarantor entering into the Guaranties, the Company shall pay to TNHC Guarantor the following: (a) concurrently with the execution of this Agreement, the amount of One Hundred Thirteen Thousand Five Hundred Sixty Two and 50/100 Dollars ($113,562.50), (b) on the first anniversary of this Agreement, if TNHC Guarantor is the guarantor under the Guaranties and is not then in default under the Guaranties, an amount equal to one quarter of one percent (0.25%) of the maximum available commitment under the Model Loan and the Revolver Loan, and (c) on the first day of each subsequent extension period under the Loans, if TNHC Guarantor is the guarantor under the Guaranties and is not then in default under the Guaranties, an annual fee equal to one quarter of one percent (0.25%) of the maximum available commitment under the Model Loan and the Revolver Loan for such extension period prorated on a 12 month year based on the number of months in the applicable extension period.

3.        Reimbursement and Indemnity Obligations.

(a)       Notwithstanding that the Guaranties provide for liability solely by the TNHC Guarantor, liability under the Guaranties shall, as between WB Indemnitor and the TNHC Guarantor, be apportioned according to each party’s Member or affiliated Member’s Percentage Interest in the Company, meaning that the WB Indemnitor shall be responsible for 95% and the TNHC Guarantor shall be responsible for 5% of such liability (such share being referred to herein as a party’s “Maximum Percentage Share”); provided, however, that each Indemnitor shall be entitled to offset against any payments required under this Agreement any (i) payments made by such Indemnitor (or its Affiliate) under the Pledge Agreements, or (ii) loss, damage or liability resulting from the fraud, bad faith gross negligence or willful misconduct of TNHC Realty and Construction, Inc. under the Construction Contract.

(b)       To the extent liability for the obligations under this Section 3 are not paid or performed when due, without waiving any of its rights or remedies under this Agreement or at law, the Member affiliated with the Indemnitors who are the beneficiaries of this Section shall have the right to cause the Company to pay to such Indemnitors, to the extent of such liability or obligations, all distributions which would otherwise be made to the Member affiliated with the Indemnitors who are liable under this Section, including the reimbursement to the Indemnitors who are such beneficiaries, for any amounts which they have paid on account of such liability or obligations.

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(c)       Each Indemnitor (“Responsible Indemnitor”) agrees to indemnify, defend and hold the other Indemnitor (the “Other Indmenitor”) harmless from any and all loss, damage or liability resulting from or arising in connection with the Responsible Indemnitor’s failure to satisfy any of its obligations under this Agreement in accordance with the terms of this Agreement; except to the extent any act or omission was attributable to the fraud, bad faith, willful misconduct or gross negligence of the Other Indemnitor. Such indemnity shall include attorneys’ fees and costs as described in Section 11 below.

4.        Overpayment. If the WB Indemnitor, on one hand, or TNHC and the TNHC Guarantor, on the other hand, are called upon to pay and actually do pay amounts under or pursuant to any of the Guaranteed Obligations in excess of such parties’ respective Maximum Percentage Share of such Guaranteed Obligations as determined pursuant to Section 3 above (an “Overage Party”), TNHC and the TNHC Guarantor, on the one hand, or WB Indemnitor, on the other hand, respectively, hereby absolutely, irrevocably and unconditionally agree to reimburse the Overage Party upon demand an amount such that after giving effect to such reimbursement the Overage Party, in the aggregate, shall have borne only its Maximum Percentage Share of the Guaranteed Obligations owed to that date.

5.        Successors, Assigns and Transfers. This Agreement shall inure to the benefit and shall be binding upon the successors and assigns of each party; provided, however, that the sale, assignment or other transfer (each, a “Transfer”) of all or any portion of any direct or indirect interest in the Company by a Member shall not result in a release of any party of its liability under this Agreement unless such transferee assumes all of such Member’s obligations under this Agreement. If any Member makes a Transfer of its entire Interest in accordance with the terms and conditions of this Agreement and the LLC Agreement (other than such Transfer to one or more Affiliates of such Member), then (i) if the transferring Member was WB Indemnitor, then WB Indemnitor shall have no liability under this Agreement with respect to Guaranteed Obligations which arise from events occurring after the date of such Transfer, and (ii) if the transferring Member was TNHC, then the TNHC Guarantor shall have no liability under this Agreement with respect to Guaranteed Obligations which arise from events occurring after the date of such Transfer.

6.        Remedies. If the WB Indemnitor, TNHC or the TNHC Guarantor fails to reimburse the other as required hereunder on or before the later of thirty (30) days following written demand therefor, the party who is entitled to but does not receive payment (the “Aggrieved Party”) may exercise any right or remedy available to it at law or in equity, including the right to sue for specific performance hereof, and the Aggrieved Party shall additionally be entitled to interest on the unpaid amount accrued at a rate equal to the lower of fifteen percent (15%) per annum and the highest rate permitted by applicable law, and to recover from the other party the Aggrieved Party’s out-of-pocket costs incurred in connection with the enforcement of this Agreement, including reasonable attorneys’ fees and expenses incurred before and at trial, at all levels, and whether or not suit is instituted.

7.        Waivers. If and to the extent that the WB Indemnitor, TNHC or the TNHC Guarantor would be deemed or construed to be a guarantor or surety under applicable law with respect to its obligations hereunder, such Party hereby agrees as follows:

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(a)        Such Party expressly agrees that until each and every term, covenant and condition of this Agreement is fully performed, such Party shall not be released by any act or event which might be deemed a legal or equitable discharge or exoneration of a surety, or because of any waiver, extension, modification, forbearance or delay or other act or omission of the Company, its members, WB Indemnitor, TNHC or the TNHC Guarantor, as applicable, or its or their failure to proceed promptly or otherwise as against the Company, its members, WB Indemnitor, TNHC or the TNHC Guarantor, respectively, or such Party, or because of any action taken or omitted or circumstance which might vary the risk or affect the rights or remedies of such Party as against the Company, its members, WB Indemnitor, TNHC or the TNHC Guarantor, as applicable, or because of any further dealings between the Company, its members, WB Indemnitor, TNHC or the TNHC Guarantor, as applicable, whether relating to this Agreement or otherwise. Such Party hereby expressly waives and surrenders any defense to such Party’s liability under this Agreement based upon any of the foregoing acts, omissions, things, agreements, waivers or any of them, except to the extent expressly provided in Sections 3 or 5 hereof. It is the purpose and intent of this Agreement that the obligations of such Party under it shall be absolute and unconditional under any and all circumstances, subject to and in accordance with the terms and conditions of this Agreement.

(b)        Such Party waives:

(i)        all statutes of limitations as a defense to any action or proceeding brought against such Party by the WB Indemnitor, TNHC or the TNHC Guarantor, as applicable, to the fullest extent permitted by law;

(ii)        any right it may have to require any of the other Parties to proceed against the Company or its members, or pursue any other remedy in any other Party’s power to pursue, it being acknowledged and agreed that the obligations of such Party hereunder are independent of the obligations of the Company, its members and any other Parties, and no Party shall be required to make any demand upon, exercise any right to declare a default by, or proceed against, the Company or any of its members prior to proceeding against any other Party to the full extent of such Party’s obligations hereunder;

(iii)        any defense based on any legal disability of the Company, any of its members or any of the other Parties and any discharge, release or limitation of the liability of TNHC or the TNHC Guarantor to the WB Indemnitor, or of the WB Indemnitor to the TNHC Guarantor, as applicable, whether consensual or arising by operation of law or any bankruptcy, reorganization, receivership, insolvency, or debtor relief proceeding, or from any other cause, or any claim that such Party’s obligations exceed or are more burdensome than those of the Company, its members or any of the other Parties, as applicable;

(iv)        all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Agreement and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind, except to the extent expressly provided herein;

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(v)        any and all benefits of the provisions of Sections 2809, 2810 and 2845 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction; and

(vi)        any defense based on or arising out of any defense that TNHC, the TNHC Guarantor or the WB Indemnitor, as applicable, may have to the payment or performance of any obligation set forth in this Agreement.

(c)        Such Party assumes full responsibility for keeping informed of the financial condition and business operations of the Company, its members, the TNHC Guarantor and the WB Indemnitor, as applicable, and agrees that the WB Indemnitor, TNHC and the TNHC Guarantor, respectively, shall have no duty to disclose to such Party any information which the WB Indemnitor, on the one hand, and TNHC and the TNHC Guarantor, on the other hand, may receive about the financial condition or business operations of the Company, its members, TNHC, the TNHC Guarantor and/or the WB Indemnitor, or any other circumstances bearing on their respective abilities to perform their obligations hereunder.

8.         Joint and Several. The obligations of TNHC and the TNHC Guarantor hereunder shall be joint and several.

9.         Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed wholly within that State.

10.       Venue. Each party hereto agrees that any claim, action or relief by any party against any other party based on or arising out of this Agreement shall be brought only in the Chancery Court of the State of Delaware (or other appropriate state court in the State of Delaware) or the Federal courts located in the State of Delaware, and not in any other State or Federal court.

11.       Attorneys’ Fees. If any party obtains a judgment against another party by reason of the breach of this Agreement or the failure to comply with the terms hereof, reasonable attorneys’ fees and costs as fixed by the court shall be included in such judgment.

12.       Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, incorporates all prior negotiations and understandings with respect to such subject matter and may be amended solely by an instrument in writing executed by all of the parties.

13.       WAIVER OF JURY. EACH OF THE PARTIES, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT.

14.       Third Parties Not Benefited. Nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any person or entity other than the parties and

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their respective successors and assigns, nor shall anything in this Agreement relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision of this Agreement give any third person any right of subrogation or action over or against any party to this Agreement.

15.       Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original but all of which together shall constitute but one and the same agreement

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

WB INDEMNITOR:
MFC18 LR, LLC,
a Delaware limited liability company
	By:
	Name:	Diego Rico
	Its:	Vice President

ACKNOWLEDGED AND AGREED TO BY:
LR8 INVESTORS, LLC,
a Delaware limited liability company
By:
Name:	Diego Rico
Its:	Vice President

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[Signature Page to Reimbursement Agreement]

TNHC:
THE NEW HOME COMPANY SOUTHERN CALIFORNIA, LLC,
a Delaware limited liability company
By:
Name:	Thomas O. Redwitz
Its:	President The New Home Company Southern California LLC
TNHC GUARANTOR:
THE NEW HOME COMPANY LLC,
a Delaware limited liability company
By:
Name:	H. Lawrence Webb
Its:	H.L-Webb
By:
Name:	Wayne J. Stelmar
Its:	Chief Financial Officer

[Signatures Continue on Next Page]

[Signature Page to Reimbursement Agreement]

EX-10

Exhibit 10.10

DEVELOPMENT MANAGEMENT AGREEMENT

among

LR8 OWNER, LLC,

TNHC REALTY AND CONSTRUCTION, INC.

and

THE NEW HOME COMPANY OF SOUTHERN CALIFORNIA, LLC

Dated as of September 22, 2010

	TABLE OF CONTENTS
SECTION 1.	DEFINITIONS	1
1.1.	DEFINED TERMS	1
1.2.	TERMS GENERALLY	3
1.3.	RELATIONSHIP OF THE PARTIES	3
SECTION 2.	PROJECT SCOPE	3
SECTION 3.	MANAGEMENT OF THE PROJECT	3
3.1.	SCOPE OF MANAGEMENT SERVICES	3
3.2.	THE OWNER’S DETERMINATIONS	8
3.3.	CONSTRUCTION SERVICES	10
SECTION 4.	BUDGET, OPERATING PLAN, REVENUES AND EXPENSES	10
4.1.	UPDATES OF BUDGET AND OPERATING PLAN	10
4.2.	REVISIONS OF PLANS AND SPECIFICATIONS	10
4.3.	REVENUE AND EXPENSES	10
SECTION 5.	MANAGEMENT PERSONNEL; MANAGEMENT FEE	11
5.1.	MANAGEMENT PERSONNEL	11
5.2.	MANAGEMENT FEE	11
SECTION 6.	TERM/TERMINATION	12
6.1.	TERM/TERMINATION BY OWNER	12
6.2.	COMPENSATION UPON TERMINATION	12
6.3.	DELIVERABLE UPON TERMINATION	12
SECTION 7.	INDEPENDENT CONTRACTOR	13
SECTION 8.	THE OWNERSHIP OF INFORMATION AND MATERIALS	13
SECTION 9.	LIMITATION ON AUTHORITY OF MANAGER	13
SECTION 10.	AMENDMENT OF AGREEMENT	13
SECTION 11.	LICENSES	13
SECTION 12.	ASSIGNMENT AND SUBCONTRACTS	14
SECTION 13.	NO PARTNERSHIP	14
SECTION 14.	NOTICES	14
SECTION 15.	ENTIRE AGREEMENT	15
SECTION 16.	APPLICABLE LAW	15
SECTION 17.	SEVERABILITY	16
SECTION 18.	CAPTIONS	16
SECTION 19.	BINDING EFFECT	16
SECTION 20.	COUNTERPARTS	16
SECTION 21.	JOINT AND SEVERAL LIABILITY	16
EXHIBIT A – LEGAL DESCRIPTION
EXHIBIT B – REQUIRED LAND USE APPROVALS
EXHIBIT C – INSURANCE PROVISIONS

DEVELOPMENT MANAGEMENT AGREEMENT

THIS DEVELOPMENT MANAGEMENT AGREEMENT (this “Agreement”) is dated as of September 22, 2010, by and among LR8 OWNER, LLC, a Delaware limited liability company (the “Owner”), TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation (“TRC”), and The New Home Company of Southern California, a Delaware limited liability company (the “Administrative Member”, and together with TRC, shall be collectively known as the “Manager”).

R E C I T A L S

A.    The Owner is a wholly owned subsidiary of LR8 Investors, LLC, which is comprised of MFCI8 LR, LLC, a Delaware limited liability company, and the Administrative Member as members pursuant to that certain Limited Liability Company Agreement of LR8 Investors, LLC dated as of September 22, 2010 (“Joint Venture Agreement”).

B.    The Owner owns the Real Property, as hereinafter defined, consisting of approximately 51 gross acres located in the City of Irvine, County of Orange, California, together with all appurtenances thereto.

C.    The Owner contemplates developing the Real Property to create approximately one hundred sixty-nine (169) finished lots which may be developed as an approximate one hundred sixty-nine (169) single family home project in multiple phases or sold as finished lots to one or more merchant builders.

D.    The Owner desires to utilize the expertise of the Manager to manage the Real Property and the development, entitlement and construction thereof, and the Manager is willing to provide such services.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Owner and the Manager hereby agree as follows, intending to be legally bound:

Section 1.  Definitions.

1.1.  Defined Terms.

“Affiliate” has the meaning set forth in the Joint Venture Agreement.

“Administrative Member” has the meaning set forth in the Recital.

“Budget” means, at any time, the then current Budget (as defined in the Joint Venture Agreement).

“Capital Contributions” has the meaning set forth in the Joint Venture Agreement.

“Executive Committee” has the meaning set forth in the Joint Venture Agreement.

“Final Approval of All Required Land Use Approvals” means the final approval by all resource agencies and governmental agencies with jurisdiction over the Project of the Required Land Use Approvals and expiration without appeal of all applicable appeal periods or if appealed the entry of a final judgment affirming the validity of the Required Land Use Approvals.

“GAAP” means United States generally accepted accounting principles consistently applied.

“Improvements” means all improvements to the Real Property to be made as part of the Project.

“IRR” has the meaning set forth in the Joint Venture Agreement.

“Joint Venture” means LR8 Investor, LLC, a Delaware limited liability company, which is the sole member of the Owner.

“Joint Venture Agreement” has the meaning set forth in the Recitals.

“Management Fee” has the meaning set forth in Section 5.2.

“Manager” has the meaning set forth in the introductory paragraph to this Agreement.

“Member” has the meaning set forth in the Joint Venture Agreement.

“Operating Plan” means, at any time, the then current Operating Plan (as defined in the Joint Venture Agreement).

“Owner” has the meaning set forth in the introductory paragraph to this Agreement.

“Owner’s Determination” has the meaning set forth in Section 3.2.

“Person” has the meaning set forth in the Joint Venture Agreement.

“Plans and Specifications” has the meaning set forth in Section 3.2(j).

“Project” means obtaining Final Approval of all Required Land Use Approvals , the satisfaction of all conditions of approval of all Required Land Use Approvals, the completion of improvements required for the relocation of the cell-site, the completion of rough and finished grading, installation of all required utility lines and infrastructure and construction and installation of all required public and private roads and traffic improvements, design, entitlement, construction, marketing, management and sale of approximately one hundred sixty-nine (169) single family homes, and the management, development and dedication of all related park, recreation and other common area amenities on the Real Property.

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“Project Sell-Out” means the sale of the last residential unit in the Project.

“Real Property” has the meaning set forth in the Joint Venture Agreement and includes the land more particular described on Exhibit “A” attached hereto and incorporated by reference herein.

“Required Land Use Approvals” has the meaning set forth on Exhibit “B” attached hereto and incorporated by reference herein.

1.2.            Terms Generally. Definitions in this Agreement apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Schedules and Exhibits shall be deemed to be references to Articles and Sections of, and Schedules and Exhibits to, this Agreement unless the context shall otherwise require. Any accounting term used but not defined herein shall have the meaning assigned to it in accordance with GAAP. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation” unless such phrase already appears. The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.

1.3.  Relationship of the Parties. TRC acknowledges that it is an Affiliate of the Administrative Member, an indirect owner of the Owner and the sponsor of the Project and as a result, TRC and Administrative Member have access to confidential and proprietary information of Owner. Any default under this Agreement by Manager shall be deemed a default by both TRC and Administrative Member.

Section 2.  Project Scope. It is currently contemplated that the Project will consist of an horizontal phase consisting of mass and rough grading and horizontal infrastructure such as roads and utility lines and multiple phases of vertical improvements, the first of which shall consist of construction of approximately nine (9) model units.

Section 3.  Management of the Project.

3.1.  Scope of Management Services.

Subject to Sections 3.2 and 9(b) and the other provisions of this Agreement and the Joint Venture Agreement, the Owner hereby engages the Manager to act as the manager of the Project during the term of this Agreement, and the Manager hereby accepts such engagement. Except as otherwise provided herein or in the Joint Venture Agreement, the overall management and control of the Project shall be under the direction of the Manager, subject to Sections 3.2 and 9(b). The Manager shall devote such time and effort in connection with such engagement as may be necessary to perform its obligations and responsibilities hereunder. In carrying out its obligations under this

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Agreement, the Manager shall perform the following activities (in each case subject to such modifications as Owner may reasonably determine to be appropriate under the circumstances and subject to availability of funds required to satisfy third party obligations):

(a) The Manager shall negotiate in the name of and on behalf of the Owner (provided that the Owner solely shall have the power to execute) any agreements for architectural, engineering, testing or consulting services for the Project as requested by Owner, and any agreements for the construction of any of the Improvements or for the furnishing of any supplies, materials, machinery or equipment, and upon Owner’s approval shall have the authority to terminate such agreements, pursuant to the terms thereof, and enter into substitute agreements, if appropriate under the circumstances, and the Manager shall oversee the administration of the foregoing agreements;

(b) The Manager shall establish and implement commercially reasonable and appropriate administrative and financial controls for the Project;

(c) The Manager shall oversee the coordination and administration of the engineers, architects, general contractors, contractors, subcontractors, professionals and consultants employed in connection with the design, entitlement and construction of the Project;

(d) The Manager shall maintain in full force and effect any and all governmental permits and approvals required for the Project, including, but not limited to the EIR SCH No. 2005091175, Vesting Tentative Tract Map No. 16868, General Plan Amendment No. 00387430-PGA, Zone Change No. 00387433-PZC, Conceptual Master Plan No. 00387431-PMP (landscape concept and master trails plan), Park Plan No. 00387432-PPP, Cell Site Conditional Use Permit, Fire Protection Agreement with OCFA, Habitat Conservation Plan and Natural Community Conservation Plan Implementing Agreement for the Migratory Bird Treaty Act, Water Quality Management Plan (SWPPPS and NPDES and Best Management Practices), 404 Permit, IUSD School Facilities Funding Agreement, City of Irvine Affordable Housing Agreement, The Irvine Company Cooperative Agreement, as amended, Flood Insurance Rate Map Parcel Map No. 06059C030SH, Declaration of Development Covenants, Conditions and Restrictions for the Master Development Property, Geotechnical Reports, Phase 1 Environmental Site Assessment and Lambert Ranch Eucalyptus Windows Assessment Report;

(e) The Manager shall use diligent efforts to obtain and shall comply with and maintain the following permits, approvals, agreements, restrictions and regulations, including, but not limited to the extension of the Cell Cite Conditional Use Permit, Cell Site Relocation Agreements, Model Home Complex Conditional Use Permit, Detailed Master Plan, Final Subdivision

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Map, Subdivision Agreements, Subdivision Bonds, Exoneration of Subdivision Bonds, retention of Orange County certified professional paleontologist and monitor, paleontological resources survey, retention of a USFWS/CDFG approved biologist, required biological and archeological letters and reports, Notice of Intent, formation and funding of Community Facilities District, grading permits, building permits, certificates of use and occupancy, public reports, Secured Fire Agreement, Private Park Reservation documentation, and any other permits, approvals, agreements and restrictions required by the Irvine Subdivision Ordinance, Irvine Subdivision Manual and Zoning Code and Irvine Building Code and conditions of approval of the other Required Land Use Approvals;

(f) The Manager shall comply with all terms and conditions applicable to the Owner or the Project contained in any insurance policy affecting or covering the Project or in any surety bond obtained in connection with the Project;

(g) The Manager shall keep the Owner informed of the progress of the design, entitlement, construction and execution of the Project, including the preparation of such reports as are provided for herein, are required by the Required Land Use Approvals or as may reasonably be requested by the Owner;

(h) The Manager shall supervise the progress of the Project, including verification of the materials and labor being furnished in connection with the construction of the Improvements so as to be fully competent to approve or disapprove requests for payment made by the engineer and the general contractor for a particular phase of the Project, or by any other Persons with respect to the design and/or construction of the Improvements;

(i) The Manager shall prepare such reports regarding the progress of the entitlements, each phase of the Project and cost of each phase of the Project as the Owner may reasonably request. On a monthly basis, or otherwise as agreed to by the Owner, the Manager shall submit progress reports showing percentages of completion on entitlements, construction of horizontal infrastructure and construction of each phase of vertical improvements and other information required by the Owner;

(j) The Manager and Owner shall obtain and maintain in full force and effect insurance coverage set forth in Exhibit “C” attached hereto and incorporated herein with respect to the Project, the Owner, the Joint Venture, the Manager, and their respective employees, officers, directors, managers, members, shareholders and partners as may be prescribed by the Owner;

(k) The Manager shall assemble and retain all contracts, agreements and other records and data as may be necessary to carry out the Manager’s functions hereunder or otherwise to execute the Project; provided, however,

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the Manager shall not enter into any such contracts or agreements without obtaining the prior written consent of Owner;

(l) The Manager shall cause the general contractor or subcontractors to, accomplish the timely completion of each phase of the Improvements in accordance with the construction contracts, construction schedules and Budget and Operating Plan as in effect from time to time;

(m) The Manager shall notify the Owner promptly of any lawsuits, condemnation proceedings, rezoning or other governmental order or action or any threat thereof that becomes known to the Manager that might adversely affect the Project, any required Land Use Approvals or any interest of the Owner therein;

(n) The Manager shall supervise all utility contracts, in accordance with the Budget and Operating Plan, including for electricity, fuel, water, telephone, or rubbish hauling, and other similar services;

(o) The Manager shall hire and retain solely as employees of the Manager and not as employees of the Owner, such personnel as the Manager reasonably determines is necessary or desirable to perform properly the Manager’s functions and obligations hereunder. Such employees’ compensation, retention and performance shall be determined by the Manager in its sole discretion. The compensation and other cost of such employees shall be the Manager’s cost unless provided in this Agreement, the Joint Venture Agreement or the Budget . The Manager shall be responsible for complying with all laws and regulations and collective bargaining agreements affecting such employment, including the provision of any benefits or compensation required by statute or contract, provided that the Manager shall not enter into any collective bargaining agreement or employment contract affecting the benefits or compensation of such employees without the prior approval of the Owner, with such approval to be in the sole and absolute discretion of the Owner;

(p) The Manager shall notify the Owner’s general liability insurance carrier and the Owner of any personal injury or property damage occurring to or claimed by any third party on or with respect to the Project and forward to the carrier any summons, subpoena, or other like legal document served upon the Manager relating to actual or alleged potential liability of the Owner or the Manager, with copies to the Owner of all such documents;

(q) The Manager shall comply with all laws, ordinances, orders, rules, regulations and requirements from time to time in effect of all federal, state and local governments, courts, departments, commissions, boards and offices, any national or local Board of Fire Underwriters or Insurance Services Offices having jurisdiction over the Project or the Manager’s obligations hereunder or any other governmental agency and resource agency having jurisdiction over

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the Project, including the City of Irvine, Orange County, The Irvine Unified School District, the Irvine Ranch Water District, the Orange County Fire Authority, California Department of Fish&Game, US Fish&Wildlife Service, US EPA, State Water Resources Control Board, South Coast Air Quality Management District, Regional Water Quality Control Board, US Army Corp of Engineers, FEMA and California Department of Real Estate. The Manager shall provide Owner with copies of any notice of alleged violation of such laws received by the Manager;

(r) The Manager shall perform on behalf of the Owner any and all other services and responsibilities of the Manager which are set forth in any other provision of this Agreement or which are reasonably requested by the Owner with respect to the development, entitlement and construction of the Project pursuant to this Agreement and which are within the general scope of the services of the Manager described herein; and

(s) The Manager shall meet with the Owner at such times as the Owner may reasonably request to review progress of the Project, to provide directions to the Manager consistent with this Agreement or review any other matter related to the Project or the services performed by the Manager hereunder.

(t) Upon commencement of the marketing of any lots or residential units, Manager shall track the status of all such sales and escrows at the Project. Within three (3) business days after the end of each calendar week, Manager shall deliver to Owner (in the form requested by Owner, or if Owner has not requested a particular form, then in a form reasonably acceptable to Owner), a sales and inventory report showing for the previous week construction starts, standing inventory, sales opened, sales closed, sales cancelled, sales prices, the cost of all discounts, upgrades and other sales incentives or concessions, reservations, sales traffic information, releases, contingent status, estimated and actual closing dates, referral/broker cooperation fees and Unit start dates. The last weekly report for each calendar month shall include a monthly summary of such items.

(u) Within seven (7) business days after the closing of the sale of each Unit, Manager shall deliver to Owner a closing statement prepared by the applicable escrow holder relating to the sale of any lot or residential unit.

(v) Manager shall prepare and submit to Owner a budget for the marketing, sales and California Department of Real Estate (“DRE”) related activities and materials, which budget shall (i) allocate in reasonable detail the anticipated costs and expenses that Manager reasonably believes will be incurred in connection with the various marketing, sales and DRE-related activities and materials, including, without limitation, any and all escrow fees and costs incurred in connection with the sale of any lot or residential unit, (ii) include recommended control mechanisms and (iii) be subject to the approval of Owner pursuant to the terms of the Joint Venture Agreement.

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(w) In conjunction with the marketing of lots or residential units, Manager shall obtain (or cause to be obtained) and maintain any and all business licenses and permits required for the Project, including, without limitation, the Preliminary Report and Final Public Report required by the DRE.

(x) Manager shall prepare all disclosure information that Owner is or may be obligated to impart to purchasers of lots or residential units that is or may be considered relevant to the purchaser’s buying decision and/or the value of such lots or residential units, including, without limitation, the following: known environmental hazards; unusual uses and/or zoning of nearby or adjoining parcels; and/or improvement and/or assessment districts (including but not limited to Mello-Roos districts) that have or may have a fiscal impact on the Project and which are in addition to normal property taxes. Without limiting the generality of the foregoing, Manager shall provide all disclosure forms and reports that may be required in order to comply with Civil Code Section 1103, et seq., pertaining to natural hazard disclosures, if and as applicable.

(y) Manager shall recommend in writing for Owner’s approval a detailed marketing program for the Project that includes, without limitation, recommendations regarding all advertising, public relations and other marketing support as may be advisable in Manager’s reasonable business judgment with respect to the Project.

3.2.  The Owner’s Determinations.

Notwithstanding Section 3.1, Section 3.3 or any other provision of this Agreement, no action shall be taken, sum expended, decision made or obligation incurred by the Manager with respect to any matter within the scope of the actions enumerated below (each of such being referred to hereinafter as an “Owner’s Determination”), in each case unless otherwise approved or ratified by Owner, subject to Section 9(b). The Owner’s Determinations are as follows:

(a) The acquisition of any additional real property or interest therein on behalf of the Owner;

(b) The entering into of any agreement on behalf of the Owner for the financing of any part of the Project, including but not limited to the financing of the acquisition of the Real Property, interim and permanent financing of any or all of the Improvements and refinancing of any of the foregoing;

(c) The mortgaging or the placing of any other encumbrance on the Real Property, Project or any portion thereof;

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(d) The approval of each Budget and Operating Plan or the taking of any action which deviates from the Budget and Operating Plan (unless and to the extent that the Administrative Member would be permitted to authorize such deviation pursuant to the Joint Venture Agreement);

(e) The sale or other transfer, or the entering into of any agreement on behalf of the Owner for the sale or other transfer of all or any portion of the Real Property;

(f) The settling of any claims, suits, debts, demands or judgments against the Owner, the Joint Venture, any Member or the Real Property; or the retention of counsel for the Owner or the institution or defense of any legal action on behalf of the Owner;

(g) The entering into of any agreement on behalf of the Owner for the purchase, sale or other transfer of, or the mortgaging or the placing of any other encumbrance on, any properties other than the Real Property;

(h) The commencement of construction of any phase of the Improvements or the making of any capital improvements, repairs, alterations or changes in, to or of the Project except as may be contemplated by the Budget and Operating Plan;

(i) The entering into separate contracts with licensed contractors for different phases or components of the construction and development of the Project;

(j) The initial approval of any plans and specifications (“Plans and Specifications”) for any material Improvements;

(k) Any act or transaction outside the ordinary course of the Manager’s duties under this Agreement or outside the ordinary course of the Owner’s business; and

(l) Any other act or transaction designated by the Owner as an “Owner’s Determination” for purposes of this Agreement and with respect to which the Owner has notified the Manager, including without limitation all Major Decisions under the Joint Venture Agreement.

3.3.  Construction Services

In addition to the duties set forth in Section 3.1, TRC shall serve as the general contractor for the Project pursuant to an AIA A134-2009 Standard Form of Agreement Between Owner and Construction Manager as Constructor, the form of which shall be reasonably approved by the Executive Committee and TRC. Notwithstanding anything to the contrary contained herein, unless Owner enters into a separate contract with a licensed contractor for a discrete component of work on the Project, all construction activities on the Project requiring a contractor’s license shall be performed by TRC and

9

not the Administrative Member. Therefore all obligations of the Manager under this Agreement that require a California Contractors license shall be performed solely by TRC and all references to “Manager” with respect to those obligations shall be deemed references solely to TRC.

Section 4.  Budget, Operating Plan, Revenues and Expenses.

4.1.  Updates of Budget and Operating Plan.

TRC shall be responsible for assisting the Administrative Member in preparing and submitting to the Owner for the approval of the Executive Committee recommendations and explanations of any proposed updates to the Budget and Operating Plan. Representatives of TRC shall be made available to meet with the Administrative Member of the Joint Venture and the members of the Executive Committee of the Joint Venture to discuss any such proposed updates.

4.2.  Revisions of Plans and Specifications.

After the initial Plans and Specifications for any phase of the Improvements are approved by the Owner, the Manager may from time to time approve modifications thereto, provided the modifications are consistent with the Budget and Operating Plan. All Plans and Specifications and any revisions thereto shall be consistent with any applicable zoning and other governmental codes and regulations applicable to the development of the Project, including all Required Land Use Approvals.

4.3.  Revenue and Expenses.

The Owner shall be responsible for providing all funds necessary to complete the Project. Except for costs that are specifically stated to be the Manager’s sole responsibility under this Agreement all costs and expenses related to the work, activities and other matters managed by Manager under this Agreement and that are approved by Owner or included within the Budget and Operating Plan shall be Project costs and the sole responsibility of Owner. All draws on any construction funding shall be made by the Owner only, and such draws and all other revenues of the Project shall be payable only to the Owner and paid only to the Owner for deposit into a bank account(s) established for the Project by the Owner. All expenses of the Project shall be payable by the Owner only, who shall be the only authorized signatory with respect to the Project’s bank account(s). The Manager shall cause all invoices or other appropriate documents with respect to the expenses of the Project to be presented to the Owner. The term “Owner” means the Owner or the Owner’s authorized representative. The Owner’s initial authorized representative shall be Marcus L. Scroggins.

Section 5.  Management Personnel; Management Fee.

5.1.  Management Personnel.

The Manager shall provide personnel for the conduct of development and entitlement of the Project and as may be needed for the orderly and expeditious

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operations of the Project. Such personnel, who may be located both on-site and off-site, shall be employees of the Manager only. The compensation and other cost of such employees shall be the Manager’s cost unless provided in this Agreement, the Joint Venture Agreement or the Budget . .The Owner shall provide all on-site office facilities, including telephones and other office equipment, as may be necessary and appropriate in connection with the operations of the Project. The Owner shall be responsible for all hard and soft costs associated with the development of the Real Property, except that the Manager shall be responsible for paying the costs of the project manager and on-site project supervisors and administrative personnel and other employees of Manager; provided, however, Owner shall reimburse Manager monthly within thirty (30) days after receipt of a detailed invoice itemizing all such costs for which Manager is seeking reimbursement for such additional employees which dedicate one hundred percent (100%) of their time to the Project and the retention of whom and cost of whom are included within the Budget and Operating Plan that has been approved by the Executive Committee. The Owner shall not have any obligation to pay or reimburse the Manager or for any of its general overhead expenses.

5.2.  Management Fee.

For the performance of the Manager’s services under this Agreement, the Owner shall pay the Manager the following management fee (the “Management Fee”) and the Manager shall be able to allocate the same as it deems appropriate between TRC and the Administrative Member and other Affiliates as it determines in its sole discretion: (i) three-quarter percent (.75%) of the gross sales revenue of the Project, based upon the projected gross sales revenue, to be paid in equal monthly installments over the period of horizontal development of the Project, based upon the anticipated schedule of twenty-three (23) months estimated for completion of horizontal construction commencing upon commencement of grading work at the Project after receipt of the mass or rough grading permit and the calculation of such fee shall be reconciled from time to time upon approval of changes to Owner’s Budget and Operating Plan, if applicable, and upon completion of Project Sell-Out, (ii) three-quarter percent (.75%) of the gross sales revenue of the Project, based upon the projected gross sales revenue, to be paid in equal monthly installments over the period of vertical development of the Project, based upon the anticipated schedule of twenty-eight (28) months estimated for completion of vertical construction commencing upon the commencement of construction of the model homes after receipt of the building permits and such fee shall be reconciled from time to time upon approval of changes in Owner’s Budget and Operating Plan, as applicable and upon completion of Project Sell-Out, (iii) three-quarter percent (.75%) of the gross sales revenue from each home sold at the Project, payable upon the close of escrow of each home; provided, however that this portion of the Management Fee will be deferred if at any time the Budget and Operating Plan projects that the Project will produce less than a 15% IRR on Capital Contributions until such time as (A) the Budget and Operating Plans projects a 15% IRR on Capital Contributions or (B) each Member has received a return of all of its Capital Contributions with a 15% IRR and upon completion of Project SellOut until such portion of the Management Fee shall be reconciled as set forth below and (iv) three-quarter percent (.75%) of the gross sales revenue from each home sold at the Project, payable upon the close of escrow of each home; provided, however that this

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portion of the Management Fee will be deferred until each Member has received a return of all of its Capital Contributions with a 15% IRR. Owner may review the Budget and Operating Plan to make the deferral determination under clause (iii) above. Each component of the Management Fee shall be subject to reconciliation and adjustment if changes to the Budget and Operating Plan are approved by Owner and also within thirty (30) days after Project Sell-Out.

Section 6.  Term/Termination.

6.1.  Term/Termination by Owner

The term of this Agreement shall commence on the date hereof and shall continue through the Warranty Period, unless sooner terminated by mutual written agreement of the parties; provided, however, the Owner may terminate this Agreement upon not less than seven days’ written notice to the Manager for the Owner’s convenience and without cause (the “Termination Notice”); provided, further that notwithstanding the foregoing, prior to Owner sending Manager the Termination Notice, Owner shall send Manager a letter identifying any areas of concern or dissatisfaction relating to the Manager’s performance or the Project and Manager shall then have 14 days to address Owner’s areas of concern or dissatisfaction and if upon the expiration of such 14 day time period Manager has been unable to adequately address Owner’s areas of concern or dissatisfaction as determined in Owner’s sole and absolute discretion, then Owner shall have the right, but not the obligation, to send Manager the Termination Notice.

6.2.  Compensation Upon Termination

In the event of termination of this Agreement pursuant to Section 6.1 above, the Owner shall pay to the Manager an amount equal to the fee payable to the Manager under Section 5.2 hereof as of the date of termination. The Owner shall have the right to replace the Manager or any of its Affiliates as the general contactor, sales agent, consultant or in such other capacity under the applicable contract with Owner without providing Manager with a right to terminate this Agreement and the Manager shall be obligated to continue its duties under this Agreement.

6.3.  Deliverables Upon Termination

Upon termination of this Agreement for any reason, the Manager shall promptly deliver the following to the Owner or the Owner’s appointed agent or designee:

(a) A final accounting, reflecting the balance of income and expenses for the Real Property or the Project and the Owner as of the date of termination, including all costs and expenses incurred in connection with entitlements, development and construction of each phase of the Project;

(b) Any balance of monies of the Owner held by the Manager with respect to the Real Property or the Project or the business or the affairs of the Owner; and

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(c) All written data and materials belonging to the Owner and other papers or documents that pertain to the business or affairs of the Owner and the Real Property or the Project.

Section 7.  Independent Contractor.

In performing its services hereunder, the Manager shall be an independent contractor and not an employee or agent of the Owner, the Joint Venture or any Member.

Section 8.  The Ownership of Information and Materials.

The Manager shall, upon completion of the Manager’s services or any earlier termination of this Agreement, deliver to the Owner all books and records and written financial or accounting data and information prepared by, or supplied to the Manager by the Owner or the Owner’s contractors or agents, which information shall at all times be the property of the Owner. The Manager shall also be required to deliver to the Owner any drawings, plans, books, record, contracts, agreements and or other documents and writings in its possession developed or obtained in performing its services hereunder.

Section 9.  Limitation on Authority of Manager.

(a) The Manager shall have no right or authority, express or implied, to commit or otherwise obligate the Owner in any manner whatsoever except to the extent specifically provided herein or specifically authorized in writing by the Owner (provided such authorization complies with the requirements of this Agreement).

(b) The Manager is on notice that certain provisions of the Joint Venture Agreement provide that the express approval of the Executive Committee (as defined in the Joint Venture Agreement) is required for Major Decisions set forth in Sections 7.01(a) of the Joint Venture Agreement and for the Budget and Operating Plan. Notwithstanding anything herein to the contrary, no action shall be taken, sum expended, decision made or obligation incurred by the Manager with respect to any matter constituting a Major Decision or the Budget and Operating Plan without obtaining such consent as required by the Joint Venture Agreement.

Section 10.  Amendment of Agreement.

This Agreement may be amended only in writing, in whole or in part, at any time only by the approval of the Owner and the Manager. No provision of this Agreement may be waived except by a writing signed by the party to be charged therewith.

Section 11.  Licenses.

The Manager shall, at its own expense, qualify to do business and obtain and maintain such licenses, which are personal to Manager, as may be required for the performance by the Manager of its services hereunder. TRC represents and warrants that

13

it has obtained and will maintain its broker’s license and general contractor’s licenses during the term of this Agreement. TRC acknowledges that it will be the only entity performing such duties or functions that require either a broker’s license or a general contractor’s license. The Administrative Member will not perform any duties or functions that require either a broker’s license or a general contractor’s license and the Owner agrees that it will not require the Administrative Member to perform such duties or functions that require either a broker’s license or a general contractor’s license.

Section 12.  Assignment and Subcontracts.

This Agreement is in the nature of a personal services contract, and Manager acknowledges that Owner is relying on the personal knowledge, experience, ability, expertise and skill of Manager to perform the obligations required by this Agreement. The Agreement is personal to the Manager and, except as provided herein, the Manager shall have no right, power or authority to assign this Agreement, or any portion hereof or any monies due or to become due hereunder, or to delegate any duties or obligations arising hereunder, either voluntarily, involuntarily or by operation of law, without the prior written approval of the Owner, which may by withheld in Owner’s sole discretion. Any subcontract of the Manager’s obligations or any part thereof shall not be construed to make the Owner a party to such subcontract or to expose the Owner to any claims or liabilities arising thereunder. No other delegation of duties to or subcontract with any other third party shall be permitted without the approval of the Owner. Owner may assign this Agreement to a lender providing financing for the Project or to an affiliate of Owner or to a purchaser of the Project who assumes Owner’s rights and obligations under this Agreement.

Section 13.  No Partnership.

Nothing herein shall constitute or be construed to be or create a partnership or joint venture between the Owner and the Manager.

Section 14.  Notices.

All notices, consents and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when (a) delivered by hand with signed delivery receipt requested, (b) sent by facsimile (with receipt confirmed), provided a copy is mailed on the same day by registered mail, return receipt requested, or (c) received by the addressee, if sent by U.S. Mail or Express Mail, Federal Express or other express delivery service (receipt requested), in each case, to the appropriate addresses, telex numbers and telecopier numbers set forth below (or to such other addresses, telex numbers and telecopier numbers as a party may designate as to itself by notice to the other):

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If to the Owner:

LR8 Owner, LLC

c/o Westbrook Partners

645 Madison Avenue

18th Floor

New York, New York 10022

Attention: Marcus L. Scroggins

Facsimile.: (212) 849-8801

with a copy to:

Westbrook Partners

645 Madison Avenue

18th Floor

New York, New York 10022

Attention: Kashif Z. Sheikh, Esq.

Facsimile: (212) 849-8801

and

SunBrook Partners, Inc.

11661 San Vicente Boulevard, Suite 910

Los Angeles, California 90049

Attention: Michael French

Facsimile: (888) 750-7772

If to the Manager:

TNHC Realty and Construction, Inc.

95 Enterprise, Suite 325

Aliso Viejo, California 92656

Attention: Wayne Stelmar and Tom Redwitz

Telecopy No.: (949) 382-7801

A notice sent to TRC in compliance with the provisions of this Section 14 shall be deemed to be a notice to Administrative Member given on the date of receipt by TRC. A notice sent by Manager in compliance with the provisions of this Section 14 shall be deemed to be a notice sent by Administrative Member and TRC on the same date.

Section 15.  Entire Agreement.

This Agreement, together with any Exhibits referred to herein, each of which is hereby incorporated in this Agreement and made a part hereof, embodies the entire agreement and understanding among the parties hereto relating to the Project and the obligations of the parties hereto and supersedes all prior agreements and understandings among them with respect thereto.

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Section 16.  Applicable Law.

This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.

Section 17.  Severability.

If any provision of this Agreement is held to be invalid, as applied to any fact or circumstance, such invalidity shall not affect the validity of any other provision hereof or the validity of such provision as applied to any other fact or circumstance.

Section 18.  Captions.

All captions contained in this Agreement are for convenience of reference only and shall not be considered in any way in connection with the interpretation or enforcement of any provision of this Agreement.

Section 19.  Binding Effect.

Except as herein otherwise provided, this Agreement shall be binding upon, and inure to the benefit of, the Owner and the Manager and their respective successors and assigns. No provision of this Agreement shall be applied for the benefit of, or be enforceable by, any Person who is not a party to, or authorized assignee of, this Agreement.

Section 20.  Counterparts.

This Agreement may be executed in any number of counterparts each of which shall be deemed an original, but all of which together shall constitute the same instrument.

Section 21.  Joint and Several Liability.

TRC and the Administrative Member shall be jointly and severally liable for the obligations of Manager under this Agreement; provided, however that TRC shall be solely liable for such obligations requiring either a broker’s license or a general contractor’s license.

[SIGNATURE PAGES ATTACHED]

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IN WITNESS WHEREOF, the Owner and the Manager hereto have executed this Agreement as of the date first above written.

THE OWNER:
LR8 OWNER, LLC, a Delaware limited liability company
By:
Name:	Kashif Z.Sheikh
Title:	Vice President
THE MANAGER:
TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation
By:
Name:
Title:
THE NEW HOME COMPANY OF SOUTHERN CALIFORNIA, LLC, a Delaware limited liability company
By:
Name:
Title:
By:
Name:
Title:

Signature Page to Development Management Agreement

IN WITNESS WHEREOF, the Owner and the Manager hereto have executed this Agreement as of the date first above written.

THE OWNER:
LR8 OWNER, LLC, a Delaware limited liability company
By:
Name:
Title:
THE MANAGER:
TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation
By:
Name:	Wayne J. Stelmar
Title:	Chief Financial Officer
THE NEW HOME COMPANY OF SOUTHERN CALIFORNIA, LLC, a Delaware limited liability company
By:
Name:	Thomas O. Redwitz
Title:	President The New Home Company Southern California LLC
By:
Name:	Wayne J. Stelmar
Title:	Chief Financial Officer

Signature Page to Development Management Agreement

EXHIBIT A

LEGAL DESCRIPTION OF REAL PROPERTY

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PARCEL A

PARCEL 1 OF EXHIBIT “B” ATTACHED TO LOT LINE ADJUSTMENT 424627-LL RECORDED JANUARY 10, 2008 AS INSTRUMENT NO. 2008000015429 OF OFFICIAL RECORDS, BEING A PORTION OF THE FOLLOWING DESCRIBED LAND:

BEING ALL OF PARCELS 2, 3 AND 4 OF LOT LINE ADJUSTMENT 2000-015, IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATE OF CALIFORNIA, RECORDED AS INSTRUMENT NO. 20000288742 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY OF ORANGE DESCRIBED AS A WHOLE AS FOLLOWS:

BEGINNING AT THE SOUTHWESTERLY TERMINUS OF THAT CERTAIN NORTHWESTERLY LINE OF SAID PARCEL 4 SHOWN AS “NORTH 40°39’16” EAST 116.02 FEET” ON SAID LOT LINE ADJUSTMENT 2000-015 SAID POINT BEING IN THE SOUTHWESTERLY RIGHT OF WAY LINE OF PORTOLA PARKWAY PER PARCEL NO. 105 OF EASEMENT DEED TO THE COUNTY OF ORANGE RECORDED MAY 21, 1992 AS INSTRUMENT NO. 92-341743 OF OFFICIAL RECORDS OF SAID COUNTY OF ORANGE; THENCE ALONG SAID NORTHWESTERLY LINE NORTH 40°39’ 16” EAST A DISTANCE OF 116.02 FEET TO THE NORTHEASTERLY RIGHT OF WAY LINE OF SAID PORTOLA PARKWAY AND THE BEGINNING OF A NON-TANGENT CURVE CONCAVE NORTHEASTERLY HAVING A RADIUS OF 7942.00 FEET, TO WHICH POINT A RADIAL LINE BEARS SOUTH 41°39’06” WEST; THENCE NORTHWESTERLY ALONG SAID CURVE AND THE SOUTHWESTERLY LINE OF SAID PARCEL 4 THROUGH A CENTRAL ANGLE OF 00°12’56” AN ARC LENGTH OF 29.88 FEET; THENCE DEPARTING SAID RIGHT OF WAY LINE AND ALONG THE NORTHWESTERLY LINES OF SAID PARCELS 4, 3 AND 2, NORTH 40°39’16” EAST A DISTANCE OF 800.38 FEET; THENCE CONTINUING ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 2 THE FOLLOWING COURSES: SOUTH 59°05’38” EAST A DISTANCE OF 13214 FEET; SOUTH 68°25’02” EAST A DISTANCE OF 44.82 FEET; SOUTH 86°44’01” EAST A DISTANCE OF 48.60 FEET; NORTH 85°24’50” EAST A DISTANCE OF 126.30 FEET; NORTH 82°45’08” EAST A DISTANCE OF 69.12 FEET; NORTH 73°53’00” EAST A DISTANCE. OF 50.73 FEET; NORTH 62°18’05” EAST A DISTANCE OF 37.67 FEET; NORTH 52°10’11” EAST A DISTANCE OF 78.11 FEET; NORTH 49° 16’35” WEST A DISTANCE OF 25.00 FEET; NORTH 49°09’26” EAST A DISTANCE OF 59.41 FEET; AND NORTH 40°20’12” EAST A DISTANCE OF 271.24 FEET TO THE NORTHERLY CORNER OF SAID PARCEL 2; THENCE ALONG THE NORTHEASTERLY LINE OF SAID PARCEL 2, SOUTH 49°16’35” EAST A DISTANCE OF 964.00 FEET TO THE EASTERLY CORNER OF SAID PARCEL 2; THENCE ALONG THE SOUTHEASTERLY LINES OF SAID PARCEL 2, SOUTH 40°39’16” WEST A DISTANCE OF 330.00 FEET; THENCE NORTH 49°16’35” WEST A DISTANCE OF 306.4 FEET; THENCE ALONG THE SOUTHEASTERLY LINES OF SAID PARCELS 2, 3 AND 4, SOUTH 40°39’60” WEST A DISTANCE OF 1278.54 FEET TO THE SOUTHERLY CORNER OF SAID PARCEL 4, SAID CORNER ALSO BEING A POINT ON THE SOUTHWESTERLY RIGHT OF WAY LINE OF SAID PORTOLA PARKWAY; THENCE NORTHWESTERLY ALONG SAID RIGHT OF WAY LINE AND ALONG THE SOUTHWESTERLY LINE OF SAID PARCEL 4, NORTH 49°22’02” WESTA DISTANCE OF 872.87 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHEASTERLY HAVING A RADIUS OF 8058.00 FEET; THENCE NORTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 1°00’16” AN ARC LENGTH OF 141.26 FEET TO THE POINT OF BEGINNING.

[Description Continued]

PARCEL C:

PARCEL 3 OF EXHIBIT “B” ATTACHED TO LOT LINE ADJUSTMENT 424627-LL RECORDED JANUARY 10, 2008 AS INSTRUMENT NO. 2008000015429 OF OFFICIAL RECORDS, BEING A PORTION OF THE FOLLOWING DESCRIBED LAND:

BEING PARCEL 1 OF LOT LINE ADJUSTMENT 2000-015, IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATEOF CALIFORNIA, RECORDED AS INSTRUMENT NO. 20000288742 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY OF ORANGE.

EXCEPTING THEREFROM THAT PORTION OF SAID PARCEL 1 DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHERLY TERMINUS OF THAT CERTAIN WESTERLY LINE OF SAID PARCEL I SHOWN AS “NORTH .05°19’44” WEST 122.69 FEET” IN SAID LOT LINE ADJUSTMENT 2000-015; THENCE DEPARTING SAID LINE SOUTH 79°51’22” EAST A DISTANCE OF 85.37 FEET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 68°47’14” EAST A DISTANCE OF 303.92 FEET; THENCE SOUTH 84°47’33” EAST A DISTANCE OF 32.56 FEET; THENCE SOUTH 46°26’43” EAST A DISTANCE OF 37.32 FEET; THENCE SOUTH 29°19’21” EAST A DISTANCE OF 14.45 FEET; THENCE SOUTH 14°29’21” EAST A DISTANCE OF 28.24 FEET; THENCE SOUTH 85°31’ll” EAST A DISTANCE OF 17.47 FEET; THENCE SOUTH 52°36’12” EAST A DISTANCE OF 27.18 FEET; THENCE SOUTH 13°06’44” EAST A DISTANCE OF 52.77 FEET TO THE BEGINNING OF A NON- TANGENT CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 880.00 FEET TO WHICH POINT A RADIAL LINE BEARS NORTH 48°13’19” WEST; THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 7°11’41” AN ARC LENGTH OF 110.50 FEET; THENCE NON-TANGENT TO SAID CURVE SOUTH 79°47’09” WEST A DISTANCE OF 151.37 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHEASTERLY HAVING A RADIUS OF 238.00 FEET; THENCE NORTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 47°28’20” AN ARC LENGTH OF 197.19 FEET TO THE BEGINNING OF A NON-TANGENT CURVE CONCAVE EASTERLY HAVING A RADIUS OF 420.00 FEET TO WHICH CURVE A RADIAL LINE BEARS SOUTH 79°58’33” WEST; THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 4°40’55” AN ARC LENGTH OF 34.32 FEET; THENCE TANGENT TO SAID CURVE NORTH 05°20’32” WEST A DISTANCE OF 16.29 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 180.00 FEET; THENCE NORTHEASTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 14°51’48” AN ARC LENGTH OF 46.69 FEET TO THE TRUE POINT OF BEGINNING.

ALSO EXCEPTING FROM SAID PARCEL 1 THAT PORTION THEREOF DESCRIBED AS FOLLOWS:

‘COMMENCING AT THE NORTHWESTERLY TERMINUS OF THAT CERTAIN NORTHEASTERLY LINE OF SAID PARCEL 1 SHOWN AS “NORTH 30°58’04” WEST 579.42 FEET” IN SAID LOT LINE ADJUSTMENT 2000-015; THENCE SOUTHEASTERLY ALONG SAID LINE SOUTH 30°58’04” EAST A DISTANCE OF 26.70 FEET TO THE TRUE POINT OF BEGINNING; THENCE DEPARTING SAID LINE SOUTH 59°01’56” WEST A DISTANCE OF 7.73 FEET TO THE BEGINNING OF A NON-TANGENT CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 553.00 FEET TO WHICH POINT A RADIAL LINE BEARS NORTH 41°36’42” EAST; THENCE NORTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 18°23’32” AN ARC LENGTH OF 177.52 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 93.00 FEET TO WHICH CURVE A RADIAL LINE BEARS NORTH 23°13’l0” EAST; THENCE NORTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 14°06’05” AN ARC LENGTH OF 22.89 FEET; THENCE ALONG A LINE RADIAL TO SAID CURVE SOUTH 09°07’05” WEST A DISTANCE OF 3.00 FEET TO THE BEGINNING OF A NON-

[Description Continued]

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TANGENT. CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 49.00 FEET TO WHICH POINT A RADIAL LINE BEARS NORTH 19° 12’10” EAST; THENCE SOUTHEASTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 28°57’19” AN ARC LENGTH OF 24.76 FEET TO THE BEGINNING OF A COMPOUND CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 227.00 FEET TO WHICH POINT A RADIAL LINE BEARS NORTH 48°09’29” EAST; THENCE SOUTHEASTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 9°41’07” AN ARC LENGTH OF 38.37 FEET TO THE BEGINNING OF A NON-TANGENT CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 525.00 FEET TO WHICH POINT A RADIAL LINE BEARS NORTH 27°05’20” EAST; THENCE SOUTHEASTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 6°41’36” AN ARC LENGTH OF 61.33 FEET; THENCE SOUTH 23°20’58” EAST A DISTANCE OF 55.73 FEET; THENCE SOUTH 52°41’55” EAST A DISTANCE OF 21.38 FEET; THENCE SOUTH 30°58’04” EAST A DISTANCE OF 41.68 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHEASTERLY HAVING A RADIUS OF 100.00 FEET; THENCE SOUTHEASTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 7°42’04” AN ARC LENGTH OF 13.44 FEET; THENCE TANGENT TO SAID CURVE SOUTH 38°40’08” EAST A DISTANCE OF 20.37 FEET TO THE BEGINNING OF A TANGENT CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 30.00 FEET; THENCE SOUTHEASTERLY AND NORTHEASTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 82°17’56” AN ARC LENGTH OF 43.09 FEET; THENCE TANGENT TO SAID CURVE NORTH 59°01’56” EAST A DISTANCE OF 26.64 FEET. TO SAID NORTHEASTERLY LINE OF SAID PARCEL 1; THENCE ALONG SAID LINE NORTH 30°58’04 WEST A DISTANCE OF 117.96 FEET TO THE TRUE POINT OF BEGINNING.

PARCEL E:

A NONEXCLUSIVE EASEMENT UNDER THAT CERTAIN GRANT OF EASEMENT FOR IRRIGATION, WATER, PIPELINES, AND CONNECTION FACILITIES MADE BY THE IRVINE COMPANY, A DELAWARE CORPORATION, IN

FAVOR OF BARBARA A. TUCKER, A WIDOW, AND LUCILLE LAMBERT, A SINGLE WOMAN, AS “GRANTEE” RECORDED ON JUNE 1, 2000 AS INSTRUMENT NO. 20000288738 OF OFFICIAL RECORDS OF ORANGE COUNTY, CALIFORNIA (THE “IRRIGATION WATER EASEMENT”) SUBJECT TO THE TERMS AND CONDITIONS AS SET FORTH IN SUBPARAGRAPHS (A) (I) THROUGH (III) OF PARAGRAPH 2 ENTITLED “IRRIGATION WATER FACILITIES” BELOW.

PARCEL F:

A NONEXCLUSIVE EASEMENT UNDER THAT CERTAIN GRANT OF EASEMENT FOR RIGHT OF WAY FOR POLES WITH THE NECESSARY FIXTURES THEREON FOR DOMESTIC TELEPHONE SERVICE MADE BY THE IRVINE COMPANY, A DELAWARE CORPORATION, IN FAVOR OF BARBARA A. TUCKER, A WIDOW, AND LUCILLE LAMBERT, A SINGLE WOMAN, AS “GRANTEE” RECORDED ON JUNE 1, 2000 AS INSTRUMENT NO. 20000288740 OF OFFICIAL RECORDS OF ORANGE COUNTY, CALIFORNIA (“THE TELEPHONE EASEMENT”).

PARCEL G:

A PERPETUAL NONEXCLUSIVE EASEMENT FOR ACCESS, INGRESS, ROAD AND U11L1TY PURPOSES AS SET FORTH IN GRANT DEED RECORDED JUNE 5, 2000 AS INSTRUMENT NO. 20000294758 OF OFFICIAL RECORDS.

PARCEL H:

JOINT ACCESS EASEMENTS FOR ACCESS, INGRESS AND EGRESS PURPOSES AS SET FORTH IN “DECLARATION AND AGREEMENT AS TO ACCESS EASEMENTS AFFECTING PARCELS 1 THROUGH 4, INCLUSIVE, OF LOT LINE ADJUSTMENT LLA 424627” RECORDED FEBRUARY 6, 2008 AS INSTRUMENT NO. 2008000054607 OF OFFICIAL RECORDS.

EXHIBIT B

REQUIRED LAND USE APPROVALS

The Manager shall comply with and shall maintain in full force and effect any and all governmental, regulatory and private permits, approvals, agreements, regulations and restrictions required for the Project , including the following:

1.	EIR SCH No. 2005091175,
2.	Vesting Tentative Tract Map No. 16868,
3.	General Plan Amendment No. 00387430-PGA,
4.	Zone Change No. 00387433-PZC,
5.	Conceptual Master Plan No. 00387431-PMP (landscape concept and master trails plan),
6.	Park Plan No. 00387432-PPP,
7.	Cell Site CUP,
8.	Fire Protection Agreement with OCFA,
9.	Habitat Conservation Plan and Natural Community Conservation Plan Implementing Agreement for the Migratory Bird Treaty Act,
10.	Water Quality Management Plan (SWPPPS and NPDES and Best Management Practices),
11.	404 Permit,
12.	IUSD School Facilities Funding Agreement,
13.	City of Irvine Affordable Housing Agreement,
14.	The Irvine Company Cooperative Agreement, as amended,
15.	Flood Insurance Rate Map Parcel Map No. 06059C030SH,
16.	Declaration of Development Covenants, Conditions and Restrictions for the Master Development Property,
17.	Geotechnical Reports,
18.	Phase 1 Environmental Site Assessment,
19.	Lambert Ranch Eucalyptus Windrows Assessment Report;

The Manager shall use diligent efforts to obtain and shall comply with and maintain the following permits, approvals, agreements, restrictions and regulations not limited to the

1.  
2.   3.   4.   5.   6.   7.   8.   9.   10. extension of the Cell Cite Conditional Use Permit, Cell Site Relocation Agreements, Model Home Complex Conditional Use Permit, Detailed Master Plan, Final Subdivision Map, Subdivision Agreements, Subdivision Bonds, Exoneration of Subdivision Bonds, retention of Orange County certified professional paleontologist and monitor, paleontological resources survey,

11. retention of a USFWS/CDFG approved biologist,

12. required biological and archeological letters and reports,

13. Notice of Intent,

14. formation and funding of Community Facilities District,

15. grading permits,

16. building permits,

17. certificates of use and occupancy,

18. public reports,

19. Secured Fire Agreement,

20. Private Park Reservation documentation,

21. Irvine Subdivision Ordinance,

22. Irvine Subdivision Manual and

23. Zoning Code and Irvine Building Code

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EXHIBIT C

INSURANCE PROVISIONS

PROJECT INSURANCE REQUIREMENTS AND MINIMUM CONTRACTOR INSURANCE REQUIREMENTS

1. Owner shall purchase and maintain as a project cost the following insurance policies and required coverages with at least the following minimum limits during the term of this Agreement and, as provided herein:

a. All Risk Property and Builders Risk insurance with the following limits and coverages:

i. One hundred percent (100%) of the full replacement costs of the work, including, but not limited to, all improvements to the Property performed by TRC, and without any co-insurance requirements or penalties. Such insurance shall have deductibles no greater than $50,000 per occurrence. During the course of construction such insurance shall include full value coverage for transit, off-site storage, vandalism, loss or damage due to strike, riot & civil commotion, Professional Fees, Advance Claim Payment, Mysterious Disappearance and such other coverages as are standard and customarily found in broad form Builders Risk policies. Other than as specifically set forth in the Agreement to which these Insurance Requirements are attached, TRC shall be responsible for all deductibles and SIR during the course of construction. All Builders’ Risk losses will be adjusted with and payable to Owner or its designee for the benefit of all parties as their interests may appear. Owner shall not settle a Builder’s Risk insurance claim in which TRC has submitted costs (in its name and/or on behalf of subcontractors and/or suppliers) without TRC’s prior approval, which shall not be unreasonably withheld. Owner shall not be responsible for loss or damage to, for or obtaining and/or maintaining in force insurance on temporary structures, construction equipment, tools or personal effects, owned by or rented to or in the care, custody, and control of Contractor or any Subcontractor. Loss, if any payable under the Builders Risk Policy, shall be adjusted with Owner and TRC and made payable to Owner, Owner’s lender per any loan requirements, TRC and TRC as trustees for all contractors.

2. Owner shall purchase and maintain or cause to be purchased and maintained on behalf of the Joint Venture, and as a project cost, general liability and umbrella insurance covering the project land until such time as the premises liability exposure is covered through the OCIP policy as referenced in Section 4 below.

3. TRC shall purchase and maintain and cause all additional contractors and subcontractors to purchase and maintain the following insurance:

a. TRC shall maintain and shall cause all subcontractors to maintain in effect at all times and at its own expense the following lines of insurance at the sole cost to TRC and/or subcontractor;

i. Workers Compensation. Statutory workers’ compensation for all employees of TRC and Subcontractors with maximum available limits together with Employers’ liability coverage of at least one million dollars ($1,000,000) each accident for bodily injury by accident, one million dollars ($1,000,000) policy limit for bodily injury by disease including death at any time resulting therefrom, and One Million Dollars ($1,000,000) each employee for bodily injury by disease including death at any time resulting therefrom (including “insurers’” waiver of subrogation rights in favor of Contractor);

ii. Off Site Commercial General Liability: With limits of not less than One Million Dollars ($1,000,000) per occurrence, $2,000,000 general aggregate limits, or limits carried, whichever is greater, for bodily injury, property damage and personal injury liability on a per project basis (except as otherwise noted), including but not limited to: (1) Premises-Operations Coverage; (2) Products and Completed Operations that:

1. Affording thirty (30) days written notice to Owner, the Joint Venture, SunBrook Partners, Inc., MFCI8 LR, LLC, The New Home Company of Southern California, LLC, The New Home Company, LLC, Westbrook Real Estate Fund VIII, L.P., Westbrook Real Estate Co-Investment Partnership VIII, L.P.,, and each entity’s officers, directors, partners, members, employees and agents (collectively, the “Additional Insureds”) prior to cancellation, non-renewal or amendment (excepting amendments naming additional insureds); and

2. Endorsing that such insurance policy as primary as respects the Additional Insureds, and any claim, loss, or liability arising from the insureds operation, and that any other insurance maintained by the Additional Insureds is excess and non-contributing with the insurance required hereunder.

3. Contractor or any contractors or subcontractors shall be responsible for their own tools and equipment and all associated property insurance.

iii. Business/Automobile: Business automobile liability covering liability arising out of any auto (including owned, hired, leased and non-owned

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vehicles, trucks and trailers) with limits of not less than $1,000.000 combined single limit each accident, or limits carried, whichever is greater. The business automobile liability insurance shall be written on the most recent edition of ISO for CA 00 01 or equivalent, and shall include contractual liability coverage and additional insured status for Owner.

iv. Professional Liability Insurance: For all professional design or engineering services for the Project, whether provided by professionals on TRC’s staff or by independent parties under consulting agreements with Owner or such independent parties must secure, acquire and maintain, or cause to be secured, acquired and maintained, Professional Liability insurance in limits not less than $1,000,000 covering the professional services performed in connection with the Project and continuing in force by renewal or extended reporting provision for not less than three years after completion of the Project. This coverage form shall be “claims made” form. The policy shall not contain any exclusions or restrictions for residential development or any exclusion or limitation applicable to work or operations of the type contemplated by this Agreement.

v. Contractor Pollution Legal Liability Coverage: TRC must obtain Contractor’s Pollution Liability or equivalent coverage covering TRC and all subcontractors in an amount not less than $1,000,000 per pollution incident and $1,000,000 per project aggregate terms satisfactory to the Company, including additional insured status for ownership entities where available.

4. Owner shall purchase and maintain as a project cost (to the extent included in the Project Budget) a Owner’s Controlled Insurance Program (“wrap-up policy”) for the benefit of Owner, TRC and Subcontractors (when enrolled) with at least the following minimum coverages during the term of this Agreement and, as provided herein, thereafter.

i. Commercial General Liability Insurance, including coverage for bodily injury (including coverage for death, mental anguish), Premises-Operations (on-site), Independent Contractors’ Protective, Products-Completed Operations, Blanket Contractual Liability, Personal Injury and Broad form Property Damage (including coverage for Explosion, Collapse and Underground hazards), and including Cross Liability and Severability of Interests, endorsements, coverage for Subsidence with Defense Outside of the limits of insurance with the following minimum limits:

1. $25,000,000             Each Occurrence;

2. $25,000,000             General Aggregate;

3. $25,000,000             Personal and Advertising Injury;

4. $25,000,000             Products-Completed Operations Aggregate;

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ii. Such policy shall provide coverage on a per occurrence basis and be endorsed to have the General Aggregate apply on a per location/ per project basis with the aggregate limit reinstated annually. Products and Completed Operations insurance shall be maintained for a minimum period equal to the greater of (i) the period under which a claim can be asserted under the applicable statutes of limitations and/or repose or (ii) ten (10) years after Substantial Completion of the Work. The Contractual Liability Insurance shall include coverage sufficient to meet the indemnity obligations in this agreement.

b. The liability policies shall not contain any exclusions or restrictions for residential development or construction, or any exclusion or limitation applicable to work or operations of the type contemplated by this Agreement.

c. The foregoing primary and excess liability insurance limits may be satisfied by a different combination of primary and excess policies, so long as each specified insurance limit is at least $25,000,000 per occurrence and $25,000,000 in the aggregate and the total combined primary and excess limits are equal to or exceed the total primary and excess limits specified in this subparagraph (a) and the aggregate limits are reinstated annually per subparagraph (c).

5. TRC hereby waives, and shall cause all of its Subcontractors, sub-subcontractors, agents and employees, to waive all causes of action or claims they may have against Owner to the extent such claims or causes of action are covered by any insurance required to be carried by Manager hereunder. TRC shall have all such policies appropriately endorsed with Waiver of Subrogation endorsements, to the extent such endorsements are available on commercially reasonable terms.

6. Any insurance limits required herein are minimum limits only and not intended to restrict the liability imposed on any person or entity for work performed in connection with this Agreement.

7. All such insurance shall be with a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, having a rating of A-VIII or better by AM Best, such insurance as will protect Owner from claims set forth above which may arise out of or result from the operations under this Agreement and for which TRC may be legally liable, whether such operations be by TRC or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable.

8. Where applicable Owner and such other persons and entities as may from time to time be designated by TRC in writing, shall be added as Named Insured’s under the Commercial General Liability Insurance and umbrella form excess insurance, including the Additional Insureds named in this Exhibit.

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EX-10

Exhibit 10.11

DEVELOPMENT MANAGEMENT AGREEMENT

among

LARKSPUR LAND 8 OWNER, LLC,

TNHC REALTY AND CONSTRUCTION, INC.

and

THE NEW HOME COMPANY NORTHERN CALIFORNIA LLC

Dated as of June 30, 2011

	TABLE OF CONTENTS
SECTION 1.	DEFINITIONS	1
1.1.	Defined Terms	1
1.2.	Terms Generally	3
1.3.	Relationship of the Parties	4
SECTION 2.	PROJECT SCOPE	4
SECTION 3.	MANAGEMENT OF THE PROJECT	4
3.1.	Scope of Management Services	4
3.2.	The Owner’s Determinations	9
3.3.	Construction Services	10
SECTION 4.	BUDGET, OPERATING PLAN, REVENUES AND EXPENSES	10
4.1.	Updates of Budget and Operating Plan	10
4.2.	Revisions of Plans and Specifications	10
4.3.	Revenue and Expenses	11
SECTION 5.	MANAGEMENT PERSONNEL; DEVELOPMENT MANAGEMENT FEE	11
5.1.	Management Personnel	11
5.2.	Development Management Fee	11
SECTION 6.	TERM/TERMINATION	12
6.1.	Term/Termination by Owner	12
6.2.	Compensation Upon Termination	13
6.3.	Deliverables Upon Termination	13
SECTION 7.	INDEPENDENT CONTRACTOR	13
SECTION 8.	THE OWNERSHIP OF INFORMATION AND MATERIALS	13
SECTION 9.	LIMITATION ON AUTHORITY OF MANAGER	14
SECTION 10.	AMENDMENT OF AGREEMENT	14
SECTION 11.	LICENSES	14
SECTION 12.	ASSIGNMENT AND SUBCONTRACTS	14
SECTION 13.	NO PARTNERSHIP	15
SECTION 14.	NOTICES	15
SECTION 15.	ENTIRE AGREEMENT	16
SECTION 16.	APPLICABLE LAW	16
SECTION 17.	SEVERABILITY	16
SECTION 18.	CAPTIONS	16
SECTION 19.	BINDING EFFECT	16
SECTION 20.	COUNTERPARTS	17
SECTION 21.	JOINT AND SEVERAL LIABILITY	17
EXHIBIT A – LEGAL DESCRIPTION
EXHIBIT B – REQUIRED LAND USE APPROVALS
EXHIBIT C - INSURANCE PROVISIONS

DEVELOPMENT MANAGEMENT AGREEMENT

THIS DEVELOPMENT MANAGEMENT AGREEMENT (this “Agreement”) is dated as of June 30, 2011, by and among LARKSPUR LAND 8 OWNER, LLC, a Delaware limited liability company (the “Owner”), TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation (“TRC”), and THE NEW HOME COMPANY NORTHERN CALIFORNIA LLC, a Delaware limited liability company (the “Administrative Member”, and together with TRC, shall be collectively known as the “Manager”).

R E C I T A L S

A.        The Owner is a wholly owned subsidiary of Larkspur Land 8 Investors, LLC, which is comprised of MFCI8 Larkspur Land, LLC, a Delaware limited liability company, and the Administrative Member as members pursuant to that certain Limited Liability Company Agreement of Larkspur Land 8 Investors, LLC dated as of June 30, 2011 (“Joint Venture Agreement”).

B.        The Owner owns the Real Property, as hereinafter defined, consisting of approximately 16.8 gross acres located in the City of Larkspur, County of Marin, California, together with all appurtenances thereto.

C.        The Owner contemplates developing the Real Property to create approximately eighty-five (85) finished lots which may be developed as an approximate eighty-five (85) residential unit project in multiple phases consisting of twenty-nine (29) single-family detached homes, six (6) cottage-style homes and fifty (50) senior units, comprised of forty-two (42) condominium units and eight (8) cottage-style homes, or sold as finished lots to one or more merchant builders.

D.        The Owner desires to utilize the expertise of the Manager to manage the Real Property and the design, entitlement, development, construction, marketing and sale thereof, and the Manager is willing to provide such services.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Owner and the Manager hereby agree as follows, intending to be legally bound:

Section 1.  Definitions.

1.1.  Defined Terms.

“Affiliate” has the meaning set forth in the Joint Venture Agreement.

“Administrative Member” has the meaning set forth in the Recitals.

“Budget” means, at any time, the then current Budget (as defined in the Joint Venture Agreement).

“Capital Contributions” has the meaning set forth in the Joint Venture Agreement.

“Consultant License and Agreement” means that certain written license and agreement required to be obtained by the LHP Parties and delivered to the Administrative Member pursuant to the LHP Settlement Agreement with respect to each consultant or vendor who prepared any applications, entitlements, permits, licenses, agreements, service contracts, designs, proposals, plans or other work product contemplated by the LHP Settlement Agreement or who was otherwise engaged by any of the LHP Parties with respect to the Real Property.

“Development Agreement” means that certain Development Agreement dated as of March 17, 2010 between the City of Larkspur and Larkspur Housing Partners, LLC and approved by the City Council of the City of Larkspur as Ordinance No. 973 for the development of eighty-five (85) residential dwelling units on the Real Property together with an approximately 2.43-acre community facility/park site and certain streets, landscaped areas, open space areas, and creek setback and buffer areas, as it may be amended and assigned from time to time.

“Development Management Fee” has the meaning set forth in Section 5.2.

“Executive Committee” has the meaning set forth in the Joint Venture Agreement.

“Final Approval of All Required Land Use Approvals” means the final approval by all resource agencies and governmental agencies with jurisdiction over the Project of the Required Land Use Approvals and expiration without appeal of all applicable appeal periods or if appealed the entry of a final judgment affirming the validity of the Required Land Use Approvals.

“GAAP” means United States generally accepted accounting principles consistently applied.

“Improvements” means all improvements to the Real Property to be made as part of the Project.

“IRR” has the meaning set forth in the Joint Venture Agreement.

“Joint Venture” means Larkspur Land 8 Investors, LLC, a Delaware limited liability company, which is the sole member of the Owner.

“Joint Venture Agreement” has the meaning set forth in the Recitals.

“LHP Parties” means Larkspur Housing Partners, LLC, a California limited liability company, New Cities Land Company, Inc., a California corporation, Sunstar Properties, Inc., a California corporation, Lee Newell and Stephen Seely.

“LHP Settlement Agreement” means that certain settlement agreement dated as of June 7, 2011 between the LHP Parties and Administrative Member and each related Consultant License and Agreement with respect to potential claims regarding the Real

2

Property, including without limitation any claims associated with any applications, entitlements, permits, licenses, agreements, service contracts, designs, proposals, plans and other work product prepared by or for the LHP Parties or in connection with the entitlement and pre-development of the Real Property, as amended, modified or supplemented from time to time.

“Manager” has the meaning set forth in the introductory paragraph to this Agreement.

“Member” has the meaning set forth in the Joint Venture Agreement.

“Operating Plan” means, at any time, the then current Operating Plan (as defined in the Joint Venture Agreement).

“Owner” has the meaning set forth in the introductory paragraph to this Agreement.

“Owner’s Determination” has the meaning set forth in Section 3.2.

“Person” has the meaning set forth in the Joint Venture Agreement.

“Plans and Specifications” has the meaning set forth in Section 3.2(j).

“Project” means obtaining Final Approval of All Required Land Use Approvals, the satisfaction of all conditions of approval of all Required Land Use Approvals, the completion of rough and finished grading, installation of all required utility lines and infrastructure and construction and installation of all required public and private roads and traffic improvements, and the design, entitlement, development, construction, marketing, management and sale of eighty-five (85) residential units, consisting of twenty-nine (29) single-family detached homes, six (6) cottage-style homes and fifty (50) senior units, comprised of forty-two (42) condominium units and eight (8) cottage-style homes, on the Real Property.

“Project Sell-Out” means the sale of the last residential unit in the Project.

“Real Property” has the meaning set forth in the Joint Venture Agreement and includes the land more particular described on Exhibit “A” attached hereto and incorporated by reference herein.

“Required Land Use Approvals” has the meaning set forth on Exhibit “B” attached hereto and incorporated by reference herein.

1.2.  Terms Generally.

Definitions in this Agreement apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Schedules and Exhibits shall be deemed to be references to Articles and

3

Sections of, and Schedules and Exhibits to, this Agreement unless the context shall otherwise require. Any accounting term used but not defined herein shall have the meaning assigned to it in accordance with GAAP. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation” unless such phrase already appears. The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.

1.3.  Relationship of the Parties.

TRC acknowledges that it is an Affiliate of the Administrative Member, an indirect owner of the Owner and the sponsor of the Project and as a result, TRC and Administrative Member have access to confidential and proprietary information of Owner. Any default under this Agreement by Manager shall be deemed a default by both TRC and Administrative Member.

Section 2.  Project Scope.

It is currently contemplated that the Project will consist of two horizontal phases consisting of demolition, mass and rough grading and horizontal infrastructure such as roads and utility lines and multiple phases of vertical improvements, the first of which shall consist of construction of approximately six (6) model units.

Section 3.  Management of the Project.

3.1.  Scope of Management Services.

Subject to Sections 3.2 and 9(b) and the other provisions of this Agreement and the Joint Venture Agreement, the Owner hereby engages the Manager to act as the manager of the Project during the term of this Agreement, and the Manager hereby accepts such engagement. Except as otherwise provided herein or in the Joint Venture Agreement, the overall management and control of the Project shall be under the direction of the Manager, subject to Sections 3.2 and 9(b). The Manager shall devote such time and effort in connection with such engagement as may be necessary to perform its obligations and responsibilities hereunder. In carrying out its obligations under this Agreement, the Manager shall perform the following activities (in each case subject to such modifications as Owner may reasonably determine to be appropriate under the circumstances and subject to availability of funds required to satisfy third party obligations):

(a)  The Manager shall negotiate in the name of and on behalf of the Owner (provided that the Owner solely shall have the power to execute) any agreements for architectural, engineering, testing or consulting services for the Project as requested by Owner, and any agreements for the construction of any of the Improvements or for the furnishing of any supplies, materials, machinery or equipment, and upon Owner’s approval shall have the authority to terminate such agreements, pursuant to the terms thereof, and enter into substitute agreements, if appropriate under the circumstances, and the Manager shall oversee the administration of the foregoing agreements;

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(b)  The Manager shall establish and implement commercially reasonable and appropriate administrative and financial controls for the Project;

(c)  The Manager shall oversee the coordination and administration of the engineers, architects, general contractors, contractors, subcontractors, professionals and consultants employed in connection with the design, entitlement, development, construction, marketing and sale of the Project;

(d)  The Manager shall maintain in full force and effect the Required Land Use Approvals set forth on Exhibit “B” attached hereto, including, but not limited to the CLASP, EIR, Preliminary Development Plan, Mitigated Negative Declaration, CEQA Addenda, Statement of Overriding Considerations, Preliminary Development Plan Amendment, Precise Development Plan, Tentative Map, Design Review, Senior Housing Use Permit, Circulation Assessment Permit, Archeological Investigation Permit, Phase I, Draft Phase I, Health Risk Assessment, 1602 Permit, Treatment Plan, RAW, FRAIP, Development Agreement and LHP Settlement Agreement;

(e)  The Manager shall use diligent efforts to obtain and shall comply with and maintain the Required Land Use Approvals set forth on Exhibit “B” attached hereto, including, but not limited to the Demolition Permit, Rough Grading Permit, Final Subdivision Map, 404 Permit, Extension of 1602 Permit, BAAQMD Permit, Larkspur Creek Restoration Plans, Heritage Tree Removal Permit, DTSC Voluntary Cleanup Agreement, Site Mitigation Programs, NAHB Survey, Waste Management Plan, Traffic Control Plan, revised Rough Grading and Surcharge Plans, Archeological Subsurface Testing Program, Siphon Replacement Project Construction and Financing Agreement with Ross Valley Sanitary District, Larkspur Isle HOA Doherty Drive Boardwalk Realignment Agreement, Larkspur School District Doherty Drive Boardwalk Realignment Agreement, City of Larkspur Affordable Housing Agreements, Assignment of Treatment Plan, CC&R’s, Landscape Plan, Subdivision Improvement Plan, Subdivision Improvement Agreement, Fire Hydrant Installation Plans, Street name approval, Erosion Control Plan, Geotechnical reports, Acoustical evaluation, Health and Safety Plan and Hazardous Materials Remediation Plans;

(f)  The Manager shall comply with all terms and conditions applicable to the Owner or the Project contained in any insurance policy affecting or covering the Project or in any surety bond obtained in connection with the Project;

(g)  The Manager shall keep the Owner informed of the progress of the Project, including the preparation of such reports as are provided for herein, are required by the Required Land Use Approvals or as may reasonably be requested by the Owner;

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(h)  The Manager shall supervise the progress of the Project, including verification of the materials and labor being furnished in connection with the construction of the Improvements so as to be fully competent to approve or disapprove requests for payment made by the engineer and the general contractor for a particular phase of the Project, or by any other Persons with respect to the design and/or construction of the Improvements;

(i)  The Manager shall prepare such reports regarding the progress of the Required Land Use Approvals, each phase of the Project and cost of each phase of the Project as the Owner may reasonably request. On a monthly basis, or otherwise as agreed to by the Owner, the Manager shall submit progress reports showing percentages of completion on Required Land Use Approvals, construction of horizontal infrastructure and construction of each phase of vertical improvements and other information required by the Owner;

(j)  The Manager and Owner shall obtain and maintain in full force and effect insurance coverage set forth in Exhibit “C” attached hereto and incorporated herein with respect to the Project, the Owner, the Joint Venture, the Manager, and their respective employees, officers, directors, managers, members, shareholders and partners as may be prescribed by the Owner;

(k)  The Manager shall assemble and retain all contracts, agreements and other records and data as may be necessary to carry out the Manager’s functions hereunder or otherwise to execute the Project; provided, however, the Manager shall not enter into any such contracts or agreements without obtaining the prior written consent of Owner;

(l)  The Manager shall cause the general contractor or subcontractors to, accomplish the timely completion of each phase of the Improvements in accordance with the construction contracts, construction schedules and Budget and Operating Plan as in effect from time to time;

(m)  The Manager shall notify the Owner promptly of any lawsuits, condemnation proceedings, rezoning or other governmental order or action or any threat thereof that becomes known to the Manager that might adversely affect the Project, any required Land Use Approvals or any interest of the Owner therein;

(n)  The Manager shall supervise all utility contracts, in accordance with the Budget and Operating Plan, including for electricity, fuel, water, telephone, or rubbish hauling, and other similar services;

(o)  The Manager shall hire and retain solely as employees of the Manager and not as employees of the Owner, such personnel as the Manager reasonably determines is necessary or desirable to perform properly the Manager’s functions and obligations hereunder. Such employees’

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compensation, retention and performance shall be determined by the Manager in its sole discretion. The compensation and other cost of such employees shall be the Manager’s cost unless provided in this Agreement, the Joint Venture Agreement or the Budget. The Manager shall be responsible for complying with all laws and regulations and collective bargaining agreements affecting such employment, including the provision of any benefits or compensation required by statute or contract, provided that the Manager shall not enter into any collective bargaining agreement or employment contract affecting the benefits or compensation of such employees without the prior approval of the Owner, with such approval to be in the sole and absolute discretion of the Owner;

(p)  The Manager shall notify the Owner’s general liability insurance carrier and the Owner of any personal injury or property damage occurring to or claimed by any third party on or with respect to the Project and forward to the carrier any summons, subpoena, or other like legal document served upon the Manager relating to actual or alleged potential liability of the Owner or the Manager, with copies to the Owner of all such documents;

(q)  The Manager shall comply with all laws, ordinances, orders, rules, regulations and requirements from time to time in effect of all federal, state and local governments, courts, departments, commissions, boards and offices, any national or local Board of Fire Underwriters or Insurance Services Offices having jurisdiction over the Project or the Manager’s obligations hereunder or any other governmental agency and resource agency having jurisdiction over the Project, including the City of Larkspur, Marin County, California Department of Fish & Game, Regional Water Quality Control Board, U.S. Army Corp of Engineers, Department of Toxic Substances Control, Ross Valley Sanitary District, Bay Area Air Quality Management District, Central Marin Sanitation Agency and California Department of Real Estate. The Manager shall provide Owner with copies of any notice of alleged violation of such laws received by the Manager;

(r)  The Manager shall perform on behalf of the Owner any and all other services and responsibilities of the Manager which are set forth in any other provision of this Agreement or which are reasonably requested by the Owner with respect to the design, entitlement, development, construction, marketing, management and sale of the Project pursuant to this Agreement and which are within the general scope of the services of the Manager described herein;

(s)  The Manager shall meet with the Owner at such times as the Owner may reasonably request to review progress of the Project, to provide directions to the Manager consistent with this Agreement or review any other matter related to the Project or the services performed by the Manager hereunder;

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(t)  Upon commencement of the marketing of any lots or residential units, Manager shall track the status of all such sales and escrows at the Project. Within three (3) business days after the end of each calendar week, Manager shall deliver to Owner (in the form requested by Owner, or if Owner has not requested a particular form, then in a form reasonably acceptable to Owner), a sales and inventory report showing for the previous week construction starts, standing inventory, sales opened, sales closed, sales cancelled, sales prices, the cost of all discounts, upgrades and other sales incentives or concessions, reservations, sales traffic information, releases, contingent status, estimated and actual closing dates, referral/broker cooperation fees and Unit start dates. The last weekly report for each calendar month shall include a monthly summary of such items;

(u)  Within seven (7) business days after the closing of the sale of each Unit, Manager shall deliver to Owner a closing statement prepared by the applicable escrow holder relating to the sale of any lot or residential unit;

(v)  Manager shall prepare and submit to Owner a budget for the marketing, sales and California Department of Real Estate (“DRE”) related activities and materials, which budget shall (i) allocate in reasonable detail the anticipated costs and expenses that Manager reasonably believes will be incurred in connection with the various marketing, sales and DRE-related activities and materials, including, without limitation, any and all escrow fees and costs incurred in connection with the sale of any lot or residential unit, (ii) include recommended control mechanisms and (iii) be subject to the approval of Owner pursuant to the terms of the Joint Venture Agreement;

(w)  In conjunction with the marketing of lots or residential units, Manager shall obtain (or cause to be obtained) and maintain any and all business licenses and permits required for the Project, including, without limitation, the Preliminary Report and Final Public Report required by the DRE.

(x)  Manager shall prepare all disclosure information that Owner is or may be obligated to impart to purchasers of lots or residential units that is or may be considered relevant to the purchaser’s buying decision and/or the value of such lots or residential units, including, without limitation, the following: known environmental hazards; unusual uses and/or zoning of nearby or adjoining parcels; and/or improvement and/or assessment districts (including but not limited to Mello-Roos districts) that have or may have a fiscal impact on the Project and which are in addition to normal property taxes. Without limiting the generality of the foregoing, Manager shall provide all disclosure forms and reports that may be required in order to comply with Civil Code Section 1103, et seq., pertaining to natural hazard disclosures, if and as applicable; and

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(y)  Manager shall recommend in writing for Owner’s approval a detailed marketing program for the Project that includes, without limitation, recommendations regarding all advertising, public relations and other marketing support as may be advisable in Manager’s reasonable business judgment with respect to the Project.

3.2.  The Owner’s Determinations.

Notwithstanding Section 3.1, Section 3.3 or any other provision of this Agreement, no action shall be taken, sum expended, decision made or obligation incurred by the Manager with respect to any matter within the scope of the actions enumerated below (each of such being referred to hereinafter as an “Owner’s Determination”), in each case unless otherwise approved or ratified by Owner, subject to Section 9(b). The Owner’s Determinations are as follows:

(a)  The acquisition of any additional real property or interest therein on behalf of the Owner;

(b)  The entering into of any agreement on behalf of the Owner for the financing of any part of the Project, including but not limited to the financing of the acquisition of the Real Property, interim and permanent financing of any or all of the Improvements and refinancing of any of the foregoing;

(c)  The mortgaging or the placing of any other encumbrance on the Real Property, Project or any portion thereof;

(d)  The approval of each Budget and Operating Plan or the taking of any action which deviates from the Budget and Operating Plan (unless and to the extent that the Administrative Member would be permitted to authorize such deviation pursuant to the Joint Venture Agreement);

(e)  The sale or other transfer, or the entering into of any agreement on behalf of the Owner for the sale or other transfer of all or any portion of the Real Property;

(f)  The settling of any claims, suits, debts, demands or judgments against the Owner, the Joint Venture, any Member or the Real Property; or the retention of counsel for the Owner or the institution or defense of any legal action on behalf of the Owner;

(g)  The entering into of any agreement on behalf of the Owner for the purchase, sale or other transfer of, or the mortgaging or the placing of any other encumbrance on, any properties other than the Real Property;

(h)  The commencement of construction of any phase of the Improvements or the making of any capital improvements, repairs, alterations or changes in, to or of the Project except as may be contemplated by the Budget and Operating Plan;

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(i)  The entering into separate contracts with licensed contractors for different phases or components of the construction and development of the Project;

(j)  The initial approval of any plans and specifications (“Plans and Specifications”) for any material Improvements;

(k)  Any act or transaction outside the ordinary course of the Manager’s duties under this Agreement or outside the ordinary course of the Owner’s business; and

(l)  Any other act or transaction designated by the Owner as an “Owner’s Determination” for purposes of this Agreement and with respect to which the Owner has notified the Manager, including without limitation all Major Decisions under the Joint Venture Agreement.

3.3.  Construction Services.

In addition to the duties set forth in Section 3.1, TRC shall serve as the general contractor for the Project pursuant to an agreement between Owner and Construction Manager as Constructor, in the same form entered into by TRC and LR8 Owner, LLC for the Lambert Ranch development modified, as necessary, to be consistent with this Agreement and the Joint Venture Agreement. Notwithstanding anything to the contrary contained herein, unless Owner enters into a separate contract with a licensed contractor for a discrete component of work on the Project, all construction activities on the Project requiring a contractor’s license shall be performed by TRC and not the Administrative Member. Therefore all obligations of the Manager under this Agreement that require a California Contractors license shall be performed solely by TRC and all references to “Manager” with respect to those obligations shall be deemed references solely to TRC.

Section 4.  Budget, Operating Plan, Revenues and Expenses.

4.1.  Updates of Budget and Operating Plan.

TRC shall be responsible for assisting the Administrative Member in preparing and submitting to the Owner for the approval of the Executive Committee recommendations and explanations of any proposed updates to the Budget and Operating Plan. Representatives of TRC shall be made available to meet with the Administrative Member of the Joint Venture and the members of the Executive Committee of the Joint Venture to discuss any such proposed updates.

4.2.  Revisions of Plans and Specifications.

After the initial Plans and Specifications for any phase of the Improvements are approved by the Owner, the Manager may from time to time approve modifications thereto, provided the modifications are consistent with the Budget and Operating Plan. All Plans and Specifications and any revisions thereto shall be consistent with any applicable zoning and other governmental codes and regulations applicable to the development of the Project, including all Required Land Use Approvals.

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4.3.  Revenue and Expenses.

The Owner shall be responsible for providing all funds necessary to complete the Project. Except for costs that are specifically stated to be the Manager’s sole responsibility under this Agreement, all costs and expenses related to the work, activities and other matters managed by Manager under this Agreement and that are approved by Owner or included within the Budget and Operating Plan shall be Project costs and the sole responsibility of Owner. All draws on any construction funding shall be made by the Owner only, and such draws and all other revenues of the Project shall be payable only to the Owner and paid only to the Owner for deposit into a bank account(s) established for the Project by the Owner. All expenses of the Project shall be payable by the Owner only, who shall be the only authorized signatory with respect to the Project’s bank account(s). The Manager shall cause all invoices or other appropriate documents with respect to the expenses of the Project to be presented to the Owner. The term “Owner” means the Owner or the Owner’s authorized representative. The Owner’s initial authorized representative shall be Marcus L. Scroggins.

Section 5.  Management Personnel; Development Management Fee.

5.1.  Management Personnel.

The Manager shall provide personnel for the conduct of development and entitlement of the Project and as may be needed for the orderly and expeditious operations of the Project. Such personnel, who may be located both on-site and off-site, shall be employees of the Manager only. The compensation and other cost of such employees shall be the Manager’s cost unless provided in this Agreement, the Joint Venture Agreement or the Budget. The Owner shall provide all on-site office facilities, including telephones and other office equipment, as may be necessary and appropriate in connection with the operations of the Project. The Owner shall be responsible for all hard and soft costs associated with the development of the Real Property, except that the Manager shall be responsible for paying the costs of the project manager and on-site project supervisors and administrative personnel and other employees of Manager; provided, however, Owner shall reimburse Manager monthly within thirty (30) days after receipt of a detailed invoice itemizing all such costs for which Manager is seeking reimbursement for such additional employees which dedicate one hundred percent (100%) of their time to the Project and the retention of whom and cost of whom are included within the Budget and Operating Plan that has been approved by the Executive Committee. The Owner shall not have any obligation to pay or reimburse the Manager or for any of its general overhead expenses.

5.2.  Development Management Fee.

For the performance of the Manager’s services under this Agreement, the Owner shall pay the Manager the following management fee (the “Development Management

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Fee”) and the Manager shall be able to allocate the same as it deems appropriate between TRC and the Administrative Member and other Affiliates as it determines in its sole discretion:

(a)  one percent (1%) of the gross sales revenue of the Project, based upon the projected gross sales revenue, to be paid in equal monthly installments during the period of horizontal development of the Project, based upon the anticipated schedule for horizontal development of twenty-five (25) months commencing upon commencement of the mass grading or soil remediation work. Upon the completion of Project Sell-Out, the fee shall be recalculated based upon the actual gross sales revenue of the Project and subject to reconciliation between the Owner and the Manager;

(b)  one percent (1%) of the gross sales revenue of the Project, based upon the projected gross sales revenue, to be paid in equal monthly installments during the period of vertical development of the Project, based upon the anticipated schedule for vertical development of twenty-seven (27) months commencing upon the commencement of construction of the model homes. Upon the completion of Project Sell-Out, the fee shall be recalculated based upon the actual gross sales revenue of the Project and subject to reconciliation between the Owner and the Manager; and

(c)  one percent (1%) of the gross sales revenue from each home sold at the Project, payable upon the close of escrow of each home; provided, however that this portion of the Development Management Fee will be deferred if at any time the Budget and Operating Plan projects that the Project will produce less than a 15% IRR on Capital Contributions until such time as the Budget and Operating Plan projects a 15% IRR on Capital Contributions.

(d)  The Budget and Operating Plan may be reviewed on a quarterly basis to make the deferral determination under Section 5.2(c). Each component of the Management Fee shall be subject to reconciliation and adjustment if changes to the projected gross sales revenue in the Budget and Operating Plan are approved by Owner and also within thirty (30) days after Project Sell-Out.

Section 6.  Term/Termination.

6.1.  Term/Termination by Owner.

The term of this Agreement shall commence on the date hereof and shall continue through the Warranty Period, unless sooner terminated by mutual written agreement of the parties; provided, however, the Owner may terminate this Agreement upon not less than seven days’ written notice to the Manager for the Owner’s convenience and without cause (the “Termination Notice”); provided, further that notwithstanding the foregoing, prior to Owner sending Manager the Termination Notice, Owner shall send Manager a letter identifying any areas of concern or dissatisfaction relating to the Manager’s

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performance or the Project and Manager shall then have 14 days to address Owner’s areas of concern or dissatisfaction and if upon the expiration of such 14 day time period Manager has been unable to adequately address Owner’s areas of concern or dissatisfaction as determined in Owner’s sole and absolute discretion, then Owner shall have the right, but not the obligation, to send Manager the Termination Notice.

6.2.  Compensation Upon Termination.

In the event of termination of this Agreement pursuant to Section 6.1 above, the Owner shall pay to the Manager an amount equal to the fee payable to the Manager under Section 5.2 hereof as of the date of termination. The Owner shall have the right to replace the Manager or any of its Affiliates as the general contactor, sales agent, consultant or in such other capacity under the applicable contract with Owner without providing Manager with a right to terminate this Agreement and the Manager shall be obligated to continue its duties under this Agreement.

6.3.  Deliverables Upon Termination.

Upon termination of this Agreement for any reason, the Manager shall promptly deliver the following to the Owner or the Owner’s appointed agent or designee:

(a)  A final accounting, reflecting the balance of income and expenses for the Real Property or the Project and the Owner as of the date of termination, including all costs and expenses incurred in connection with entitlements, development and construction of each phase of the Project;

(b)  Any balance of monies of the Owner held by the Manager with respect to the Real Property or the Project or the business or the affairs of the Owner; and

(c)  All written data and materials belonging to the Owner and other papers or documents that pertain to the business or affairs of the Owner and the Real Property or the Project.

Section 7.  Independent Contractor.

In performing its services hereunder, the Manager shall be an independent contractor and not an employee or agent of the Owner, the Joint Venture or any Member.

Section 8.  The Ownership of Information and Materials.

The Manager shall, upon completion of the Manager’s services or any earlier termination of this Agreement, deliver to the Owner all books and records and written financial or accounting data and information prepared by, or supplied to the Manager by the Owner or the Owner’s contractors or agents, which information shall at all times be the property of the Owner. The Manager shall also be required to deliver to the Owner any drawings, plans, books, record, contracts, agreements and or other documents and writings in its possession developed or obtained in performing its services hereunder.

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Section 9.  Limitation on Authority of Manager.

(a)  The Manager shall have no right or authority, express or implied, to commit or otherwise obligate the Owner in any manner whatsoever except to the extent specifically provided herein or specifically authorized in writing by the Owner (provided such authorization complies with the requirements of this Agreement).

(b)  The Manager is on notice that certain provisions of the Joint Venture Agreement provide that the express approval of the Executive Committee (as defined in the Joint Venture Agreement) is required for Major Decisions set forth in Sections 7.01(a) of the Joint Venture Agreement and for the Budget and Operating Plan. Notwithstanding anything herein to the contrary, no action shall be taken, sum expended, decision made or obligation incurred by the Manager with respect to any matter constituting a Major Decision or the Budget and Operating Plan without obtaining such consent as required by the Joint Venture Agreement.

Section 10.  Amendment of Agreement.

This Agreement may be amended only in writing, in whole or in part, at any time only by the approval of the Owner and the Manager. No provision of this Agreement may be waived except by a writing signed by the party to be charged therewith.

Section 11.  Licenses.

The Manager shall, at its own expense, qualify to do business and obtain and maintain such licenses, which are personal to Manager, as may be required for the performance by the Manager of its services hereunder. TRC represents and warrants that it has obtained and will maintain its broker’s license and general contractor’s licenses during the term of this Agreement. TRC acknowledges that it will be the only entity performing such duties or functions that require either a broker’s license or a general contractor’s license. The Administrative Member will not perform any duties or functions that require either a broker’s license or a general contractor’s license and the Owner agrees that it will not require the Administrative Member to perform such duties or functions that require either a broker’s license or a general contractor’s license.

Section 12.  Assignment and Subcontracts.

This Agreement is in the nature of a personal services contract, and Manager acknowledges that Owner is relying on the personal knowledge, experience, ability, expertise and skill of Manager to perform the obligations required by this Agreement. The Agreement is personal to the Manager and, except as provided herein, the Manager shall have no right, power or authority to assign this Agreement, or any portion hereof or any monies due or to become due hereunder, or to delegate any duties or obligations arising hereunder, either voluntarily, involuntarily or by operation of law, without the prior written approval of the Owner, which may by withheld in Owner’s sole discretion. Any subcontract of the Manager’s obligations or any part thereof shall not be construed

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to make the Owner a party to such subcontract or to expose the Owner to any claims or liabilities arising thereunder. No other delegation of duties to or subcontract with any other third party shall be permitted without the approval of the Owner. Owner may assign this Agreement to a lender providing financing for the Project or to an affiliate of Owner or to a purchaser of the Project who assumes Owner’s rights and obligations under this Agreement.

Section 13.  No Partnership.

Nothing herein shall constitute or be construed to be or create a partnership or joint venture between the Owner and the Manager.

Section 14.  Notices.

All notices, consents and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when (a) delivered by hand with signed delivery receipt requested, (b) sent by facsimile (with receipt confirmed), provided a copy is mailed on the same day by registered mail, return receipt requested, or (c) received by the addressee, if sent by U.S. Mail or Express Mail, Federal Express or other express delivery service (receipt requested), in each case, to the appropriate addresses, telex numbers and telecopier numbers set forth below (or to such other addresses, telex numbers and telecopier numbers as a party may designate as to itself by notice to the other):

If to the Owner:

Larkspur Land 8 Owner, LLC

c/o Westbrook Partners

3300 PGA Boulevard

Suite 820

Palm Beach Gardens, Florida 33410

Attention: General Counsel

Facsimile: (561) 422-4672

with copies to:

Westbrook Partners

645 Madison Avenue

18th Floor

New York, New York 10022

Attention: Kashif Z. Sheikh, Esq.

Facsimile: (212) 849-8801

Westbrook Partners

645 Madison Avenue

18th Floor

New York, New York 10022

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Attention: Marcus L. Scroggins

Facsimile.: (212) 849-8801

SunBrook Partners

4553 Glencoe Avenue, Suite 155

Marina del Rey, California 90292

Attention: Jason Glasgow

Facsimile: (310) 432-2731

If to the Manager:

TNHC Realty and Construction, Inc.

95 Enterprise, Suite 325

Aliso Viejo, California 92656

Attention: Wayne Stelmar and Tom Redwitz

Telecopy No.: (949) 382-7801

A notice sent to TRC in compliance with the provisions of this Section 14 shall be deemed to be a notice to Administrative Member given on the date of receipt by TRC. A notice sent by Manager in compliance with the provisions of this Section 14 shall be deemed to be a notice sent by Administrative Member and TRC on the same date.

Section 15.  Entire Agreement.

This Agreement, together with any Exhibits referred to herein, each of which is hereby incorporated in this Agreement and made a part hereof, embodies the entire agreement and understanding among the parties hereto relating to the Project and the obligations of the parties hereto and supersedes all prior agreements and understandings among them with respect thereto.

Section 16.  Applicable Law.

This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.

Section 17.  Severability.

If any provision of this Agreement is held to be invalid, as applied to any fact or circumstance, such invalidity shall not affect the validity of any other provision hereof or the validity of such provision as applied to any other fact or circumstance.

Section 18.  Captions.

All captions contained in this Agreement are for convenience of reference only and shall not be considered in any way in connection with the interpretation or enforcement of any provision of this Agreement.

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Section 19.  Binding Effect.

Except as herein otherwise provided, this Agreement shall be binding upon, and inure to the benefit of, the Owner and the Manager and their respective successors and assigns. No provision of this Agreement shall be applied for the benefit of, or be enforceable by, any Person who is not a party to, or authorized assignee of, this Agreement.

Section 20.  Counterparts.

This Agreement may be executed in any number of counterparts each of which shall be deemed an original, but all of which together shall constitute the same instrument.

Section 21.  Joint and Several Liability.

TRC and the Administrative Member shall be jointly and severally liable for the obligations of Manager under this Agreement; provided, however that TRC shall be solely liable for such obligations requiring either a broker’s license or a general contractor’s license.

[SIGNATURE PAGES ATTACHED]

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IN WITNESS WHEREOF, the Owner and the Manager hereto have executed this Agreement as of the date above written.

THE OWNER:
LARKSPUR LAND 8 OWNER, LLC
a Delaware limited liability company
By:
Name:	Diego Rico
Title:	Vice President

[Signature(s) continue on following page]

[Signature Page to Development Management Agreement]

THE MANAGER:
TNHC REALTY AND CONSTRUCTION, INC.,
a Delaware corporation
By:
Name:	Wayne J. Steinar
Title:	Chief Financial Officer
THE NEW HOME COMPANY NORTHERN CALIFORNIA LLC,
a Delaware limited liability company
By:
Name:
Title:
By:
Name:	Mark K. Kawanami
Title:	Vice President

[End of signature(s)]

[Signature Page to Development Management Agreement]

THE MANAGER:
TNHC REALTY AND CONSTRUCTION, INC.,
a Delaware corporation
By:
Name:
Title:
THE NEW HOME COMPANY NORTHERN CALIFORNIA LLC,
a Delaware limited liability company
By:
Name:	Kevin S. Casson
Title:	President
By:
Name:
Title:

[End of signature(s)]

[Signature Page to Development Management Agreement]

IN WITNESS WHEREOF, the Owner and the Manager hereto have executed this Agreement as of the date first above written.

THE OWNER:
LARKSPUR LAND 8 OWNER, LLC
a Delaware limited liability company
By:
Name:	Diego Rico
Its:	Vice President

[Signature(s) continue on following page]

[Signature Page to Development Management Agreement]

EXHIBIT A

LEGAL DESCRIPTION OF REAL PROPERTY

PARCEL ONE:

BEGINNING AT A STAKE ON THE EASTERLY LINE OF THE RIGHT OF WAY OF THE NORTHWESTERN PACIFIC RAILROAD, WHICH POINT IF FURTHER DESCRIBED AS BEARING NORTH 12° 14’ 30” WEST 370.64 FEET FROM A FENCE POST ON THE CORNER COMMON TO THE ACRE PIECE OF THE NORTHWESTERN PACIFIC RAILROAD STATION AS THE SAME IS DESCRIBED IN A DEED RECORDED IN BOOK 184 OF DEEDS, AT PAGE 136, MARIN COUNTY RECORDS, AND THE LANDS OF COLEMAN-FORBES ESTATE, SAID BEARING AND DISTANCE BEING MEASURED ALONG AFORESAID EASTERLY LINE OF SAID RIGHT OF WAY; THENCE ALONG SAID EASTERLY LINE, NORTH 12° 14’ 30” WEST 583.94 FEET TO THE TRUE POINT OF BEGINNING; THENCE LEAVING SAID EASTERLY LINE AND RUNNING ALONG THE NORTHERLY BOUNDARY OF THE PARCEL DESCRIBED IN A DEED FROM INEZ NIVEN TO HAROLD REID, ET AL., AND RECORDED DECEMBER 31, 1965 IN BOOK 2013 OF OFFICIAL RECORDS, AT PAGE 170, MARIN COUNTY RECORDS, NORTH 73° 41’ 10” EAST 765.41 FEET AND THENCE NORTH 76° 09’ 22” WEST 311.31 FEET TO THE WESTERLY LINE OF THE LANDS DEEDED TO THE TAMALPAIS UNION HIGH SCHOOL DISTRICT BY A DEED RECORDED IN BOOK 422 OF OFFICIAL RECORDS, AT PAGE 218, MARIN COUNTY RECORDS, WHICH POINT ALSO LIES ON THE EASTERLY BOUNDARY OF PARCEL FIVE AS DESCRIBED IN THE DECREE OF FINAL DISTRIBUTION NO. 14511 OF THE ESTATE OF GEORGE NIVEN, DECEASED, RECORDED JUNE 1, 1965, MARIN COUNTY RECORDS; THENCE LEAVING SAID NORTHERLY BOUNDARY AND RUNNING ALONG SAID EASTERLY BOUNDARY OF SAID PARCEL FIVE, NORTH 3° 11’ 00” WEST (CALLED NORTH 0° 34’ 57” WEST IN SAID DEED TO REID, 2013 O.R. 170) 198.392 FEET TO A POINT WHICH BEARS SOUTH 3° 11’ 00” EAST 74.463 FEET FROM TIDE LAND STATION 119, AS REFERRED TO IN A DEED TO JOSEPH VARSI, ET UX., RECORDED IN BOOK 190 OF OFFICIAL RECORDS, AT PAGE 310, MARIN COUNTY RECORDS; THENCE LEAVING SAID EASTERLY BOUNDARY OF SAID PARCEL FIVE AND RUNNING ALONG THE EASTERLY, NORTHERLY AND WESTERLY BOUNDARIES OF PARCEL FOUR OF SAID DECREE OF FINAL DISTRIBUTION NO. 14511 THE FOLLOWING COURSES AND DISTANCES; NORTH 3° 11’ 00” WEST 74.463 FEET TO SAID TIDE LAND STATION 119; THENCE NORTH 3° 11’ 00” WEST 95.90 FEET; THENCE NORTH 2° 05’ 00” EAST 248.55 FEET TO A POINT ON THE SOUTHERLY LINE OF A RIGHT OF WAY 60 FEET IN WIDTH AND PRESENTLY CALLED “DOHERTY DRIVE”; THENCE ALONG SAID SOUTHERLY LINE OF SAID “DOHERTY DRIVE” NORTH 87° 55’ 00” WEST 688.51 FEET AND THENCE NORTH 89° 58’ 00” WEST 19.70 FEET TO A POINT THAT BEARS NORTH 19° 45’ 00” WEST 10.76 FEET FROM STATION 96

OF THE FINAL AND OFFICIAL SURVEY OF THE RANCHO PUNTA DE QUENTIN; THENCE CONTINUING ALONG SAID SOUTHERLY LINE, DUE WEST 184.717 FEET; THENCE LEAVING SAID SOUTHERLY LINE, SOUTH 2° 05’ 00” WEST 214.825 FEET TO THE WESTERLY BOUNDARY OF LANDS CONVEYED TO GEORGE NIVEN, ET AL., BY DEED RECORDED IN BOOK 336 OF OFFICIAL RECORDS, AT PAGE 380, MARIN COUNTY RECORDS; THENCE ALONG SAID WESTERLY BOUNDARY (336 O.R. 380) SOUTH 39° 57’ 00” EAST 128.715 FEET AND THENCE SOUTH 49° 09’ 00” EAST 126.60 FEET TO THE SOUTHEASTERLY CORNER OF THE LANDS CONVEYED TO R.C. DOHERTY BY DEED RECORDED IN BOOK 115 OF OFFICIAL RECORDS, AT PAGE 353, MARIN COUNTY RECORDS, FROM WHICH POINT A 2” X 2” STAKE BEARS NORTH 49° 16’ 00” WEST 34.48 FEET AND SOUTH 76° 26’ 00” WEST 2.34 FEET; THENCE LEAVING SAID WESTERLY BOUNDARY (336 O.R. 380), AND ALSO LEAVING SAID BOUNDARIES OF SAID PARCEL FOUR AND RUNNING ALONG THE NORTHERLY AND WESTERLY BOUNDARY OF PARCEL THREE OF SAID DECREE OF FINAL DISTRIBUTION NO. 14511 THE FOLLOWING COURSES AND DISTANCES; SOUTH 76° 26’ 00” WEST 408.12 FEET TO A POINT THAT LIES 10.00 FEET EASTERLY OF (MEASURED AT RIGHT ANGLES) SAID EASTERLY RIGHT OF WAY OF THE NORTHWESTERN PACIFIC RAILROAD AND FROM WHICH A 2” X 2” STAKE BEARS NORTH 12° 14’ 30” WEST 28.00 FEET AND SOUTH 76° 26’ 00” WEST 3.60 FEET; THENCE SOUTH 12° 14’ 30” EAST PARALLEL TO AND 10.00 FEET EASTERLY OF (MEASURED AT RIGHT ANGLES) SAID EASTERLY LINE OF SAID RIGHT OF WAY 326.23 FEET; THENCE SOUTH 77° 45’ 30” WEST 10.00 FEET TO A POINT ON SAID EASTERLY LINE OF SAID RIGHT OF WAY FROM WHICH THE NORTHWESTERLY CORNER OF THE LANDS CONVEYED BY UNION TRUST COMPANY, ET AL., TO JAMES NIVEN BY DEED RECORDED IN BOOK 13 OF OFFICIAL RECORDS, AT PAGE 146, MARIN COUNTY RECORDS, BEARS NORTH 12° 14’ 30” EAST 326.00 FEET ALONG SAID EASTERLY LINE OF SAID RIGHT OF WAY AND THENCE ALONG SAID EASTERLY LINE OF SAID RIGHT OF WAY, SOUTH 12° 14’ 30” WEST 89.63 FEET TO THE SOUTHWEST CORNER OF SAID PARCEL THREE, FROM WHICH POINT A 2” X 2” STAKE BEARS NORTH 71° 30’ 00” EAST 6.40 FEET; THENCE LEAVING SAID BOUNDARIES OF SAID PARCEL THREE AND RUNNING ALONG THE COMMON BOUNDARY OF SAID EASTERLY RIGHT OF WAY OF THE NORTHWESTERN PACIFIC RAILROAD AND PARCEL SIX, PART A, OF SAID DECREE OF FINAL DISTRIBUTION NO. 14511, SOUTH 12° 14’ 30” WEST 79.14 FEET TO THE TRUE POINT OF BEGINNING.

EXCEPTING THEREFROM THAT PORTION CONVEYED IN THE QUITCLAIM DEED EXECUTED BY INEZ NIVEN, ET AL., TO NELLIE DOHERTY, RECORDED DECEMBER 31, 1970 IN BOOK 2426 OF OFFICIAL RECORDS, AT PAGE 525, MARIN COUNTY RECORDS.

ALSO EXCEPTING THEREFROM THAT PORTION THEREOF DESCRIBED IN THE DEED FROM INEZ NIVEN, ET AL., TO THE CITY OF LARKSPUR, RECORDED DECEMBER 22, 1969 IN BOOK 2346 OF OFFICIAL RECORDS, AT PAGE 277, MARIN COUNTY RECORDS.

ALSO EXCEPTING THEREFROM PARCELS ONE AND TWO AS SHOWN UPON PARCEL MAP ENTITLED, “LANDS OF IRVING GROUP, LLC, LARKSPUR, AS DESCRIBED IN DOCUMENT NO. 89-045986, MARIN COUNTY RECORDS”, FILED FOR RECORD JANUARY 5, 1996 IN BOOK 25 OF PARCEL MAPS, AT PAGE 97, MARIN COUNTY RECORDS.

PARCEL TWO:

THAT CERTAIN REAL PROPERTY LYING SOUTHEASTERLY OF THE COURSES DELINEATED AS NORTH 73° 24’ 30” EAST 257.912 FEET AND NORTH 75° 11’ 25” EAST 116.012 FEET AND NORTHEASTERLY OF THE COURSE DELINEATED AS NORTH 32° 12’ 20” WEST 242.93 FEET ON THAT CERTAIN MAP ENTITLED, “RECORD OF SURVEY OF A PORTION OF LANDS OF DOHERTY AND NIVEN”, LARKSPUR, MARIN COUNTY, CALIFORNIA, FILED FOR RECORD IN BOOK 9 OF OFFICIAL SURVEYS, AT PAGE 66, MARIN COUNTY RECORDS.

PARCEL THREE:

NON-EXCLUSIVE EASEMENT OR RIGHT TO USE OF DRAINAGE DITCH, AS DESCRIBED IN THE INSTRUMENT ENTITLED, “GRANT OF DRAINAGE EASEMENT” EXECUTED BY NELLIE DOHERTY TO INEZ NIVEN, ET AL., RECORDED DECEMBER 31, 1970 IN BOOK 2426 OF OFFICIAL RECORDS, AT PAGE 521, MARIN COUNTY RECORDS.

EXHIBIT B

REQUIRED LAND USE APPROVALS

The Manager shall comply with and shall maintain in full force and effect any and all governmental, regulatory and private permits, approvals, agreements, regulations and restrictions required for the Project, including the following:

1. Central Larkspur Specific Plan (including General Plan Amendment) approved September 20, 2006 by Larkspur City Council Resolution No. 46/06 (“CLASP”),

2. CLASP Environmental Impact Report SCH #2001112092 certified September 20, 2006 by Larkspur City Council Resolution No. 46/06 (“EIR”),

3. Preliminary Development Plan for CLASP Subarea 3, the Rose Garden Project (including Affordable Housing Alternative Equivalent Action Plan) approved July 16, 2008 by Larkspur City Council Resolution Ordinance No. 962 (“Preliminary Development Plan”),

4. Mitigated Negative Declaration for the Preliminary Development Plan approved July 16, 2008 by Larkspur City Council Ordinance No. 962 (“Mitigated Negative Declaration”),

5. Two (2) California Environmental Quality Act Addenda to the EIR and Mitigated Negative Declaration adopted January 20, 2010 by Larkspur City Council Resolution No. 04/10 (“CEQA Addenda”),

6. Statement of Overriding Considerations for the Preliminary Development Plan adopted January 20, 2010 by Larkspur City Council Resolution No. 04/10 (“Statement of Overriding Considerations”),

7. Preliminary Development Plan Amendment/Exceptions approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Preliminary Development Plan Amendment”),

8. Precise Development Plan for CLASP Subarea 3, the Rose Garden Project (including Excavation and Fill Permit) approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Precise Development Plan”),

9. Tentative Map approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Tentative Map”),

10. Design Review approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Design Review”),

11. Use Permit for Senior Housing approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Senior Housing Use Permit”),

12. Circulation Assessment Permit approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Circulation Assessment Permit”),

13. Archeological Investigation Permit approved February 17, 2010 by Larkspur City Council Ordinance No. 972 (“Archeological Investigation Permit”),

14. Phase I Environmental Site Assessment and Initial Phase II Assessment dated October 8, 1998, prepared by Harza Engineering Company (“Phase I”),

15. Draft Phase I Environmental Site Assessment dated May 6, 2011, prepared by ENGEO for The New Home Company (“Draft Phase I”),

16. Health-Based Risk Assessment for Niven Nursery dated February 5, 2002, prepared by ENVIRON Corporation (“Health Risk Assessment”),

17. California Department of Fish and Game 1602 Streambed Alteration Agreement No. 1600-2008-0235-3 obtained by Ross Valley Sanitary District (“1602 Permit”),

18. Treatment Plan Agreement dated March 24, 2009 between the Federated Indians of Graton Rancheria, the City of Larkspur and Larkspur Housing Partners, LLC (“Treatment Plan”),

19. Final Removal Action Workplan dated September 2009, prepared by ENVIRON for Larkspur Housing Partners, LLC (“RAW”),

20. Final Removal Action Implementation Plan dated October 14, 2009, prepared by ENVIRON for Larkspur Housing Partners, LLC (“FRAIP”),

21. Development Agreement, and

22. LHP Settlement Agreement.

The Manager shall use diligent efforts to obtain and shall comply with and maintain the following permits, approvals, agreements, restrictions and regulations, not limited to the:

1. Demolition Permit,

2. Rough Grading Permit,

3. Final Subdivision Map,

4. Section 404 Nationwide Permit from the United States Army Corps of Engineers issued to the Ross Valley Sanitation District for the installation and relocation of sewer pipelines along Larkspur Creek (“404 Permit”),

5. Extension of 1602 Permit to December 31, 2012,

6. Bay Area Air Quality Management District (BAAQMD) Permit,

7. Larkspur Creek Restoration Plans (including the Final Native Plan Restoration Plan, Final Larkspur Creek Habitat Restoration Plan and Upland Habitat Buffer Plan),

8. Heritage Tree Removal Permit,

9. Department of Toxic Substances Control (DTSC) Voluntary Cleanup Agreement,

10. Site Mitigation Programs (including Amendment of RAW and Implementation Plan for removal of contaminated soil, Construction Management Plan/Implementation Plan, Archeological Monitoring Contract, Tribal Monitor Hazardous Materials Training, Contract and Survey Compliance with the Migratory Bird Treaty Act and Arborist Monitoring Contract for Tree Removal),

11. NAHB Survey,

12. Waste Management Plan,

13. Traffic Control Plan,

14. Revised Rough Grading and Surcharge Plans,

15. Archeological Subsurface Testing Program,

16. Siphon Replacement Project Construction and Financing Agreement with the Ross Valley Sanitary District,

17. Larkspur Isle HOA Doherty Drive Boardwalk Realignment Agreement,

18. Larkspur School District Doherty Drive Boardwalk Realignment Agreement,

19. City of Larkspur Affordable Housing Agreements,

20. Assignment of Treatment Plan,

21. CC&R’s,

22. Landscape Plan,

23. Subdivision Improvement Plan,

24. Subdivision Improvement Agreement,

25. Fire Hydrant Installation Plans,

26. Street name approval,

27. Erosion Control Plan,

28. Geotechnical reports,

29. Acoustical evaluation,

30. Health and Safety Plan for CLASP Subarea 3, and

31. Hazardous Materials Remediation Plans.

EXHIBIT C

INSURANCE PROVISIONS

PROJECT INSURANCE REQUIREMENTS AND MINIMUM CONTRACTOR

INSURANCE REQUIREMENTS

1. Owner shall purchase and maintain as a project cost the following insurance policies and required coverages with at least the following minimum limits during the term of this Agreement and, as provided herein:

a. All Risk Property and Builders Risk insurance with the following limits and coverages:

i. One hundred percent (100%) of the full replacement costs of the work, including, but not limited to, all improvements to the Property performed by TRC, and without any co-insurance requirements or penalties. Such insurance shall have deductibles no greater than $50,000 per occurrence. During the course of construction such insurance shall include full value coverage for transit, off-site storage, vandalism, loss or damage due to strike, riot & civil commotion, Professional Fees, Advance Claim Payment, Mysterious Disappearance and such other coverages as are standard and customarily found in broad form Builders Risk policies. Other than as specifically set forth in the Agreement to which these Insurance Requirements are attached, TRC shall be responsible for all deductibles and SIR during the course of construction. All Builders’ Risk losses will be adjusted with and payable to Owner or its designee for the benefit of all parties as their interests may appear. Owner shall not settle a Builder’s Risk insurance claim in which TRC has submitted costs (in its name and/or on behalf of subcontractors and/or suppliers) without TRC’s prior approval, which shall not be unreasonably withheld. Owner shall not be responsible for loss or damage to, for or obtaining and/or maintaining in force insurance on temporary structures, construction equipment, tools or personal effects, owned by or rented to or in the care, custody, and control of Contractor or any Subcontractor. Loss, if any payable under the Builders Risk Policy, shall be adjusted with Owner and TRC and made payable to Owner, Owner’s lender per any loan requirements, TRC and TRC as trustees for all contractors.

2. Owner shall purchase and maintain or cause to be purchased and maintained on behalf of the Joint Venture, and as a project cost, general liability and umbrella insurance covering the project land until such time as the premises liability exposure is covered through the OCIP policy as referenced in Section 4 below.

3. Owner shall purchase and maintain or the Joint Venture at Owner’s request shall purchase and maintain Pollution Legal Liability insurance with a minimum limit of $10,000,000 Per Occurrence and $35,000,000 in the aggregate providing coverage for preexisting and new pollution conditions that may result in third party bodily injury, property damage or first party clean up. Such coverage shall be extended to include coverage for pollution conditions arising in transit or off site. Such insurance may be satisfied by a blanket policy.

4. TRC shall purchase and maintain and cause all additional contractors and subcontractors to purchase and maintain the following insurance:

a. TRC shall maintain and shall cause all subcontractors to maintain in effect at all times and at its own expense the following lines of insurance at the sole cost to TRC and/or subcontractor;

i. Workers Compensation: Statutory workers’ compensation for all employees of TRC and Subcontractors with maximum available limits together with Employers’ liability coverage of at least one million dollars ($1,000,000) each accident for bodily injury by accident, one million dollars ($1,000,000) policy limit for bodily injury by disease including death at any time resulting therefrom, and One Million Dollars ($1,000,000) each employee for bodily injury by disease including death at any time resulting therefrom (including “insurers’” waiver of subrogation rights in favor of Contractor);

ii. Off Site Commercial General Liability: With limits of not less than One Million Dollars ($1,000,000) per occurrence, $2,000,000 general aggregate limits, or limits carried, whichever is greater, for bodily injury, property damage and personal injury liability on a per project basis (except as otherwise noted), including but not limited to: (1) Premises-Operations Coverage; (2) Products and Completed Operations that:

1. Affording thirty (30) days written notice to Owner, the Joint Venture, SunBrook Partners, Inc., MFCI8 Larkspur Land, LLC, The New Home Company Northern California, LLC, The New Home Company, LLC, Westbrook Real Estate Fund VIII, L.P., Westbrook Real Estate Co-Investment Partnership VIII, L.P., and each entity’s officers, directors, partners, members, employees and agents (collectively, the “Additional Insureds”) prior to cancellation, non-renewal or amendment (excepting amendments naming additional insureds); and

2. Endorsing that such insurance policy as primary as respects the Additional Insureds, and any claim, loss, or liability arising from the insureds operation, and that any other insurance maintained by the Additional Insureds is excess and non-contributing with the insurance required hereunder.

3. Contractor or any contractors or subcontractors shall be responsible for their own tools and equipment and all associated property insurance.

iii. Business/Automobile: Business automobile liability covering liability arising out of any auto (including owned, hired, leased and non-owned vehicles, trucks and trailers) with limits of not less than $1,000.000 combined single limit each accident, or limits carried, whichever is greater. The business automobile liability insurance shall be written on the most recent edition of ISO for CA 00 01 or equivalent, and shall include contractual liability coverage and additional insured status for Owner.

iv. Professional Liability Insurance: For all professional design or engineering services for the Project, whether provided by professionals on TRC’s staff or by independent parties under consulting agreements with Owner or such independent parties must secure, acquire and maintain, or cause to be secured, acquired and maintained, Professional Liability insurance in limits not less than $1,000,000 covering the professional services performed in connection with the Project and continuing in force by renewal or extended reporting provision for not less than three years after completion of the Project. This coverage form shall be “claims made” form. The policy shall not contain any exclusions or restrictions for residential development or any exclusion or limitation applicable to work or operations of the type contemplated by this Agreement.

v. Contractor Pollution Legal Liability Coverage: TRC must obtain Contractor’s Pollution Liability or equivalent coverage covering TRC and all subcontractors in an amount not less than $1,000,000 per pollution incident and $1,000,000 per project aggregate terms satisfactory to the Company, including additional insured status for ownership entities where available.

5. Owner shall purchase and maintain as a project cost (to the extent included in the Project Budget) a Owner’s Controlled Insurance Program (“wrap-up policy”) for the benefit of Owner, TRC and Subcontractors (when enrolled) with at least the following minimum coverages during the term of this Agreement and, as provided herein, thereafter.

i. Commercial General Liability Insurance, including coverage for bodily injury (including coverage for death, mental anguish), Premises-Operations (on-site), Independent Contractors’ Protective, Products-Completed Operations, Blanket Contractual Liability, Personal Injury and Broad form Property Damage (including coverage for Explosion, Collapse and Underground hazards), and including

Cross Liability and Severability of Interests, endorsements, coverage for Subsidence with Defense Outside of the limits of insurance with the following minimum limits:

1. $25,000,000                 Each Occurrence;

2. $25,000,000                 General Aggregate;

3. $25,000,000                 Personal and Advertising Injury;

4. $25,000,000                 Products-Completed Operations Aggregate;

ii. Such policy shall provide coverage on a per occurrence basis and be endorsed to have the General Aggregate apply on a per location/ per project basis with the aggregate limit reinstated annually. Products and Completed Operations insurance shall be maintained for a minimum period equal to the greater of (i) the period under which a claim can be asserted under the applicable statutes of limitations and/or repose or (ii) ten (10) years after Substantial Completion of the Work. The Contractual Liability Insurance shall include coverage sufficient to meet the indemnity obligations in this agreement.

b. The liability policies shall not contain any exclusions or restrictions for residential development or construction, or any exclusion or limitation applicable to work or operations of the type contemplated by this Agreement.

c. The foregoing primary and excess liability insurance limits may be satisfied by a different combination of primary and excess policies, so long as each specified insurance limit is at least $25,000,000 per occurrence and $25,000,000 in the aggregate and the total combined primary and excess limits are equal to or exceed the total primary and excess limits specified in this subparagraph (a) and the aggregate limits are reinstated annually per subparagraph (c).

6. TRC hereby waives, and shall cause all of its Subcontractors, sub-subcontractors, agents and employees, to waive all causes of action or claims they may have against Owner to the extent such claims or causes of action are covered by any insurance required to be carried by Manager hereunder. TRC shall have all such policies appropriately endorsed with Waiver of Subrogation endorsements, to the extent such endorsements are available on commercially reasonable terms.

7. Any insurance limits required herein are minimum limits only and not intended to restrict the liability imposed on any person or entity for work performed in connection with this Agreement.

8. All such insurance shall be with a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, having a rating of A-VIII or better by AM Best, such insurance as will protect Owner from claims set forth above which may arise out of or result from the operations under this Agreement and

for which TRC may be legally liable, whether such operations be by TRC or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable.

9. Where applicable Owner and such other persons and entities as may from time to time be designated by TRC in writing, shall be added as Named Insured’s under the Commercial General Liability Insurance and umbrella form excess insurance, including the Additional Insureds named in this Exhibit.

EX-10

Exhibit 10.12

EXECUTION COPY

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC NEWPORT LLC

Amended and Restated LLC   

Agreement of TNHC Newport LLC

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC NEWPORT LLC

TABLE OF CONTENTS

	Page
ARTICLE I ORGANIZATIONAL MATTERS		1
1.1 Continuation		1
1.2 Name		2
1.3 Registered Office and Principal Office of Company; Addresses of Members		2
1.4 Term		2
1.5 No Individual Authority		2
1.6 Title to Company Property		2
1.7 Ownership		2
1.8 Limits of Company		2
1.9 Superseding Effect		3
ARTICLE II DEFINITIONS		3
ARTICLE III PURPOSE		18
3.1 Purposes and Scope		18
ARTICLE IV CAPITAL CONTRIBUTIONS		19
4.1 Initial Capital Contributions		19
4.2 Additional Capital Contributions		19
4.3 Monetary Default by a Member in Making Additional Capital Contributions		23
4.4 Capital Accounts		25
4.5 Negative Capital Accounts		28
4.6 Interest		28
4.7 No Withdrawal		28
4.8 Limitation on Capital Contributions and Loans		28
ARTICLE V ALLOCATIONS		29
5.1 Allocations of Profits and Losses		29
5.2 Special Allocations of Profits and Losses		31
5.3 Curative Allocations		33
5.4 Tax Allocations: Code Section 704(c)		33
5.5 Other Allocation Rules		34
ARTICLE VI DISTRIBUTIONS		34
6.1 Distributions of Available Cash		34
6.2 Amounts Withheld		35
6.3 Limitation on Distributions		35

i Amended and Restated LLC    Agreement of TNHC Newport LLC

ARTICLE VII MANAGEMENT OF THE COMPANY	36
7.1 Designation and Authority of Managing Member	36
7.2 Executive Committee 7.3 Major Decisions 7.4 Certificate of Formation	36
	39
	42
7.5 Compensation and Reimbursement of Members	43
7.6 Outside Activities	43
7.7 Company Funds	44
7.8 Transactions with Affiliates	44
7.9 Insurance	46
7.10 Indemnification of Members	47
7.11 Liability of a Member	49
7.12 Duties	49
7.13 Annual Budget	51
7.14 Indemnification for Fees	51
7.15 Special Right to Participate With Respect to Davis City Opportunity	52
ARTICLE VIII PHASES AND DEVELOPMENT PHASE PLANS	55
8.1 Development and Construction of Project in Phases	55
8.2 Financing	55
8.3 PEPI Loan	55
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS	56
9.1 Records and Accounting	56
9.2 Fiscal Year	56
9.3 Reports	56
9.4 Inspection of Documents and Project Site	57
ARTICLE X TAX MATTERS	57
10.1 Tax Matters Partner	57
10.2 Annual Tax Returns	57
10.3 Notice and Limitations on Authority	58
10.4 Tax Elections	59
10.5 Actions in Event of Audit	59
10.6 Organizational Expenses	59
10.7 Taxation as a Partnership	59
ARTICLE XI TRANSFERS AND PLEDGES OF MEMBERSHIP INTERESTS	59
11.1 Pledge and Transfer Restrictions	59
11.2 Consent of the Executive Committee	61
11.3 Permitted Transfers and Pledges	61
11.4 Registration	61
11.5 Prohibited Transfers	62
11.6 Rights of Assignee	62
11.7 Admission as a Member	62
11.8 Distributions and Allocations in Respect of Transferred Membership Interests	63

ii Amended and Restated LLC    Agreement of TNHC Newport LLC

11.9 Special Buy-Out Provision	63
11.10 Specific Performance and Other Remedies	66
11.11 Call Right	67
11.12 NB Put Option	70
ARTICLE XII REMOVAL OF MANAGING MEMBER	72
12.1 Removal Events	72
12.2 Removal of Managing Member	73
12.3 Consequences of Removal	73
12.4 Cooperation	73
12.5 Consent to Remedies	74
ARTICLE XIII DISSOLUTION AND LIQUIDATION	74
13.1 Dissolution	74
13.2 Liquidation	75
13.3 Reserves	75
13.4 Distribution in Kind	76
13.5 Disposition of Documents and Records	76
13.6 Cancellation of Certificate of Formation	76
13.7 Return of Capital	76
13.8 Waiver of Partition	76
ARTICLE XIV AMENDMENT OF AGREEMENT	76
14.1 Amendment Procedures	76
ARTICLE XV GENERAL PROVISIONS	77
15.1 Addresses and Notices	77
15.2 Titles and Captions	78
15.3 Pronouns and Plurals	78
15.4 Further Action	78
15.5 Binding Effect	78
15.6 Integration	78
15.7 No Third Party Beneficiary	78
15.8 Waiver	79
15.9 Counterparts	79
15.10 Applicable Law	79
15.11 Invalidity of Provisions	79
15.12 Attorneys Fees	79
15.13 Computation of Time	79
15.14 Representations and Warranties	79
15.15 Confidentiality	81
15.16 Waiver of Jury Trial	82

iii Amended and Restated LLC    Agreement of TNHC Newport LLC

EXHIBITS
EXHIBIT A:	Legal Description of Project Site
EXHIBIT B:	Initial Capital Contributions of Members
EXHIBIT C:	TNHC Initial Costs
EXHIBIT D:	Form of Construction Contract
EXHIBIT E:	Form of Sales and Marketing Agreement
EXHIBIT F:	Initial Annual Budget
EXHIBIT G:	Insurance Requirements
EXHIBIT H:	PEPI Loan Discussion Letter

iv Amended and Restated LLC    Agreement of TNHC Newport LLC

THE MEMBERSHIP INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES ACTS IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS. THE SALE OR OTHER DISPOSITION OF THE MEMBERSHIP INTERESTS IS PROHIBITED UNLESS SUCH SALE OR DISPOSITION IS MADE IN COMPLIANCE WITH ALL SUCH APPLICABLE ACTS. ADDITIONAL RESTRICTIONS ON TRANSFER OF THE MEMBERSHIP INTERESTS ARE SET FORTH IN THIS AGREEMENT.

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC NEWPORT LLC

This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF TNHC NEWPORT LLC (the “Agreement”) is entered into as of the 1^st day of March, 2013 (the “Effective Date”), by and between TNHC MERIDIAN INVESTORS LLC, a Delaware limited liability company, and NB Residences, LLC, a California limited liability company, as Members.

Certain terms used in this agreement are defined in Article II hereof.

RECITALS:

A.        The New Home Company Southern California, LLC previously formed TNHC Newport LLC (the “Company”) as a wholly-owned Delaware limited liability company on or about July 24, 2012, and entered into that certain Limited Liability Company Agreement for the Company dated as of July 25, 2012 (the “Original Agreement”).

B.        On the Effective Date, the Company admitted TNHC Meridian Investors LLC, a Delaware limited liability company, and NB Residences, LLC, a California limited liability company, as new Members, The New Home Company Southern California, LLC is withdrawing as a Member, and the new Members now desire to amend and restate the Original Agreement to reflect their agreement with respect to the operation and management of the Company.

NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

ORGANIZATIONAL MATTERS

1.1      Continuation.   The Members hereby agree to continue the Company as a limited liability company pursuant to the provisions of the Delaware Act. Except as expressly provided and permitted herein to the contrary, the rights and obligations of the Members and the administration and termination of the Company shall continue to be governed by the Delaware Act.

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1.2      Name.  The name of the Company shall continue to be, and the business of the Company shall continue to be conducted under the name of, TNHC NEWPORT LLC. The Company’s business may be conducted under any other name or names approved by the Executive Committee.

1.3      Registered Office and Principal Office of Company; Addresses of Members.  The registered office of the Company in the State of Delaware shall be 2140 South Dupont Highway, Camden, DE 19934, and the registered agent for service of process on the Company at such registered office shall be Paracorp Incorporated or such other registered office or registered agent as the Executive Committee may from time to time designate. The principal place of business of the Company shall be 95 Enterprise, Suite 325, Aliso Viejo, CA 92656. The principal office of the Company may be changed to another location within a 25-mile radius of the Company’s initial principal office as may be approved by the Managing Member, or it may be changed to any other location as may be approved by the Executive Committee. The addresses of the Members as of the Effective Date are set forth in Section 15.1. The address of a Member may be changed in accordance with the requirements set forth in Section 15.1.

1.4      Term.  The Company shall continue in existence perpetually or until the earlier termination of the Company in accordance with the provisions of Section 13.1.

1.5      No Individual Authority.  No Member, acting alone, shall have any authority to act for, or to undertake or assume, any obligation, debt, duty, or responsibility on behalf of any other Member or the Company except as otherwise expressly provided in this Agreement.

1.6      Title to Company Property.  It is the desire and intention of the Members that legal title to all property of the Company shall be held and conveyed in the name of the Company.

1.7      Ownership.  The interest of each Member in the Company shall be personal property for all purposes. All property and interests in property, real or personal, owned by the Company shall be deemed owned by the Company as an entity, and no Member, individually, shall have any ownership of such property or interest except by having an ownership interest in the Company as a Member. Each of the Members irrevocably waives, during the term of the Company and during any period of its liquidation following any dissolution, any right that it may have to maintain any action for partition with respect to any of the assets of the Company.

1.8      Limits of Company.  The relationship between the parties hereto shall be limited to the carrying on of the business of the Company in accordance with the terms of this Agreement. Such relationship shall be construed and deemed to be a limited liability company for the sole and limited purpose of carrying on such business. Except as otherwise provided for or contemplated in this Agreement, nothing herein shall be construed to create a partnership between the Members or to authorize any Member to act as general agent for any other Member.

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1.9      Superseding Effect.  This Agreement supersedes the Original Agreement and any and all other earlier company agreements with respect to the Company, and such previous agreements shall no longer have any force or effect from and after the Effective Date.

ARTICLE II

DEFINITIONS

The following definitions shall for all purposes, unless otherwise clearly indicated to the contrary, apply to the terms used in this Agreement:

“Adjusted Capital Account” means, with respect to any Member, such Member’s Capital Account balance, increased by the amount (if any) of such Member’s share of the Company Minimum Gain and Member Minimum Gain.

“Adjusted Capital Account Deficit” means, with respect to any Member for a particular Fiscal Year, the deficit balance, if any, in such Member’s Capital Account as of the end of such relevant Fiscal Year, after giving effect to the following adjustments: (a) any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to section 1.704-1(b)(2)(ii)(c) of the Regulations, the penultimate sentence of section 1.704-2(g)(1) of the Regulations, or the penultimate sentence of section 1.704-2(i)(5) of the Regulations, shall be credited to such Capital Account; and (b) the items described in sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the Regulations shall be debited to such Capital Account. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.

“Affiliate” means with respect to any Person: (a) any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person; (b) any Person owning or Controlling 20% or more of the outstanding voting securities or beneficial interests of such Person; (c) any officer, director, constituent partner or member of such Person or of any other Person described in subparagraph (a) and (b) above; (d) any relative of such Person or of any other Person described in subparagraphs (a), (b), or (c) above; or (e) any trust, family partnership, or other entity established primarily for the benefit of such Person or of any Persons described in subparagraphs (a), (b), (c), or (d) above or the estate of such Persons. For purposes of this Agreement, however, TNHC shall never be considered an Affiliate of NB, and NB shall never be considered an Affiliate of TNHC.

“Affiliate Agreement” has the meaning set forth in Section 7.8(a).

“Agreed Terms” has the meaning set forth in Section 7.15(c)(ii).

“Agreement” means this Amended and Restated Limited Liability Company Agreement of TNHC NEWPORT LLC, as it may be further amended, supplemented, or restated from time to time.

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“Annual Budget” means the budget for the Company prepared annually in accordance with Section 7.13 for each Fiscal Year (or portion thereof) and covering the expected remaining term of the Company. The Annual Budget shall consist of:

(a)      An “operating plan,” which shall include a forecast of income and budgeted costs and expenses and cash flow of the Company for both the upcoming Fiscal Year and the projected remaining term of the Company (including the cost of the Project Site and any Improvements, as applicable); and

(b)      A “business plan” for the Company for the Fiscal Year in question and for the projected remaining term of the Company, including: (i) a narrative description of a proposed business plan for the Company for the applicable Fiscal Year and for the projected remaining term of the Company; and (ii) such other information that any Member reasonably determines is relevant and material to the operations of the Company.

“Applicable Laws” means any applicable law, statute, ordinance, rule, regulation, decision, order, or determination of any governmental authority or any board of fire underwriters (or any other body exercising similar functions), or any restrictive covenant or deed restriction (recorded or otherwise known to the Person to whom the restriction applies), zoning ordinances, building codes, flood disaster laws, and human health and environmental laws and regulations.

“Available Cash” of the Company as of a particular date means all cash funds of the Company on hand on such date from all sources, reduced by: (a) Company Costs and Expenses that are due and payable as of such date and/or that are expected to become due and payable in the next 60 days; and (b) a provision for adequate reserves (working capital and/or capital), with the amount of such reserves to be determined by the Executive Committee in its reasonable discretion.

“Bad Conduct” means, with respect to a particular Member, an act or acts constituting: (a) with respect to the Company and/or its business and affairs: (i) an intentional breach of fiduciary duty or an act of self-dealing which has a material adverse effect on the Company or any other Member; or (ii) willful or wanton misconduct which has a material adverse effect on the Company or any other Member; and (b) whether or not with respect to the Company and/or its business and affairs: (i) the commission of a felony (for these purposes, either the indictment for, a plea of “no contest,” or a conviction of a felony shall be considered the commission of a felony); (ii) fraud; or (iii) any indictment and/or conviction for a drug-related crime (other than a crime involving only the consumption of alcohol).

“Bad Conduct Cost” has the meaning set forth in Section 4.2(e)(i).

“Bad Conduct Member” has the meaning set forth in the definition of Uncured Bad Conduct.

“Bankruptcy” means the occurrence of any of the following events with respect to a particular Person: (a) the filing by such Person of an application for, or a consent to, the appointment of a trustee for such Person’s assets; (b) the filing by such Person of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing its

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inability to pay its debts as they come due; (c) the making by such Person of a general assignment for the benefit of creditors; (d) the filing by such Person of an answer admitting the material allegations of, or its consenting to or defaulting in answering, a bankruptcy petition filed against it in any bankruptcy proceeding; or (e) the entry of an order, judgment, or decree by any court of competent jurisdiction adjudicating such Person a bankrupt or appointing a trustee of its assets, and such order, judgment, or decree continues unstayed and in effect for a period of one hundred twenty (120) days.

“Book Depreciation” has the meaning set forth in Section 4.4(b)(v).

“Book Value” has the meaning set forth in Section 4.4(c).

“Breaching Member” has the meaning set forth in the definition of Material Breach.

“Budgeted Category Cost” means, with respect to a particular Cost Category, all of the projected pre-development, development, and construction costs anticipated to be incurred in such Cost Category in connection with the development and construction of the Improvements as set forth in the applicable Annual Budget.

“Building Improvements” mean the five low-rise buildings (3 and 4 stories) to be constructed on the Project Site above two podium structures that will contain 79 Residential Units and related parking, amenities and storage facilities.

“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the Government of the United States shall not be regarded as a Business Day.

“Buy/Sell Closing Date” has the meaning set forth in Section 11.9(b)(v).

“Call Closing Date” has the meaning set forth in Section 11.11(g).

“Call Event” means: (a) a Member has engaged in Bad Conduct; (b) a Member has engaged in Uncured Bad Conduct; (c) a Member has committed a Material Breach; (d) a Member commits a Material Monetary Default; (e) a Member becomes a Defaulting Purchaser or Defaulting Seller; or (f) a Bankruptcy occurs with respect to a Member.

“Call Interest” has the meaning set forth in Section 11.11(a).

“Call Notice” has the meaning set forth in Section 11.11(b).

“Call Price” has the meaning set forth in Section 11.11(f).

“Call Right” has the meaning set forth in Section 11.11(a).

“Called Member” has the meaning set forth in Section 11.11(a).

“Calling Member” has the meaning set forth in Section 11.11(a).

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“Cap Call Notice” has the meaning set forth in Section 4.2(a).

“Capital Account” means the capital account maintained for a Member pursuant to Section 4.4.

“Capital Contribution” means, with respect to any Member, the amount of money and the initial Book Value of any property (other than money) contributed to the Company with respect to the interest in the Company held by such Member, reduced by the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by such Member to the Company.

“Carrying Costs” mean property taxes, special taxes, assessments, dues, fees, utility charges, insurance costs (including liability and casualty insurance), and similar types of required costs and expenses that relate to the Project Site and Improvements (to the extent then owned by the Company).

“CCRs” means any declaration of covenants, conditions, and restrictions to be recorded against all or any portion of the Project Site.

“Certificate of Formation” means the Certificate of Formation that was filed with the Secretary of State of Delaware on July 25, 2012, as it may be amended and/or restated from time to time.

“Closing Date” has the meaning set forth in Section 7.16(d).

“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time. All references herein to the Code shall include any corresponding provision or provisions of succeeding law.

“Company” means TNHC NEWPORT LLC, a Delaware limited liability company established by filing of the Certificate of Formation with the Secretary of State of Delaware.

“Company Costs and Expenses” mean all expenditures of any kind provided for in the applicable Annual Budget that are made or are to be made with respect to the operations of the Company and the acquisition and development of the Project Site and Improvements, including without limitation, the cost of all development and construction costs for the Improvements, development fees, brokerage fees, principal, interest, fees, points, penalties, and other amounts payable on Company indebtedness (including, without limitation, any amounts owed by the Company with respect to any Company Obligation), ad valorem taxes, state and local taxes, special taxes, assessments, permit fees, insurance premiums, escrow payments, repair and maintenance costs, engineering fees, advertising expenses, professional fees, utilities costs, equipment costs, sales commissions, management fees, consulting fees, salaries, wages, fringe benefits, and other similar types of costs, expenses, charges, liabilities, and obligations of the Company.

“Company Minimum Gain” means partnership minimum gain as set forth in Regulations section 1.704-2(d).

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“Company Obligation” means, as the context may require any obligation that the Company may have with respect to the Project and the development of the Project Site and the Improvements.

“Construction Contract” means that certain Owner-Contractor General Contract, to be entered into between the Company, as owner, and TNHC Realty, as contractor, in the form attached hereto as Exhibit D.

“Construction Cost Overrun” means, at any particular time, the amount by which Total Project Category Costs exceed Budgeted Category Costs.

“Contribution Date” has the meaning set forth in Section 4.2(f)(iv)). “Contribution Notice” has the meaning set forth in Section 4.2(f).

“Contribution Percentages” means the percentage of certain Capital Contributions each Member is required to and/or may make pursuant to this Agreement. The Contribution Percentage of each Member is set forth below:

Member	Contribution Percentage
TNHC	35.0%
NB	65.0%
Total:	100.0%

The Contribution Percentage of a Member that Transfers part or all of its Membership Interest may be adjusted as a result of such Transfer pursuant to Article XI. After such adjustment, the Contribution Percentage of such Member, as adjusted, shall constitute such Member’s Contribution Percentage for all purposes of this Agreement.

“Control” or any derivation thereof, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, by contract, or otherwise.

“Controllable Construction Cost Overrun” means that portion of any Construction Cost Overrun to the extent it is incurred by the Company as a result of the negligence or willful misconduct of the Managing Member. Without limiting the generality of the foregoing, Construction Cost Overruns arising from changes in market conditions or changes in laws, ordinances or regulations applicable to the Project cannot be Controllable Construction Cost Overruns.

“Cost Category” means a major cost category for development or construction costs identified in the applicable Annual Budget.

“Credit Enhancements” means any credit enhancements, including, without limitation, letters of credit, bonds, guarantees, cash deposits, pledges of additional collateral, or similar items and/or similar recourse obligations.

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“Davis City Lender” has the meaning set forth in Section 7.15(c)(ii)(B).

“Davis City Loan” has the meaning set forth in Section 7.15(c).

“Davis City Opportunity” means the acquisition, entitlement, horizontal development, and vertical development of a residential and mixed use project on that certain tract of land encompassing approximately 98.4 acres located in Davis City, California that has been identified by NB and TNHC as the “Davis City Opportunity.”

“Davis Company Agreement” has the meaning set forth in Section 7.15(c)(i).

“Davis Entity” has the meaning set forth in Section 7.15(c)(i).

“Default Amount” has the meaning set forth in Section 4.3(b)(i).

“Default Date” has the meaning set forth in Section 4.3(b)(i).

“Default Member” has the meaning set forth in Section 4.3(b).

“Default Notice” has the meaning set forth in Section 4.3(a).

“Defaulting Purchaser” has the meaning set forth in Section 11.10(b).

“Defaulting Seller” has the meaning set forth in Section 11.10(c).

“Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. §18-101, et seq., as amended from time to time, and any successor to such Delaware Act.

“Dissolution Event” has the meaning set forth in Section 13.1(b).

“Effective Date” has the meaning set forth in the introductory paragraph to this Agreement.

“Election Period” has the meaning set forth in Section 7.15(b)(i).

“Excess Amounts” has the meaning set forth in Section 5.1(a)(vi).

“Executive Committee” means the committee appointed by NB and TNHC in accordance with Section 7.2.

“Fair Market Value” means the most probable price, in cash, for which the property in question should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for their own self-interest, and assuming that neither is under undue duress, and with respect to the valuation of equity securities (including limited partnership interests and limited liability company interests), without giving any effect to minority discounts, “restricted interest” discounts, and/or “control” premiums.

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“Finders Fee Agreement” means that certain Finders Fee Agreement, dated June 30, 2011, between TNHC Southern and SCALA Real Estate Partners.

“First Call Appraiser” has the meaning set forth in Section 11.11(c).

“First Put Appraiser” has the meaning set forth in Section 11.12(c).

“First Priority Preference Amount” means, with respect to a particular Member, an aggregate amount computed like interest at a rate equal to twenty percent (20%) per annum, compounded monthly, on the outstanding balance from time to time of such Member’s Undistributed First Priority Capital, reduced by distributions made to such member pursuant to Section 6.1(a).

“Fiscal Year” means the 12 calendar month period ending December 31 of each year; provided that the initial Fiscal Year shall be the period beginning on the Effective Date and ending December 31, 2013, and the last Fiscal Year shall be the period beginning on January 1 of the calendar year in which the final liquidation and termination of the Company is completed and ending on the date such final liquidation and termination is completed (to the extent any computation or other provision hereof provides for an action to be taken on a Fiscal Year basis, an appropriate proration or other adjustment shall be made in respect of the initial and final Fiscal Years to reflect that such periods are less than full calendar year periods).

“GAAP” means generally accepted accounting principles as set forth from time to time in the opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements of the Financial Accounting Standards Boards or in such opinions and statements of such other entities as shall be approved by a significant segment of the accounting profession.

“Guaranty Contribution Request” has the meaning set forth in Section 4.2(c)(ii).

“High Risk Person” has the meaning set forth in Section 15.14(i).

“IHP” has the meaning set forth in Section 11.1(c).

“Improvements” means the Land Improvements, the Building Improvements (including the Residential Units), and any other capital improvements that either have been constructed on the Project Site as of the Effective Date and/or that the Company constructs (or causes to be constructed on the Project Site after the Effective Date, together with all improvements appurtenant thereto.

“Indemnitee” has the meaning set forth in Section 7.10.

“Independent Accountants” means any national or regional accounting firm in the United States that has been designated by the Managing Member and approved by the Executive Committee.

“Individual TNHC Members” means H. Lawrence Webb, Wayne J. Stelmar, Joseph D. Davis, and Thomas Redwitz. TNHC may terminate any individual’s status as an Individual TNHC Member so long as TNHC replaces such terminated Individual

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TNHC Member with another individual who has been approved in writing by NB, which approval shall not be unreasonably withheld.

“Innocent Purchaser” has the meaning set forth in Section 11.10(c).

“Innocent Seller” has the meaning set forth in Section 10.10(b).

“Land Improvement” means any capital improvements to be constructed on the Project Site other than the Building Improvements, including without limitation, streets, sewers, storm drains, utilities, water connections, landscaping, grading, and similar capital improvements.

“Liquidator” has the meaning set forth in Section 13.3(a).

“Losses” has the meaning set forth in Section 4.4(b).

“Major Decision” means a Supermajority Major Decision or a Majority Major Decision.

“Majority Control” (or any derivation thereof) means, with respect to a particular corporation, partnership, limited liability company, limited partnership or other entity, the possession and ownership by one or more designated Persons of: (a) Control; and (b) more than 50% of the voting and equity interests in such entity.

“Majority Major Decision” has the meaning set forth in Section 7.3(c).

“Managing Member” means TNHC or any successor to TNHC appointed in accordance with the terms of this Agreement.

“Material Breach” means that:

(a)      A Member has breached a material term of this Agreement other than a failure to make a required Capital Contribution (the Member that is alleged or deemed to have committed the act or acts described in this subparagraph (a) is referred to as a “Breaching Member”);

(b)      Another Member delivers a written notice to the Breaching Member, informing the Breaching Member that an act or acts described in subparagraph (a) above has occurred and describing such breach (such written notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the written notice is contained and must alert the Breaching Member to the time period in which a cure must be effected); and

(c)      The Breaching Member fails to cure such breach within 15 days after the Breaching Member’s receipt of the written notice described in subparagraph (b) above; provided, however, if such act or event is subject to cure by performance, but the act or event is such that it is not reasonably susceptible to being cured within said 15-day period, then the Breaching Member shall be entitled to such additional time as may be required in order to cure such breach so long as such cure is commenced within said 15-day period and is thereafter diligently prosecuted to completion on or before 75 days after the expiration of such 15 day period.

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“Material Monetary Default” means Monetary Defaults by a Member and/or any Members that are Affiliates of such Member shall have occurred (i.e., the Member and/or any Member who is an Affiliate of such Member that committed a Potential Monetary Default has failed to contribute the required capital contribution within ten (10) Business Days after receiving the Default Notice pursuant to Section 4.3(b)) and the cumulative amount of unfunded capital under such Monetary Defaults which have not been cured by the applicable Defaulting Member and Members that are Affiliates of such Defaulting Member is in excess of $250,000 at the time such determination is being made.

“Maximum Rate” means the lesser of: (a) 18% per annum, compounded quarterly; and (b) the maximum rate of interest permitted to be charged under Applicable Law.

“Member” means TNHC, NB, and/or any other Person who is admitted as a Member in the Company in accordance with this Agreement on and after the Effective Date and whose admission has been reflected on the books and records of the Company in accordance with the applicable provisions of this Agreement.

“Member Minimum Gain” means partner nonrecourse debt minimum gain as determined under the rules of section 1.704-2(i) of the Regulations.

“Member Nonrecourse Debt” has the meaning set forth in Regulations section 1.704-2(b)(4).

“Member Nonrecourse Deduction” means a partner nonrecourse deduction as set forth in Regulations section 1.704-2(i).

“Membership Interest” means the interest of a Member in the Company, including, without limitation, such Member’s right: (a) to a distributive share of the Profits, Losses, and other items of income, gain, loss, deduction and credit of the Company; (b) to a distributive share of the assets of the Company; (c) to vote on those matters described in the Agreement; and (d) to participate in the management and operation of the Company as provided in this Agreement.

“Modification Notice” has the meaning set forth in Section 4.2(h).

“Monetary Default” has the meaning set forth in Section 4.3(b)(i).

“Movant” has the meaning set forth in Section 11.9(b)(i).

“NB” means NB Residences, LLC, a California limited liability company, and its permitted Transferees under this Agreement.

“NB Interest FMV” has the meaning set forth in Section 11.12(c).

“NB Management Fee” has the meaning set forth in Section 7.8(c).

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“NB Members” has the meaning set forth in Section 11.9(a).

“NB Party” means: (a) H.R. Perot, Jr.; (b) the estate of H.R. Perot, Jr.; (c) any Relative of H.R. Perot, Jr.; (d) any trust or family partnership established primarily for the benefit of any of the foregoing Persons; or (e) any other Person who is Controlled by and/or who Controls any of the foregoing Persons (or any combination thereof).

“NB Price” has the meaning set forth in Section 11.9(b)(ii)(D).

“NB Reorganization” means any reorganization and/or recapitalization of NB or any of the NB Parties that currently have Majority Control of NB. An NB Reorganization may result in Control of the resulting entity residing in Persons other than the NB Parties.

“New Home Company” has the meaning set forth in Section 11.1(c).

“Non-Defaulting Members” has the meaning set forth in Section 4.3(b).

“Non-Promoted Interest” has the meaning set forth in Section 7.15(c)(ii)(A)(II)(x).

“Nonrecourse Deductions” has the meaning set forth in section 1.704-2(b)(1) of the Regulations.

“Notice” has the meaning set forth in Section 11.9(b).

“OFAC” has the meaning set forth in Section 15.14(i).

“Opportunity Notice” has the meaning set forth in Section 7.15(a).

“Other Permitted Costs” means: (a) Carrying Costs (to the extent not reflected in a currently approved Annual Budget); (b) after the construction of any phase of Improvements has commenced, any amounts required to complete the development and construction of such phase of Improvements (to the extent such costs are not reflected in the currently approved Annual Budget); and (c) principal, interest, and/or any other payments required under any Company indebtedness that has previously been approved by the Executive Committee and is not reflected in a currently approved Annual Budget.

“PEPI” means PEPI Capital, L.P., a Delaware limited partnership.

“PEPI Loan” means that certain loan from PEPI to the Company in the maximum aggregate principal amount of $116 million that the Company intends to use to finance, in part, the development of the Improvements, which loan is being made pursuant to the PEPI Loan Documents.

“PEPI Loan Documents” means the loan agreement, promissory note, first lien deed of trust, and other documents and agreements between PEPI, as lender, and the Company, as borrower, relating to the PEPI Loan.

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“Percentage Interest” means the percentage interest of a Member in certain allocations of Profits, Losses and other items of income, gain, loss or deduction and certain distributions of cash and property. The initial Percentage Interest of each Member is set forth below:

Member	Percentage Interest
TNHC	50%
NB	50%
Total:	100.00%

The Percentage Interest of a Member may be adjusted pursuant to Section 4.3 and Section 12.3. In addition, the Percentage Interest of a Member that Transfers part or all of its Membership Interest may be adjusted as a result of such Transfer pursuant to Article XI. After such adjustment, the Percentage Interest of such Member, as adjusted, shall constitute such Member’s Percentage Interest for all purposes under this Agreement.

“Person” means an individual, corporation, limited partnership, general partnership, joint venture, limited liability company, trust, estate, unincorporated organization, association or other entity.

“Plans and Specifications” means the plans and specifications for any Improvements constructed and/or to be constructed on the Project Site.

“Pledge,” or any derivation thereof means, as the context may require, a pledge, encumbrance, lien, mortgage, hypothecation, or similar disposition (other than a Transfer) with respect to any applicable property in connection with the granting of a lien or security interest to secure an obligation of the pledgor or another Person.

“Potential Monetary Default” means the failure by any Member to make any Capital Contribution that such Member is required to make pursuant to Section 4.2 of this Agreement.

“Profits” has the meaning set forth in Section 4.4(b).

“Prohibited Investors” means: (a) Specially Designated Nationals and Blocked Persons on the list maintained by OFAC (http://www.treas.gov/ofac); (b) Parties subject to economic sanctions on the list maintained by OFAC (http://www.treas.gov/ofac); (c) Specially Designated Terrorists, Specially Designated Global Terrorists or Foreign Terrorist Organizations on the list maintained by OFAC (http://www.treas.gov/ofac); (d) Specially Designated Narcotics Traffickers on the list maintained by OFAC (http://www.treas.gov/ofac), or (e) Foreign banks unregulated in the jurisdiction in which they are organized or chartered, but which have no physical presence.

“Project” means the Project Site, the Improvements, all ancillary rights thereto, and all activities of the Company relating, directly or indirectly, to the acquisition, ownership, development, operation, and/or sale or other disposition of the Project Site and/or the Improvements.

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“Project Documents” means all architectural drawings, renderings, or studies, soil and engineering tests, borings and soil analysis, marketing studies, feasibility studies, traffic studies, cost projects, governmental permits, development allocations and other entitlements, or any other data or information of a similar nature relating to the acquisition of the Project Site and the development and construction of the Improvements.

“Project Employee” means any employee of the Managing Member or TNHC Realty that provides services to the Company that are directly related to the Project (e.g., all on-site personnel and the Project manager). For these purposes, members of the TNHC executive team shall not be included in the definition of Project Employee.

“Project Employee Cost” means the cost of the salary, incentives and employee benefits of each Project Employee to the extent properly allocable to the Project and provided for in specific line items in the Annual Budget designated as “Project Employee Costs.”

“Project Site” means that certain real property consisting of approximately 4.25 acres, located in the City of Newport Beach, County of Orange, California, as more particularly described on Exhibit A.

“Purchase Contract” means that certain Agreement of Purchase and Sale, and Joint Escrow Instructions, dated as of May 3, 2012, by and between TNHC Southern, as buyer, and Seller, as seller, as amended, which contract was previously assigned to the Company.

“Purchase Contract Closing Date” means the date that the Company acquires the Project Site from the Seller pursuant to the Purchase Contract.

“Put Closing Date” has the meaning set forth in Section 11.12(g).

“Put Notice” has the meaning set forth in Section 11.12(b).

“Put Price” has the meaning set forth in Section 11.12(f).

“Put Right” has the meaning set forth in Section 11.12(a).

“Qualified Appraiser” means a member of the Appraisal Institute or its successor organization who shall have at least five (5) years of experience in valuing properties which are similar in character to the Project Site and the Improvements and which are located within the general area of the Project Site and the Improvements.

“Regulations” means the Treasury Regulations promulgated under the Code, as amended and in effect from time to time (including corresponding provisions of any succeeding regulations).

“Regulatory Allocations” has the meaning set forth in Section 5.3.

“Relative” means, with respect to a particular Person, any spouse, sibling, parent, grandparent, or descendant of such Person.

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“Removal Event” has the meaning set forth in Section 12.1.

“Removal Notice” has the meaning set forth in Section 12.2.

“Residential Units” mean the 75 flats (averaging 2,807 square feet) and 4 townhomes (averaging 3,904 square feet) that are included within the Building Improvements.

“Respondent” has the meaning set forth in Section 11.9(b)(i).

“Response Period” has the meaning set forth in Section 11.9(b)(iii).

“Sales and Marketing Agreement” means that certain Sales and Marketing Contract, between the Company, as owner, and TNHC Realty, as the selling agent, in the form attached hereto as Exhibit E.

“Second Call Appraiser” has the meaning set forth in Section 11.11(d).

“Second Priority Preference Amount” means, with respect to a particular Member, an aggregate amount computed like interest at a rate equal to twelve percent (12%) per annum, compounded monthly, on the outstanding balance from time to time of such Member’s Undistributed Second Priority Capital, reduced by distributions made to such member pursuant to Section 6.1(c).

“Second Put Appraiser” has the meaning set forth in Section 11.12(d).

“Section 7.15 Offer” has the meaning set forth in Section 7.15(b).

“Securities Act” means the U.S. Securities Act of 1933, as amended, and all rules, rulings, and regulations thereunder.

“Seller” means HHR Newport Beach LLC, a Delaware limited liability company.

“Settlement Notice” has the meaning set forth in Section 7.10(c).

“Shortfall Amount” has the meaning set forth in Section 4.2(b).

“Stated Value” has the meaning set forth in Section 11.9(b)(ii)(B).

“Supermajority Major Decision” has the meaning set forth in Section 7.3(b).

“Tax Matters Member” has the meaning set forth in Section 10.1.

“Third Call Appraiser” has the meaning set forth in Section 11.11(e)(ii)(A).

“Third Put Appraiser” has the meaning set forth in Section 11.12(e)(ii)(A).

“Total Project Category Costs” means with respect to a particular Cost Category, all pre-development, development, and construction costs paid, payable, or actually incurred by or on behalf of the Company in such Cost Category in connection with the development of the Improvements.

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“TNHC” means TNHC MERIDIAN INVESTORS LLC, a Delaware limited liability company, and its permitted Transferees under this Agreement.

“TNHC Initial Costs” means the pre-development and due diligence expenditures (including earnest money deposits under the Purchase Contract) made by TNHC prior to the Effective Date and described on Exhibit C attached hereto.

“TNHC Interest FMV” has the meaning set forth in Section 11.12(c).

“TNHC Management Fee” has the meaning set forth in Section 7.8(b).

“TNHC Members” has the meaning set forth in Section 11.9(a).

“TNHC Partners” means TNHC Partners, LLC, a Delaware limited liability company.

“TNHC Party” means: (a) any of the Individual TNHC Members; (b) the estate of any Person named in clauses (a); or (c) any other Person who is Controlled by and/or who Controls any of the foregoing Persons (or any combination thereof).

“TNHC Price” has the meaning set forth in Section 11.9(b)(ii)(C).

“TNHC Realty” means TNHC Realty & Construction, Inc., a Delaware corporation.

“TNHC Realty Bad Conduct” has the meaning set forth in Section 7.8(f)(ii)(A).

“TNHC Reorganization” means: (a) the conversion of New Home Company 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 (b) any substantial recapitalization of New Home Company whereby (i) one or more new investors contribute capital to New Home Company and are admitted as additional members, or (ii) a new partnership or limited liability company is formed wherein the constituent partners or members are New Home Company and one or more new investors. A TNHC Reorganization may result in Control of the resulting entity residing in Persons other than the Individual TNHC Members and the other current owners of New Home Company.

“TNHC Southern” means The New Home Company Southern California, LLC, a Delaware limited liability company.

“Transfer,” “Transferred,” or any other derivation thereof, means as the context may require, a direct or indirect sale, assignment, transfer, merger, consolidation, interest exchange, conversion, or other disposition (other than a Pledge) of the applicable property, by operation of law or otherwise.

“Transfer Affiliate” means: (a) with respect to TNHC, a TNHC Party; and (b) with respect to NB, an NB Party.

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“Transferee” means a Person to whom a Membership Interest has been Transferred.

“Transferor” means a Member that has Transferred all or any portion of its Membership Interest.

“Trigger Date” means the date on which the initial phase of construction of the Improvements on the Project Site has been substantially completed (e.g., substantial completion of the horizontal infrastructure improvements, the podium for the five buildings, and the first two buildings).

“Uncured Bad Conduct” means with respect to a particular Member, the status of such Member’s conduct if all of the following conditions have been met:

(a)      Such Member has committed, with respect to the Company and/or its business and affairs, an act or acts constituting gross negligence which has a material adverse effect on the Company or any Member (the Member that is alleged or deemed to have committed the act or acts described in this subparagraph (a) is referred to as the “Bad Conduct Member”);

(b)      Another Member delivers a written notice to the Bad Conduct Member, informing such Bad Conduct Member that such alleged act or acts have occurred, and describing such alleged act or acts (such written notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the written notice is contained and must alert the Bad Conduct Member to the time period in which a cure must be effected); and

(c)      The Bad Conduct Member fails, within 15 days after receiving the written notice described in subparagraph (b), to cure such breach and/or to take such other corrective action as may be necessary to put the Company and the other Members in substantially the same position that they would have been in if such acts, misconduct, or gross negligence had not occurred, provided, however, if such acts, misconduct, or gross negligence is curable by performance, but is not reasonably susceptible to being cured within said 15-day period, then the Bad Conduct Member shall be entitled to such additional time as may be required in order to cure such breach and/or to take such other corrective action as may be necessary so long as such cure and/or corrective action is commenced within said 15-day period and is thereafter diligently prosecuted to completion on or before 75 days after the expiration of such 15 day period.

“Undistributed First Priority Capital” means, with respect to a Member, the amount in a special recordkeeping account maintained by the Company for such Member, equal to: (a) the amounts described in Section 4.3 that increase the Undistributed First Priority Capital of a Non-Defaulting Member after the Effective Date in connection with a request for Capital Contributions with respect to which there has been a Default; reduced (but not below zero) by: (b) the aggregate amount of cash distributed to such Member pursuant to Section 6.1(b).

“Undistributed Second Priority Capital” means, with respect to a Member, the amount in a special recordkeeping account maintained by the Company for such Member, equal to: (a) any

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Capital Contributions made by such Member to the Company pursuant to Section 4.1, Section 4.2(a), Section 4.2(b), and Section 4.2(c) (subject to the potential recharacterization of certain amounts as Undistributed First Priority Capital under those conditions described in Section 4.3(b)); reduced (but not below zero) by: (b) the cash distributions made to such Member pursuant to Section 6.1(d).

ARTICLE III

PURPOSE

3.1         Purposes and Scope.

      (a)      Subject to the provisions of this Agreement, the sole purposes of the Company are to:

(i)      acquire TNHC Southern’s interest in the Purchase Contract;

(ii)      acquire the Project Site from Seller pursuant to the Purchase Contract;

(iii)      conduct pre-construction activities (including without limitation design of the Project), tests, studies, an/or analyses with respect to the Project Site;

(iv)      obtain entitlements and/or permits for the construction of the Improvements;

(v)      develop and construct the Improvements;

(vi)      market and sell the Residential Units and cause the construction of any other necessary Improvements;

(vii)      hold, own, operate, maintain, manage, market, sell, exchange, lease, and otherwise dispose of all or any portion of the Project Site, the Residential Units, and any other Improvements;

(viii)      borrow money in furtherance of any or all of the objectives of the Company business, and secure the same by mortgage, pledge or other lien; and

(ix)      do any and all other acts or things which may be incidental or necessary to carry on the business of the Company as herein contemplated.

      (b)      The Company shall not engage in any other business or activity without the prior written consent of the Executive Committee (as a Supermajority Major Decision).

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ARTICLE IV

CAPITAL CONTRIBUTIONS

4.1      Initial Capital Contributions.

(a)      TNHC.  On the Effective Date, TNHC shall contribute to the Company all right, title, and interest that TNHC has in any Project Documents relating to the Project Site. Prior to the Effective Date, TNHC (or its predecessor in interest) contributed the Purchase Contract to the Company. To the extent an Affiliate of TNHC owns any Project Documents related to the Project, TNHC shall acquire such Project Documents from such Affiliate and then assign such Project Documents to the Company. Such contributions shall be made pursuant to one or more assignment instruments in a form reasonably acceptable to NB. The Members acknowledge and agree that the fair market value of the Capital Contribution described in this Section 4.1(a)(i) is $7,243,808, an amount equal to the TNHC Initial Costs incurred by TNHC with respect to the Project. If such amount is less than the amount specified on the attached Exhibit B as TNHC’s initial Capital Contribution, TNHC shall contribute the amount of such shortfall on the Effective Date. If such amount is more than the amount specified on the attached Exhibit B as TNHC’s initial Capital Contribution, the Company shall distribute to TNHC the amount of such excess on the Effective Date as a partial return of capital.

(b)      NB.  On the Effective Date, NB shall contribute the amount specified on the attached Exhibit B as its initial Capital Contribution.

4.2      Additional Capital Contributions.

(a)      Additional Capital Contributions on Acquisition of the Project Site. If the conditions set forth in Section 8.2 are satisfied, then in connection with the Company’s acquisition of such Project Site, NB and TNHC shall make additional Capital Contributions to the Company in an amount sufficient to fund the Company’s acquisition of the Project Site pursuant to the Purchase Contract, together with such additional amounts as the Executive Committee may determine to be appropriate to fund the initial working capital needs of the Company. NB and TNHC shall make such additional Capital Contributions pursuant to this Section 4.2(a) in the amounts required so that the aggregate Capital Contributions made by TNHC and NB pursuant to Section 4.1 and this Section 4.2(a) will be in proportion to their Contribution Percentages.

(b)      Other Additional Capital Contributions.  If the Managing Member reasonably determines that the Company requires additional cash funds to pay Company Costs and Expenses and/or Other Permitted Costs then due and payable or due and payable within the next 60 days, and the Members have made their required Capital Contributions under Section 4.2(a) (the amount by which such Company Costs and Expenses and/or Other Permitted Costs at such time exceeds the Company’s available funds is referred to as the (“Shortfall Amount”), and if another Member is not otherwise obligated to make such additional Capital Contribution pursuant to Section 4.2(d) and/or Section 4.2(e) below, the Managing Member shall deliver a Contribution Notice to all of the other Members requesting that such Members make additional Capital Contributions

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to the Company in the aggregate amount equal to the Shortfall Amount. Such additional Capital Contributions shall be made by the Members pro rata in accordance with their Contribution Percentages. If a Member reasonably determines that the Company requires additional Capital Contributions to pay Company Costs and Expenses and/or Other Permitted Costs and the Managing Member has not delivered a Contribution Notice to the Members, then such Member may deliver a written notice (a “Cap Call Notice”) to the Managing Member directing the Manager Member to deliver a Contribution Notice to the Members requesting that the Members make additional Capital Contributions to the Company in the aggregate amount equal to the Shortfall Amount (or if a particular Member is obligated to make such additional Capital Contribution pursuant to Section 4.2(d) and/or Section 4.2(e), directing the Managing Member to deliver a Contribution Notice to the applicable Member that is so required to make such additional Capital Contributions). If the Managing Member fails to deliver a Contribution Notice to the Members within three (3) Business Days of the delivery of the Cap Call Notice, then the Member who delivered the Cap Call Notice may deliver a Contribution Notice to the Members requesting that the Members (or the applicable Member) make additional Capital Contributions to the Company in an aggregate amount equal to the Shortfall Amount.

(c)        Payments With Respect to Credit Enhancements.

 (i)        To the extent any carveout guarantees, completion guarantees, or environmental indemnities are required in connection with any secured debt of the Company that has been approved by the Executive Committee pursuant to Section 7.3(b)(iv), then TNHC shall provide any such carveout guarantees, completion guarantees, or environmental indemnities in a form reasonably acceptable to TNHC. TNHC, however, shall determine in its sole discretion whether to provide any payment guarantees (including without limitation any loan-to-value maintenance guaranty) with respect to a Company Obligation.

 (ii)        Except as otherwise provided in Section 4.2(c)(iii) below, in the event that a Member or any of its Affiliates is required to fund any amount pursuant to any Credit Enhancement provided by such Member or its Affiliate in connection with the Project, the amount so funded shall be considered a Company Cost and Expense, and the Member shall have the right to make a request for additional Capital Contributions under Section 4.2(b) hereof for the purpose of funding such liability, or if such liability has already been funded, for the purpose of providing prompt reimbursement to the applicable guarantor (such a request, a “Guaranty Contribution Request”). Except as provided in Section 4.2(c)(iii) below, each Member shall be required to fund its Contribution Percentage of any such Guaranty Contribution Request. In addition, concurrently herewith: (A) NB shall cause Hillwood Investment Group, L.P., a Texas limited partnership (“HIG”), an Affiliate of NB, to execute for the benefit of TNHC and New Home Company a Guaranty Agreement of all of NB’s obligations under Section 4.2(c)(ii) of this Agreement with respect to any carveout guaranty, completion guaranty, and/or environmental indemnity under the PEPI Loan in a form acceptable to the Members; and (B) TNHC shall cause New Home

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Company to execute for the benefit of NB and HIG a Guaranty Agreement of all of TNHC’s obligations under Section 4.2(c)(ii) of this Agreement with respect to any carveout guaranty, completion guaranty, and/or environmental indemnity under the PEPI Loan in a form acceptable to the Members.

(iii)       Notwithstanding anything to the contrary in Section 4.2(c)(ii):

(A)        Neither the Member nor any Affiliate of such Member shall be entitled to any such reimbursement or any right of contribution for any amount funded or liability incurred on account of any Credit Enhancement by reason of the Controllable Construction Cost Overruns, Bad Conduct, Material Breach, or Uncured Bad Conduct of such Member;

(B)       (I)       Neither the Member nor any Affiliate of such Member nor any of their respective Affiliates shall be entitled to any such reimbursement for any amount funded or liability incurred on account of any carveout guaranty, completion guaranty, or environmental indemnity to the extent that the amounts funded or the liabilities incurred were caused by the actions or omissions of such Member (or its Affiliates), as the case may be.

(II)       Any Member or any Affiliate of such Member which is required to fund any amount or incur any liability under any carveout guaranty, completion guaranty, or environmental indemnity by the actions or omissions of another Member (or its Affiliates), as the case may be, shall be reimbursed by such other Member for the amounts funded and the liabilities incurred; and

(C)       Non-reimbursable amounts paid or incurred by a Member and/or its Affiliates in connection with a Credit Enhancement shall not be treated as a loan to the Company nor shall any such amount be treated as a Capital Contribution. To the extent federal income tax or other rules require that a Member’s Capital Account be increased by payments made with respect to a Credit Enhancement pursuant to this Section 4.2(c), then such deduction and/or loss shall be specially allocated to such Member in an amount equal to any such Capital Contributions. Amounts reimbursed by a Member under clause (B)(II) above to another Member shall not be treated as a loan to the Company nor shall any such amount be treated as a Capital Contribution. To the extent federal income tax or other rules require that a Member’s Capital Account be increased by payments made with respect to a Credit Enhancement pursuant to this Section 4.2(b), then such deduction and/or loss shall be specially allocated to such Member in an amount equal to any such Capital Contributions.

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(d)        Additional Contributions to Fund Controllable Construction Cost Overruns.

 (i)        Subject to Section 4.3(e), if, at any time, the Company incurs a Controllable Construction Cost Overrun, TNHC shall immediately make additional Capital Contributions to the Company until the aggregate additional Capital Contributions made by TNHC pursuant to this Section 4.2(d) equal the aggregate amount of Controllable Construction Cost Overruns at such time.

 (ii)        Notwithstanding anything to the contrary in this Agreement, TNHC shall not receive any Capital Account credit for any additional Capital Contributions made to the Company with respect to Controllable Construction Cost Overruns. To the extent federal income tax or other rules require that TNHC’s Capital Account be increased by the Capital Contributions described in this Section 4.2(d), then gross items of deduction and/or loss shall be specially allocated to TNHC in an amount equal to any such Capital Contributions described in this Section 4.2(d).

(e)        Additional Capital Contributions to Fund Bad Conduct Costs.

 (i)        If, at any time, the Company incurs any cost, expense, or liability, or suffers any damage or claim that is attributable to an act or acts of a Member (or an Affiliate of a Member under an approved Affiliate Agreement) that constitutes Bad Conduct, Uncured Bad Conduct, and/or a Material Breach or similar conduct under such Affiliate Agreement (to the extent any such cost, expense, liability, damage, and/or claim is attributable to such an act or acts of a Member, it is referred to as a “Bad Conduct Cost”), then such Member shall immediately make additional Capital Contributions to the Company in an amount equal to such Bad Conduct Cost, and such Capital Contribution shall be treated in the manner described in Section 4.2(e)(ii).

 (ii)        Notwithstanding anything to the contrary in this Agreement, a Member shall not receive any Capital Account credit for any additional Capital Contributions made to the Company with respect to a Bad Conduct Cost. To the extent federal income tax or other rules require that such Member’s Capital Account be increased by the Capital Contributions described in this Section 4.2(e), then gross items of deduction and/or loss shall be allocated to such Member in an amount equal to any such Capital Contributions described in this Section 4.2(e).

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 (f)        Contribution Notice Procedures. If the Managing Member is required to deliver a Contribution Notice pursuant to Section 4.2(b) (or another Member if such Member reasonably determines that another Member is required to make an additional Capital Contribution pursuant to this Section 4.2, and such other Member has not yet made such additional Capital Contributions), then the Managing Member or other applicable Member may deliver a notice (“Contribution Notice”) to the appropriate Member, requesting that such Member make such required additional Capital Contribution. Each Contribution Notice shall specify the following information:

 (i)        the aggregate amount of additional Capital Contributions requested in the Contribution Notice pursuant to this Section 4.2;

 (ii)        the additional Capital Contributions that each Member is required to make to the Company pursuant to this Section 4.2;

 (iii)        a brief description of the reason for such additional Capital Contributions; and

 (iv)        the date (the “Contribution Date”) on which such additional Capital Contributions are due, which date shall not be less than ten (10) Business Days after the date on which the Contribution Notice is delivered;

(g)        Limitation on Other Additional Capital Contributions. Except as provided in Section 4.1, this Section 4.2, and Section 4.3, no Member shall have any obligation or right to make any additional Capital Contributions.

(h)        Notification of Required Capital Contributions. TNHC shall notify the other Member in writing if TNHC is obligated to make an additional Capital Contribution pursuant to Section 4.2(c), Section 4.2(d), or Section 4.2(e). Such notice shall briefly describe the amount of such additional Capital Contribution and the reasons for such additional Capital Contribution.

4.3      Monetary Default by a Member in Making Additional Capital Contributions.

(a)        If a Member or any representative on the Executive Committee reasonably determines that a Member has failed to make additional Capital Contributions required pursuant to Section 4.2 (other than a failure to make a Capital Contribution pursuant to Section 4.2(a), which is separately covered under Section 4.3(d)(ii) below), then such Member or applicable representative on the Executive Committee shall immediately send a written notice (the “Default Notice”) to the Member(s) that failed to make the required Capital Contribution, notifying such Member(s) of its failure to make such Capital Contributions, the amount to be contributed, the date such contribution was due, and requesting that such contributions be made immediately.

(b)      (i)      If the Member receiving the Default Notice fails to make the applicable additional Capital Contribution required under Section 4.2 within ten (10) Business Days after receiving the Default Notice (the date that is ten (10) Business Days after the receipt of the applicable Default Notice is referred to as the “Default Date”), then such Member (referred to as a “Default Member” and the amount that the Default Member failed to contribute is referred to as the “Default Amount”) shall be in default (a “Monetary Default”). The Members that did not fail to make the required Capital Contribution (the “Non-Defaulting Members”), in their sole and absolute discretion, may elect to make the additional Capital Contribution in the stead of the Default Member in an amount up to the Default Amount.

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(ii)        If the Non-Defaulting Members elect to make such additional Capital Contributions in the stead of the Default Member, then (A) all of the additional Capital Contributions made by the Non-Defaulting Members in connection with a request for additional Capital Contributions with respect to which a Monetary Default has occurred shall increase the Undistributed First Priority Capital of such Non-Defaulting Members (including those Capital Contributions that the Non-Defaulting Members are required to contribute in their own stead with respect to the applicable Contribution Notice); and (B) and in the case of a Monetary Default other than a Monetary Default arising from a Guaranty Contribution Request, the Percentage Interests of the Default Member and the Non-Defaulting Members shall be redetermined in accordance with Section 4.3(c).

(c)      (i)      In connection with any Monetary Default, the Percentage Interest of a Default Member shall be reduced by the product (expressed as a percentage) of: (A) the quotient of: (I) the Default Amount; divided by (II) the sum of the aggregate Capital Contributions actually made to the Company by all Member from and after the Effective Date through the applicable date of determination; multiplied by (B) 2.0.

 (ii)        For illustration purposes only, assume that: (A) an additional Capital Contribution was requested under this Agreement; (B) the Default Member’s Percentage Interest is thirty percent (30%); (C) the Non-Defaulting Member’s Percentage Interest is seventy percent (70%); (D) the Default Amount is fifty thousand dollars ($50,000); and (E) the sum of the aggregate Capital Contributions made to the Company by the Members from the Effective Date through the applicable date of determination equals five million dollars ($5,000,000). Under these facts, the Default Member’s Percentage Interest would decrease by two whole percentage points (2%) (i.e., 30.00% minus the product (expressed as a percentage) of: (x) the quotient of (I) $50,000 divided by (II) $5,000,000; multiplied by (y) 2.0). The Non-Defaulting Member’s Percentage Interest would increase by a like amount (i.e., from 70% to 72%). Notwithstanding the foregoing, if the Default Member is TNHC, TNHC’s Percentage Interest shall not be reduced in the aggregate pursuant to this Section 4.3 by more than 35 whole percentage points, but this limitation shall not restrict the further reduction of TNHC’s Percentage Interest pursuant to Section 12.3 if a Removal Event has occurred.

 (iii)        The amount of the aggregate reduction in the Percentage Interests of the Default Members pursuant to this Section 4.3(c) shall be allocated to the Non-Defaulting Members who make the additional Capital Contributions in the stead of the Default Members in proportion to the amount of the additional Capital Contributions made by such Non-Defaulting Members.

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(d)        Notwithstanding anything to the contrary in this Agreement: (i) if a Member commits a Material Monetary Default, then neither the Default Member nor any Affiliate of the Default Member shall have the right to initiate the procedures set forth in Section 11.9; and (ii) if NB or TNHC fails to make the required additional Capital Contribution under Section 4.2(a), then the Member that failed to make such Capital Contribution shall automatically and immediately forfeit its Membership Interest in the Company, and the other Member shall continue as the sole Member of the Company.

(e)        The Contribution Percentage of a Default Member shall not be reduced pursuant to this Section 4.3, and the Contribution Percentage that the Non-Defaulting Members hold shall not be increased pursuant to this Section 4.3.

(f)        EACH MEMBER ACKNOWLEDGES AND AGREES THAT EACH SUCH MEMBER’S INTEREST IN THE COMPANY MAY BE SUBSTANTIALLY DILUTED AND/OR FORFEITED IF SUCH MEMBER FAILS TO MAKE REQUIRED CONTRIBUTIONS UNDER THIS AGREEMENT. EACH MEMBER FURTHER ACKNOWLEDGES AND AGREES THAT THE REMEDIES AVAILABLE TO A NON-DEFAULTING MEMBER PURSUANT TO THIS SECTION 4.3, ARTICLE XI AND ARTICLE XII ARE THE SOLE AND EXCLUSIVE REMEDIES AVAILABLE TO ANY MEMBER FOR A DEFAULT BY ANY OTHER MEMBER IN ITS OBLIGATIONS TO MAKE CAPITAL CONTRIBUTIONS UNDER THIS AGREEMENT.

4.4      Capital Accounts.

(a)        Maintenance Rules. The Company shall maintain for each Member a separate Capital Account in accordance with this Section 4.4, which shall control the division of assets upon liquidation of the Company as provided in Section 12.3. Each Capital Account shall be maintained in accordance with the following provisions:

 (i)        Such Capital Account shall be increased by the cash amount or Book Value (as of the date of the contribution) of any property contributed by such Member to the Company pursuant to this Agreement, such Member’s allocable share of Profits and any items in the nature of income or gain which are specially allocated to such Member pursuant to Section 5.2 and Section 5.3, and the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member.

 (ii)        Such Capital Account shall be decreased by the cash amount or Book Value of any property distributed (as of the date of the distribution) to such Member pursuant to this Agreement, such Member’s allocable share of Losses and any items in the nature of deductions or losses which are specially allocated to such Member pursuant to Section 4.2(c)(iii), Section 4.2(d)(ii), Section 4.2(e)(ii), Section 5.2, and Section 5.3, and the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by such Member to the Company.

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(iii)      In the event all or a portion of an interest in the Company is Transferred in accordance with the terms of this Agreement, the Transferee shall succeed to the Capital Account of the Transferor to the extent it relates to the Transferred interest.

(iv)      In determining the amount of any liability for purposes of Section 4.4(a)(i) or Section 4.4(a)(ii), there shall be taken into account Code section 752(c) and any other applicable provisions of the Code and Regulations.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts generally are intended to comply with section 1.704-1(b) of the Regulations and shall be interpreted and applied in a manner consistent with such Regulations. If the Executive Committee reasonably determines that it is prudent to modify the manner in which the Capital Accounts, or any increases or decreases to the Capital Accounts (including, without limitation, increases or decreases relating to liabilities which are secured by contributions or distributed property or which are assumed by the Company or a Member), are computed in order to comply with such Regulations, the Managing Member may authorize, after first obtaining the approval of the Executive Committee as a Supermajority Major Decision, such modifications, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Section 13.3(d) upon the dissolution of the Company.

(b)       Definition of Profits and Losses.    “Profits” and “Losses” mean, for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(i)      Income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits and Losses pursuant to this Section 4.4(b) shall be added to such taxable income or loss;

(ii)      Any expenditures of the Company described in Code section 705(a)(2)(B), or treated as Code section 705(a)(2)(B) expenditures pursuant to Regulations section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits and Losses pursuant to this Section 4.4(b) shall be subtracted from such taxable income or loss;

(iii)      If the Book Value of any Company asset is adjusted pursuant to Section 4.4(c)(ii) or Section 4.4(c)(iii), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits and Losses;

(iv)      Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Book Value;

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(v)      In lieu of the deduction for depreciation, cost recovery, or amortization taken into account in computing such taxable income or loss, there shall be taken into account Book Depreciation. “Book Depreciation” means for any Fiscal Year or other period, an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or other period, except that if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year or other period, Book Depreciation shall be an amount that bears the same ratio to such beginning Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction allowable for that asset for such year or other period bears to the adjusted tax basis of that asset at the beginning of such Fiscal Year or other period; provided, however, if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year or other period is zero, then Book Depreciation for that asset shall be determined with reference to such beginning Book Value using any reasonable method selected by the Executive Committee.

(vi)      To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code section 734(b) or Code section 743(b) is required pursuant to Regulations section 1.704-1(b)(2)(iv)(m)(2) or Regulations section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses.

(vii)     Notwithstanding any other provision of this Section 4.4(b), any items that are specially allocated pursuant to Section 4.2(c)(iii), Section 4.2(d)(ii), Section 4.2(e)(ii), Section 5.2 or Section 5.3 shall not be taken into account in computing Profits and Losses.

(c)      Definition of Book Value.  “Book Value” means for any asset the asset’s adjusted basis for federal income tax purposes, except as follows:

(i)       The initial Book Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as reasonably determined by the Executive Committee.

(ii)      The Book Values of all Company assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Executive Committee, as of the following times: (A) on the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) on the distribution by the

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Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (C) on the liquidation of the Company within the meaning of Regulations section 1.704-1(b)(2)(ii)(g); and (D) on the grant by the Company of more than a de minimis interest in the Company as consideration for the provision of services to or for the benefit of the Company by a new or existing Member acting in a Member capacity or in anticipation of being a Member; provided, however, that adjustments pursuant to clauses (A), (B), and (D) above shall be made only if the Executive Committee reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

(iii)      The Book Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution, as determined by the Executive Committee.

(iv)      The Book Values of Company assets shall be increased (or decreased) to reflect any adjustment to the adjusted basis of such assets pursuant to Code section 734(b) or Code section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations section 1.704-1(b)(2)(iv)(m) and Section 4.4(b)(vi) or Section 5.2(e); provided, however, that Book Values shall not be adjusted pursuant to this Section 4.4(c)(iv) to the extent the Executive Committee determines that an adjustment pursuant to Section 4.4(c)(ii) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 4.4(c)(iv).

(v)       If the Book Value of an asset has been determined or adjusted pursuant to Section 4.4(c)(i), Section 4.4(c)(ii), or Section 4.4(c)(iv), such Book Value shall thereafter be adjusted by the Book Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

4.5       Negative Capital Accounts.    If any Member has a deficit balance in its Capital Account, such Member shall have no obligation to restore or repay to the Company or any other Member such negative balance or to make any Capital Contribution to the Company by reason thereof, and such negative balance shall not be considered an asset of the Company or of any Member.

4.6       Interest.    No interest shall be paid by the Company on Capital Contributions or on balances in Capital Accounts.

4.7       No Withdrawal.    No Member shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Company, except as provided in Articles VI and XII.

4.8       Limitation on Capital Contributions and Loans.    Except as specifically provided in this Article IV, no Member may contribute capital to the Company. In addition, no Member may loan or advance money to the Company unless such loan or advance has been approved by the Executive Committee.

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ARTICLE V

ALLOCATIONS

5.1       Allocations of Profits and Losses.

(a)       Allocation of Profits Generally. After giving effect to the allocations set forth in Section 4.2(c)(iii), Section 4.2(d)(ii), Section 4.2(e)(ii), Section 5.2, and Section 5.3, and after giving effect to all distributions of cash or property (other than cash or property to be distributed pursuant to Article XIII), Profits for any Fiscal Year shall be allocated to the Members in the following manner:

(i)       First, to each Member with a negative balance in its Adjusted Capital Account, pro rata in accordance with each such negative Adjusted Capital Account balance, until each such negative Adjusted Capital Account balance has been eliminated;

(ii)      Next, to such of the Members that have an accrued and unpaid First Priority Preference Amount in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(iii)     Next, to such of the Members that have: (A) an accrued and unpaid First Priority Preference Amount; plus (B) Undistributed First Priority Capital, in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(iv)     Next, to such of the Members that have: (A) an accrued and unpaid First Priority Preference Amount; plus (B) Undistributed First Priority Capital; plus (C) an accrued and unpaid Second Priority Preference Amount, in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(v)      Next, to such of the Members that have: (A) an accrued and unpaid First Priority Preference Amount; plus (B) Undistributed First Priority Capital; plus (C) an accrued and unpaid Second Priority Preference Amount; plus (D) Undistributed Second Priority Capital, in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(vi)      Next, to the Members in the minimum amount necessary to cause the ratios among their positive Excess Amounts to equal the ratios among their Percentage Interests. For purposes of this Agreement, a Member’s “Excess Amount” equals the positive balance in such Member’s Adjusted Capital Account (computed after the allocation of Profits under subparagraphs (i) through (v) of this Section 5.1(a) for the Fiscal Year of the allocation), reduced by the sum of such Member’s: (A) accrued and unpaid First Priority Preference Amount; (B) Undistributed First Priority Capital; (C) accrued and unpaid Second Priority

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Preference Amount; and (D) Undistributed Second Priority Capital (with the amounts in subparagraphs (A) through (D) being computed after giving effect to all Capital Contributions and all distributions that took place during and before the Fiscal Year with respect to which the allocation is being made); and

(vii)      Next, to the Members in proportion to their Percentage Interests.

(b)       Allocation of Losses Generally. After giving effect to the allocations set forth in Section 4.2(c)(iii), Section 4.2(d)(ii), Section 4.2(e)(ii), Section 5.2, and Section 5.3, and after giving effect to all distributions of cash or property (other than cash or property to be distributed pursuant to Article XIII), and subject to the limitation set forth in Section 5.1(c), Losses for any Fiscal Year shall be allocated to the Members in the following manner:

(i)       First, in circumstances in which all Members have positive Excess Amounts, to the Members in the minimum amounts necessary to cause their positive Excess Amounts to be in the same ratios as their Percentage Interests, and in circumstances in which one or more Members, but not all Members, have positive Excess Amounts, to the Members with positive Excess Amounts in the minimum amounts necessary to cause such Members’ positive Excess Amounts to be in the same ratios as their Percentage Interests;

(ii)      Next, to the Members with positive Excess Amounts pro rata in accordance with their positive Excess Amounts, until such positive Excess Amounts have been eliminated;

(iii)     Next, to each Member that has Undistributed Second Priority Capital, pro rata to the extent necessary to cause each such Member’s positive Adjusted Capital Account balance to equal the sum of each such Member’s: (A) accrued and unpaid First Priority Preference Amount; (B) Undistributed First Priority Capital; and (C) accrued and unpaid Second Priority Preference Amount;

(iv)     Next, to each Member that has accrued and unpaid Second Priority Preference Amounts, pro rata to the extent necessary to cause each such Member’s positive Adjusted Capital Account balance to equal the sum of each such Member’s: (A) accrued and unpaid First Priority Preference Amount; and (B) Undistributed First Priority Capital;

(v)      Next, to each Member that has Undistributed First Priority Capital, pro rata to the extent necessary to cause each such Member’s positive Adjusted Capital Account balance to equal each such Member’s accrued and unpaid First Priority Preference Amounts;

(vi)      Next, to each Member with a positive Adjusted Capital Account balance, pro rata in accordance with such positive Adjusted Capital Account balances, until such positive Adjusted Capital Account balances have been reduced to zero; and

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(vii)     Next, to the Members in proportion to their Percentage Interests.

(c)       Notwithstanding anything to the contrary in Section 5.1(b):

(i)       The Losses allocated pursuant to Section 5.1(b) hereof to any Member for any Fiscal Year shall not exceed the maximum amount of Losses that may be allocated to such Member without causing such Member to have an Adjusted Capital Account Deficit at the end of such Fiscal Year.

(ii)       If some but not all of the Members would have an Adjusted Capital Account Deficit as a consequence of an allocation of Losses pursuant to Section 5.1(b) hereof, the limitations set forth in this Section 5.1(c) shall be applied by allocating Losses pursuant to this Section 5.1(c) only to those Members who would not have an Adjusted Capital Account Deficit as a consequence of receiving such an allocation of Losses (with the allocation of such Losses among such Members to be determined by the Executive Committee, based on the allocation that is most likely to effectuate the distribution priorities set forth in Section 6.1 hereof).

(iii)      If no Member may receive an additional allocation of Losses pursuant to Section 5.1(c)(ii) above, such additional Losses not allocated pursuant to Section 5.1(c)(ii) shall be allocated among the Members in a manner that is most likely to effectuate the distribution priorities set forth in Section 6.1 hereof), as reasonably determined by the Executive Committee.

5.2      Special Allocations of Profits and Losses.

(a)       Minimum Gain Chargeback.    Except as otherwise provided in section 1.704-2(f) of the Regulations, notwithstanding any other provision of Article V, if there is a net decrease in Company Minimum Gain during any Company taxable year, each Member shall be specially allocated items of Company gross income and gain for such taxable year (and if necessary, subsequent taxable years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with section 1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be allocated shall be determined in accordance with sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 5.2(a) is intended to comply with the minimum gain chargeback requirement (set forth in section 1.704-2(f) of the Regulations) relating to Company nonrecourse liabilities (as defined in section 1.704-2(b)(3) of the Regulations) and shall be so interpreted.

(b)       Minimum Gain Chargeback.    Except as otherwise provided in section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article V, if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Company taxable year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with section 1.704-2(i)(5) of the Regulations, shall be specially allocated

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items of Company gross income and gain for such taxable year (and if necessary, subsequent taxable years) in an amount equal to the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with section 1.704-2(i)(4) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 5.2(b) is intended to comply with the minimum gain chargeback requirement (set forth in section 1.704-2(i)(4) of the Regulations) relating to Member Nonrecourse Debt and shall be so interpreted.

(c)       Qualified Income Offset.    If any Member unexpectedly receives any adjustments, allocations, or distributions described in section 1.704-1(b)(2)(ii)(d)(4), section 1.704-1(b)(2)(ii)(d)(5), or section 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company gross income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.2(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(c) were not in the Agreement.

(d)       Gross Income Allocation. If any Member has an Adjusted Capital Account Deficit at the end of any Company taxable year, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.2(d) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.

(e)       Basis Adjustments.    To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code sections 734(b) or 743(b) is required, pursuant to Regulations section 1.704-1(b)(2)(iv)(m)(2) or Regulations section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a Transferor a distribution to a Member in complete liquidation of its interest in the Company or a Transfer of a Membership Interest, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Regulations.

(f)       Nonrecourse Deductions.    Nonrecourse Deductions for any Fiscal Year shall be considered an additional item of taxable loss or deduction that is included in the determination of Profits and Losses pursuant to Section 4.4(b) and that is then allocated among the Members as a part of the allocation of Profits and Losses.

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(g)       Member Nonrecourse Deductions.  Member Nonrecourse Deductions shall be allocated pursuant to Regulations section 1.704-2(b)(4) and (i)(1) to the Member or Members who bears the economic risk of loss with respect to such deductions.

5.3      Curative Allocations.    The allocations set forth in Section 5.2(a) through Section 5.2(g) (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 5.3. Therefore, notwithstanding any other provisions of this Article V (other than the Regulatory Allocations), the Executive Committee shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 4.2(c)(iii), Section 4.2(d)(ii), Section 4.2(e)(ii), and Section 5.1 hereof. In exercising its discretion under this Section 5.3, the Executive Committee shall take into account future Regulatory Allocations under Section 5.2(a) and Section 5.2(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Section 5.2(f) and Section 5.2(g).

5.4      Tax Allocations: Code Section 704(c).

(a)       In accordance with Code section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Book Value (computed in accordance with Section 4.4(c)(i)).

(b)       If the Book Value of any Company asset is adjusted pursuant to Section 4.4(c)(ii), subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value in the same manner as under Code section 704(c) and the Regulations thereunder.

(c)       Any elections or other decisions relating to allocations made pursuant to this Section 5.4 shall be made by the Executive Committee in any manner that reasonably reflects the purpose and intention of the Agreement. Allocations pursuant to this Section 5.4 are solely for purposes of federal, state, and local taxes and shall not affect or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, and other items or distributions pursuant to any provision of this Agreement.

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5.5      Other Allocation Rules.

(a)       For purposes of determining the Profits, Losses, or any other item allocable to any period, Profits, Losses, and any such other item shall be determined on a daily, monthly, or other basis, as determined by the Executive Committee using any permissible method under Code section 706 and the Regulations thereunder.

(b)       For federal income tax purposes, every item of income, gain, loss, and deduction shall be allocated among the Members in accordance with the allocations under Section 5.1, Section 5.2, Section 5.3, and Section 5.4.

(c)       The Members are aware of the income tax consequences of the allocations made by this Article V and hereby agree to be bound by the provisions of this Article V in reporting their shares of Company income and loss for income tax purposes.

(d)       It is intended that the allocations in Section 5.1, Section 5.2, Section 5.3, and Section 5.4 effect an allocation for federal income tax purposes consistent with section 704 of the Code and comply with any limitations or restrictions therein.

(e)     The Members agree that their Percentage Interests represent their respective interests in Company profits for purposes of allocating excess nonrecourse liabilities (as defined in Regulations section 1.752-3(a)(3)) pursuant to Regulations section 1.752-3(a)(3).

ARTICLE VI

DISTRIBUTIONS

6.1      Distributions of Available Cash. Subject to Section 12.3, the Managing Member shall periodically determine in its reasonable discretion if there is any Available Cash. If the Managing Member determines that Available Cash exists, then such Available Cash shall be distributed to the Members as soon as reasonably practicable in the manner set forth below:

(a)       First, to each Member to the extent such Member has an accrued and unpaid First Priority Preference Amount, in proportion to each such Member’s accrued and unpaid First Priority Preference Amount, in an amount up to the accrued and unpaid First Priority Preference Amount of each such Member;

(b)       Next, to each Member to the extent such Member has Undistributed First Priority Capital, in proportion to each such Member’s Undistributed First Priority Capital, in an amount up to the Undistributed First Priority Capital of each such Member;

(c)       Next, to each Member to the extent such Member has an accrued and unpaid Second Priority Preference Amount, in proportion each such Member’s accrued and unpaid Second Priority Preference Amount, in an amount up to the accrued and unpaid Second Priority Preference Amount of each such Member;

(d)       Next, to each Member to the extent such Member has Undistributed Second Priority Capital, in proportion to each such Member’s Undistributed Second Priority Capital, in an amount up to the Undistributed Second Priority Capital of each such Member; and

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(e)       Next, to the Members in proportion to their respective Percentage Interests.

6.2      Amounts Withheld.

(a)       Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local, or foreign taxes that the Company reasonably determines the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Company pursuant to sections 1441, 1442, 1445, or 1446 of the Code.

(b)       Any amount paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be repaid by such Member within 15 days after notice from any Member that such payment must be made unless: (i) the Company withholds such payment from a distribution which would otherwise be made to the Member; or (ii) the Company determines, in its reasonable discretion, that such payment may be satisfied out of the available funds of the Company which would, but for such payment, be distributed to the Member. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Member.

(c)       Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Member’s Membership Interest to secure such Member’s obligation to pay to the Company any amounts required to be paid pursuant to this Section 6.2.

(d)       Any amounts payable by a Member hereunder shall bear interest at the lesser of: (i) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four percentage points, or (ii) the Maximum Rate, until such amount is paid in full. Each Member shall take such actions as the Company or the other Members shall reasonably request in order to perfect or enforce the security interest created hereunder.

6.3      Limitation on Distributions.    Any other provision of this Agreement to the contrary notwithstanding, no distribution to the Members will be declared and paid unless after the distribution is made, the Fair Market Value of all of the assets of the Company is in excess of all liabilities of the Company, other than liabilities to the Members on account of their Capital Accounts.

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ARTICLE VII

MANAGEMENT OF THE COMPANY

7.1       Designation and Authority of Managing Member.

(a)       The Members hereby designate TNHC as the initial Managing Member of the Company. TNHC shall continue to serve as the Managing Member of the Company until such time as: (i) the Members mutually agree that TNHC shall cease to serve as the Managing Member, in which event the Members shall appoint a successor Managing Member; (ii) TNHC is no longer a Member in the Company; (iii) TNHC has been removed as Managing Member pursuant to Article XII; or (iv) the Company is dissolved and wound up in accordance with the provisions of Article XIII.

(b)       Except as otherwise provided in Section 7.2, Section 7.3, and elsewhere in this Agreement, the Managing Member shall conduct, direct, and exercise full control over all activities of the Company. Except as otherwise provided in Section 7.2, Section 7.3, and elsewhere in this Agreement, all management powers over the business and affairs of the Company shall be vested in the Managing Member.

(c)       The Managing Member shall: (i) plan, operate and manage, or cause to be managed, the Company affairs and business in accordance with the Delaware Act and this Agreement, and (ii) implement and act in accordance with the then-current approved Annual Budget and any Major Decision approved by the Executive Committee.

7.2      Executive Committee.

(a)       The Company hereby constitutes an Executive Committee to consult from time to time concerning the Company, to review the status of the Company’s activities, and to make such Major Decisions as may be required from time to time. Meetings of the Executive Committee shall be held in accordance with the procedures set forth in either Section 7.2(b) or Section 7.2(c) below, as applicable.

(b)       (i)       The procedures for holding a meeting of the Executive Committee as set forth in this Section 7.2(b) shall become effective only after a representative on the Executive Committee designated by TNHC and/or NB notifies the representatives designated by the other Member, in writing, that the procedures set forth in this Section 7.2(b) have been invoked. The procedures set forth in this Section 7.2(b) shall be in effect until such procedures are revoked, in writing, by a representative of the Member that initially invoked such procedures. If no election has been made to invoke the procedures set forth in this Section 7.2(b), or if such an election has been made but is subsequently revoked, then until an election to use the procedures in Section 7.2(b) is made (or until another election is made after an earlier revocation), the more simplified procedure for making Major Decisions in Section 7.2(c) shall be in effect.

 (ii)       If the procedures set forth in this Section 7.2(b) have been invoked, then upon five (5) Business Days prior written notice from TNHC, NB, and/or any member of the Executive Committee, there shall be a meeting of the Executive Committee, and each Member shall cause its representatives to be in

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attendance at such meeting (in person or by telephone or other communication equipment). All notices requesting a meeting shall be accompanied by an agenda in sufficient detail to provide adequate notice of the matters to be discussed and to permit each of the representatives to make knowledgeable decisions. Each such notice shall be sent in an envelope or other container marked “CONFIDENTIAL/URGENT.” Matters discussed at any meeting shall be limited to the items set forth in the agenda unless otherwise agreed to by the representatives in attendance at the meeting. The agenda may include items that are not Major Decision items.

(iii)      In the event that all of the representatives of a Member receiving such notice fail to attend a proposed meeting, then the Member that requested the meeting and sent the initial notice shall send a second notice to the Member whose representatives failed to attend. This second notice also shall be sent in a package or other container marked “CONFIDENTIAL/URGENT,” shall be accompanied by the same information that was sent in the first notice, and also shall include a statement notifying the recipient Member that if all of the representatives of the recipient Member fail to attend the meeting of the Executive Committee specified in the second notice, then the representatives of the recipient Member shall be deemed to have approved the agenda items specified in the second notice. This second notice shall be sent at least ten (10) Business Days prior to the date of the rescheduled Executive Committee meeting.

(iv)      In the event no representative of a Member attends the proposed meeting of the Executive Committee after two notices have been sent, then the proposal of the Member delivering such notice with respect to such Major Decision shall be deemed to be approved, but only with respect to those agenda matters that were described in sufficient detail on the written notice of the meeting. Except as provided for in the preceding sentence: (A) no Supermajority Major Decision shall be deemed to have been adopted unless such Supermajority Major Decision has been approved by each representative of the Executive Committee who is then entitled to vote, and (B) no Majority Major Decision shall be deemed to have been adopted unless such Majority Major Decision has been approved by at least two (2) representatives of the Major Decision who are then entitled to vote.

(v)       Except as otherwise provided in Section 7.2(d)(v), meetings of the Executive Committee shall be held at the principal office of the Company under Section 1.3, or at such other location as approved by the Executive Committee. The Managing Member shall cause to be prepared minutes of each meeting, which shall be promptly delivered to the Members for their approval.

(c)       Unless the more formalized and elaborate procedure for calling and holding meetings of the Executive Committee has been invoked pursuant to Section 7.2(b), (i) all Supermajority Major Decisions must be approved in writing by each representative of the Executive Committee who is then entitled to vote, and (ii) all Majority Major Decision must be approved in writing by at least two (2) representatives of the Executive Committee who are then entitled to vote.

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(d)       (i)       The Executive Committee shall consist initially of three (3) representatives, two of which shall be appointed by NB and one (1) of which shall be appointed by TNHC. Each representative on the Executive Committee shall have one (1) vote.

(ii)       Each Member shall be entitled to rely upon the authority of each of the other Member’s Executive Committee representatives to act on behalf of the Member which appointed such representatives unless such Member has received prior written notice to the contrary.

(iii)      Representatives on the Executive Committee shall serve until their resignation, death, or removal (except as otherwise provided below) by the Member appointing such member.

(iv)      Except as provided in Section 7.2(b)(iv), for purposes of establishing a quorum at any such meeting, it is only necessary that two (2) representatives of the Executive Committee be in attendance.

(v)       At the election of any representative on the Executive Committee, the Executive Committee may hold a meeting pursuant to Section 7.2(b) and/or Section 7.2(c), by means of conference telephone or similar communication equipment, and an action shall be deemed approved at such a meeting so long as within five (5) Business Days of the telephone meeting such action is ultimately consented to in writing by the number of representatives required to approve such Major Decision (any such writing must include the signatures of the applicable representatives on the Executive Committee). A “writing” for these purposes includes any handwritten, typewritten or digitally written communication or a telecopy of a signed document. In addition, the notice requirements for any meeting of the Executive Committee pursuant to Section 7.2(b) may be waived if such waiver is approved by at least one (1) representative appointed by each Member.

(vi)      Until further notice, the representative of the Executive Committee for TNHC shall be Thomas Redwitz and the representatives on the Executive Committee for NB shall be Todd Platt and L.M. Cummings. Any Member may designate replacement representatives by a written notice of such designation to the other Member; provided, however, that no Member shall remove its designated representatives without appointing a successor representative in the notice of removal. Any action by a Member in contravention of the foregoing provision shall be void and of no effect. If at any time a Member notifies the other Member that any of the representatives of the Executive Committee appointed by the Member delivering such notice is no longer to serve in such capacity, the representatives on the Executive Committee designated in such notice shall, from and after the date on which the other Member receives such notice, have no authority, power, or capacity with respect to any matter whatsoever to bind the Member that delivered the removal notice.

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(e)       The Members acknowledge and agree that each representative on the Executive Committee is a representative and agent of the Member that appointed such representative and is not a “manager” as defined in Section §18-101(10) of the Delaware Act.

7.3     Major Decisions.

(a)       The Managing Member shall not have the right or the power to make any commitment or engage in any undertaking on behalf of the Company and/or a subsidiary entity in respect of a Major Decision unless or until the same has been approved by the Executive Committee in accordance with Section 7.2. Any Member shall have the right to submit Major Decisions to the Executive Committee for approval.

(b)       The term “Supermajority Major Decision,” as used in this Agreement, means any decision with respect to the following matters:

(i)       Approval of each Annual Budget to the extent it varies materially from the initial Annual Budget and any material amendments or modifications to any of the foregoing (e.g., with respect to the “operating plan” portion of the Annual Budget, a material variance or a material amendment means an amendment that results in aggregate “net” increases (from such amendment and/or all previous amendments) in total costs for the Project exceeding $1,000,000 (after taking into account the allocation of: (A) up to $2,908,800 of the $4,791,000 in contingency line items in the initial Annual Budget to other cost categories during “phase 1” of the Project (i.e., this excludes the $1,882,200 of contingency allocated to “phase 2 directs;”) and (B) all of the $4,791,000 of contingency line items in the initial Annual Budget allocated to other cost categories during “phase 2” of the Project (to the extent not previously used in “phase 1” of the Project)) from the aggregate costs approved in the initial Annual Budget);

(ii)      Except as specifically provided for in the applicable Annual Budget, approval of any Affiliate Agreements, approval of any amendments or modifications to any Affiliate Agreements, and approval of the termination of any such Affiliate Agreement;

(iii)      Approval of a Pledge of all or a portion of the Company’s property or the Pledge of any Company assets, except for: (A) liens arising by operation of law and securing Company debts, which are not then currently due or payable (i.e., real estate taxes); or (B) the grant of utility and other easements or licenses over the Project Site for the purpose of providing utilities, cable television, or other necessary services to the Project Site in a manner consistent with an approved Annual Budget and/or the approved final map recorded on the Project Site;

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(iv)      Approval of any Company indebtedness (excluding any third-party trade payables incurred in the ordinary course of business of the Company and in accordance with the Annual Budget then in effect), and approval of any renewals, extensions, amendments, or modifications to any such Company indebtedness;

(v)       Except as otherwise provided in the Annual Budget, approval of: (A) the filing and/or prosecution of any lawsuit or claim on behalf the Company against any Person with an amount at risk in excess of $100,000 or that would affect the reputation of the Company and/or a Member; and/or (B) the settlement, compromise, defense and/or waiver of any claims or causes of actions of the Company against any third party and/or of any third party against the Company with respect to a lawsuit or claim described in clause (v)(A) above;

(vi)      Acquiring on behalf of the Company any real property in addition to the Project Site, the Improvements, or any interests therein, except as specifically provided in the Annual Budget for any property immediately adjacent to the Project;

(vii)     Lending any funds of the Company other than the deposit of Company funds in a federally insured institution;

(viii)    File a petition for relief under the United States Bankruptcy Code, as amended, with respect to the Company, make an assignment for the benefit of creditors of the Company, apply for the appointment of a custodian, receiver or trustee for the Company or any of the Company’s property, consent to any other bankruptcy or similar proceeding, or consent to the filing of such proceeding with respect to the Company, or admit in writing the Company’s inability to pay its debts generally as they become due;

(ix)      Filing any application to zone, rezone, or subdivide the Project Site (or any other real property owned by the Company), and making any material modifications or amendments to such application;

(x)       Except as otherwise in provided in the approved Annual Budget, approval of the draft form of CCRs to be recorded on all or any portion of the Project Site and any material amendments or modifications to such draft form of CCRs;

(xi)      Approval of any easements, restrictions or other encumbrances affecting the Project, other than Pledges (which are separately approved pursuant to subparagraph (iii) above) or easements, restrictions and encumbrances that have been approved in connection with the approval of the final map recorded against the Project Site;

(xii)     Approval of any changes to the tentative map approved for the Project Site as of the Effective Date, approval of any final map to be recorded against the Project Site, approval of any changes to such final map, approval of the final site plan, and approval of any changes to the final site plan;

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(xiii)    Approval of the commencement of construction of the Improvements;

(xiv)    Except as otherwise provided in the approved Annual Budget, approval of the Plans and Specifications and approval of any significant changes to the exterior design, overall quality of materials, and floor plan for the Building Improvements;

(xv)     Approval of the hiring of any employees of the Company and the delegation of any authority to such employees;

(xvi)    Approval of any distributions to the Members pursuant to Article VI or Article XIII;

(xvii)    Designating a “manager” for the Company under the Delaware Act;

(xviii)   Taking any action and incurring any expenditure and/or obligation that is materially inconsistent with an Annual Budget then in effect; provided, however, the Managing Member shall pay all Controllable Construction Cost Overruns and Bad Conduct Costs out of the Capital Contributions required to be made by a Member pursuant to Section 4.2(d) and Section 4.2(e);

(xix)     Except as specifically provided in an approved Annual Budget, approval of any contract or other agreement if, as a result of the Company’s execution of such contract or other agreement, the aggregate amount committed to be expended by the Company under such contract or agreement would exceed $250,000, and approval of material amendment or modification of any such contract or agreement;

(xx)      Confessing a judgment against the Company in connection with any threatened or pending legal action;

(xxi)     Executing or delivering any assignment for the benefit of creditors of the Company;

(xxii)    Doing any act in contravention of this Agreement (including any act which requires the consent of other Members) or failing to do any act required by this Agreement;

(xxiii)   Doing any act which would make it impossible to carry on the ordinary business of the Company;

(xxiv)   Except as otherwise provided in Section 11.7 hereof, admitting any other Person to be a Member in the Company;

(xxv)    Causing the Company to settle any casualty or other insurance claim or any condemnation action involving a claim in excess of $100,000 or any

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such claim that, when added to all other insurance and condemnation claims during a single Fiscal Year, exceeds $100,000, in each case, above any amounts payable by insurance;

(xxvi)   Approval of any insurance coverage for the Company and the Project that is inconsistent with the requirements set forth in Section 7.9 below;

(xxvii)  Approval of any agreement with local, federal, or state governmental or administrative agency, any school board, any quasi-governmental agency, or any non-profit corporation or similar entity with respect to financial incentives, rebates, tax abatements or similar economic benefits relating to the Project Site and approval of the termination or any amendment or modification of any such agreements;

(xxviii) Using the Company’s name, credit, or assets for other than the Company’s purposes;

(xxix)   Causing the Company to consolidate or merge with or into any entity or engaging in any other transaction having substantially the same effect;

(xxx)    Except for sales of Residential Units for cash and at prices equal to or greater than the prices set forth in the applicable Annual Budget, approval of the Transfer of any asset of the Company;

(xxxi)   Approval of the general contractor for the Project, approval of the construction agreement with such general contractor, approval of any material amendments or modifications to such construction contract, approval of any termination of the general contractor, and approval of any replacement general contractor; and

(xxxii)   Approval of any other matter designated in this Agreement as a Supermajority Major Decision.

(c)       The term “Majority Major Decision,” as used in this Agreement, means any decision with respect to the following matters:

(i)       Approval of any tax elections federal, state, or local purposes;

(ii)      Approval of any material decision concerning Company accounting for book and federal income tax purposes; and

(iii)     Making any other decision under this Agreement that specifically requires the approval of the Executive Committee as a Majority Major Decision.

7.4       Certificate of Formation.    Wayne Stelmar is hereby designated as an “authorized person” within the meaning of the Delaware Act and, in such capacity, he executed, delivered and filed the Certificate of Formation of the Company, dated July 24, 2012. Upon such filing of the Certificate of Formation with the Secretary of State of Delaware, the powers of such

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“authorized person” ceased, and the Managing Member thereupon became a designated “authorized person” and shall continue as the designated “authorized person” within the meaning of the Delaware Act. The Managing Member shall cause to be filed at the Company’s expense such other certificates or documents (including, without limitation, copies, renewals, amendments or restatements of this Agreement) as may be determined by the Managing Member to be reasonable and necessary or appropriate for the formation or qualification and operation of a limited liability company in any other state in which the Company may elect to do business.

7.5       Compensation and Reimbursement of Members.

(a)       Except as provided in Section 7.5(b), Section 7.5(c) and Section 7.8, no Member shall be compensated for any services rendered to the Company and no Member shall be entitled to any reimbursements from the Company, unless such reimbursements have been specifically approved by the Executive Committee.

(b)       Notwithstanding anything to the contrary in Section 7.5(a), but subject to Section 7.8, a Member may be reimbursed for direct, third party expenses that such Member incurs and/or makes for or on behalf of the Company after the Effective Date, but only to the extent such expenditure made by such Member is consistent with and provided for in the approved Annual Budget then in effect. The Company will not pay any interest to the relevant Member with respect to such advances.

(c)       Notwithstanding anything to the contrary in Section 7.5(a), but subject to Section 7.8, the Managing Member shall be reimbursed for the allocable portion of all Project Employee Costs incurred by the Managing Member after the Effective Date, but only to the extent such expenditure made by such Member is consistent with and provided for in one or more specific detailed line items in the approved Annual Budget then in effect. The Company will not pay any interest to the Managing Member with respect to Project Employee Costs.

7.6       Outside Activities.

(a)       Except as otherwise provided in Section 7.6(b) and Section 7.15, the Members (including the Managing Member) or any Affiliates thereof, and any director, officer, partner, or employee of the Members or any Affiliates thereof, shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company and may engage in any real estate activities and in any other businesses and activities for their own accounts and for the accounts of others without having or incurring any obligation to offer any interest in or funds from such properties, businesses or activities to the Company or any Member (including the right of NB to obtain, for NB’s benefit, “EB-5 financing” that is based in whole or in part on jobs that the Company may create through development of the Project), and no other provision of this Agreement shall be deemed to prohibit the Members or any such Person from conducting such other businesses and activities. Except as otherwise provided in Section 7.6(b) and Section 7.15, neither the Company nor any of the Members shall have any rights by virtue of this Agreement or the relationship created hereby to participate in, to be notified of or to own any interest in any business ventures of a Member, any Affiliates thereof, or any director, officer, partner, or employee of a Member or an Affiliate thereof.

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(b)       (i)       Notwithstanding anything to contrary in Section 7.6(a) but subject to Section 7.6(b)(ii), no Member nor any Affiliate of a Member shall directly or indirectly acquire, manage, own, or otherwise participate in any single family residential development that includes product types and price points similar to the Residential Units and that is located within a one and one-half (1.5) mile radius of the Project Site; provided, however, the restriction set forth in this Section 7.6(b)(i) shall expire after seventy-five percent (75%) of the Residential Units that the Company intends to develop on the Project Site have been sold or otherwise disposed of to third parties.

(ii)       Notwithstanding anything to the contrary in Section 7.6(b)(i), the restrictions set forth in Section 7.6(b)(i) shall not apply to any real property owned directly or indirectly, in whole or in part, by a Member and/or any Affiliate of a Member as of the Effective Date.

7.7      Company Funds.    The funds of the Company shall be deposited in such Company account or Company accounts as are designated by the Managing Member. The Managing Member shall not commingle Company funds with any funds or accounts of the Managing Member and/or its Affiliates. The Managing Member and each representative of the Executive Committee appointed by NB shall be authorized to sign checks or drafts against any Company account. Any withdrawals from or charges against such accounts may be made by the Managing Member or by its officers or agents in accordance with the terms of the Agreement.

7.8      Transactions with Affiliates.

(a)       Except as provided in Section 7.5, Section 7.8(b), Section 7.8(c), and Section 7.8(d), or except as specifically provided for in an approved Annual Budget on a line item designated “Affiliate Transaction,” a Member may not, on behalf of the Company, enter into any transaction, agreement, or contract with respect to the Company, and/or the business and affairs of the Company, with any Person that is a Member, an Affiliate of any Member, and/or an Affiliate of the Company (an “Affiliate Agreement”) unless such Affiliate Agreement is approved by the representative(s) on the Executive Committee appointed by the other Member. Under all circumstances, the terms to the Company of any such Affiliate Agreement including the amount of fees to be paid by the Company to such Person, shall be competitive with the terms of similar transactions, agreements, or contracts obtained by persons in the same business as the Company in arms-length agreements with unrelated parties.

(b)       The Company shall pay TNHC a management fee (the “TNHC Management Fee”) equal to three percent (3%) of the gross sale proceeds derived by the Company from the sale of the Project Site or any portion thereof, including, but not limited to, the sale of any Residential Unit. Fifty percent (50%) of the TNHC Management Fee shall be paid in equal monthly installments on or about the first day of each month over the projected life of the Project based on the estimated gross sale

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proceeds to be realized by the Company over the life of the Project as reflected in the most recently approved Annual Budget. The amount of such monthly installments will be adjusted, as necessary, whenever the Annual Budget is revised. The remaining fifty percent (50%) of the TNHC Management Fee shall be paid in monthly installments upon the closing of the sale of any Residential Unit (i.e., 1.5% of the gross sale price for a Residential Unit, payable on the first day of the month following closing). At the end of the Project, and prior to the Company’s final liquidating distributions, the Company and TNHC shall reconcile (and shall make any necessary “adjustment” payments with respect to) the amount of TNHC Management Fee that has been paid to date with the amount of TNHC Management Fees that should have been paid based on the actual amount of gross sales proceeds realized through the life of the Project.

(c)       The Company shall pay NB a management fee (the “NB Management Fee”) equal to one percent (1%) of the gross sale proceeds derived by the Company from the sale of the Project Site or any portion thereof, including, but not limited to, the sale of any Residential Unit. Fifty percent (50%) of the NB Management Fee shall be paid in equal monthly installments on or about the first day of each month over the projected life of the Project based on the estimated gross sale proceeds to be realized by the Company over the life of the Project. The amount of such monthly installments will be adjusted, as necessary, whenever the Annual Budget is revised. The remaining fifty percent (50%) of the NB Management Fee shall be paid in monthly installments upon the closing of the sale of any Residential Unit (i.e., 0.5% of the gross sale price for a Residential Unit, payable on the first day of the month following closing). At the end of the Project, and prior to the Company’s final liquidating distributions, the Company and NB shall reconcile (and shall make any necessary “adjustment” payments with respect to) the amount of NB Management Fee that has been paid to date with the amount of NB Management Fees that should have been paid based on the actual amount of gross sales proceeds realized through the life of the Project.

(d)       The Members hereby unanimously approve the form of the Construction Contract and the form of the Sales and Marketing Agreement attached as Exhibits D and E and to this Agreement.

(e)       Notwithstanding any other provision to the contrary in this Agreement and subject to clause (f) below, if an Affiliate of any Member is the party to any Affiliate Agreement (as applicable), such Affiliate has committed a material default under the applicable Affiliate Agreement, and any applicable notice and cure periods have expired, (and for these purposes, any Member may send a notice on behalf of the Company to the Person that is a party to the Affiliate Agreement), then the Member that is not an Affiliate to the Person providing services under the Affiliate Agreement shall have the right, but not the obligation, unilaterally and without requiring concurrence of any other Member or the Executive Committee, to act on behalf of the Company with respect to the enforcement of remedies under the applicable Affiliate Agreement (including the right to terminate such agreement to the extent provided for in such agreement).

(f)       (i) Rather than enter into the Construction Contract and the Sales and Marketing Agreement with TNHC Realty, the Company could contract directly with

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unaffiliated contractors, suppliers, brokers or sales and marketing consultants for such services. The Members acknowledge and agree that TNHC has caused its affiliated company TNHC Realty to enter into the Construction Contract and the Sales and Marketing Agreement for the convenience of the Company, to reduce costs and to facilitate construction and marketing of the Project by the Company. TNHC Realty’s compensation under the Construction Contract and the Sales and Marketing Agreement has been established as a “pass through” of costs and not as a “for profit” enterprise. Except as provided in Section 7.8(f)(ii), the Members do not intend for either TNHC or TNHC Realty to have the same liability, including without limitation liability for construction defects or for personal injury or property damage during the course of TNHC Realty’s activities under the Construction Contract and the Sales and Marketing Agreement, or otherwise, as would a third-party, unaffiliated general contractor or a third-party, unaffiliated broker or sales and marketing consultant. Therefore, notwithstanding anything in this Agreement, the Construction Contract or the Sale and Marketing Agreement to the contrary, but subject to Section 7.8(f)(ii) below, the Members intend and agree that all such liability shall be retained by the Company and insured against by the Company’s insurance. Subject to Section 7.8(f)(ii) below, to the extent any such liability is not covered by Company insurance, payments on any such claim shall be made by the Company and included in Company Costs and Expenses. Nothing in this Agreement shall be construed as a guarantee by TNHC of TNHC Realty’s obligations under the Construction Contract and/or the Sales and Marketing Agreement. If there is a conflict between this Agreement and the Construction Contract and/or Sales and Marketing Agreement, this Agreement shall control.

(ii)       Notwithstanding anything to the contrary in Section 7.8(f)(i):

(A)       To the extent TNHC Realty engages in conduct in the performance of its services under the Construction Contract or the Sales and Marketing Agreement that would constitute Bad Conduct or Uncured Bad Conduct if committed by TNHC in the performance of its duties under this Agreement (defined as “TNHC Realty Bad Conduct”), then any cost, expense, damage, or liability suffered or incurred by the Company as a result of such TNHC Realty Bad Conduct shall be considered a Bad Conduct Cost within the meaning of this Agreement; and

(B)       TNHC Realty and TNHC shall be liable to the Company for any cost, expense, damage, or liability suffered or incurred by the Company as result of the negligent acts by TNHC Realty pursuant to the Sales and Marketing Agreement in connection with the submission of any materials to the California Department of Real Estate and/or any statements made or actions taken by the sales agents employed by TNHC Realty in connection with the sale of Residential Units.

7.9      Insurance.    Except as otherwise provided in this Agreement, the Managing Member, on behalf of the Company and at the Company’s cost and expense, shall during the entire term hereof, obtain, maintain, and keep in full force and effect all insurance required by the insurance requirements set forth on Exhibit G, any other insurance that may be required by

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any Company Obligation, and/or any other form or forms of insurance on the Project or for the Company that has been approved by the Executive Committee. Notwithstanding the preceding sentence, the Members’ respective insurance consultants have not yet completed their reviews of Exhibit G. Upon completion of such review the Members shall negotiate in good faith to modify Exhibit G as they mutually agree is appropriate at which time such modified Exhibit G shall be substituted for the Exhibit G attached hereto.

7.10      Indemnification of Members.    The Company shall indemnify, defend, and hold harmless the Managing Member, the other Members, their directors, officers, shareholders, constituent members, constituent partners, and employees, and the individual representatives on the Executive Committee (individually, an “Indemnitee”), as follows:

(a)       (i)       In any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, to which an Indemnitee was or is a party or is threatened to be made a party by reason of the fact that such Indemnitee is or was a Member, a director, officer, shareholder, constituent member, constituent partner, or employee of a Member, or is an individual representative on the Executive Committee, the Company shall indemnify such Indemnitee against attorneys’ fees, judgments, fines, penalties, settlements, and reasonable expenses actually incurred by such Indemnitee in connection with the defense and/or settlement of such action, suit or proceeding, if such Indemnitee acted in good faith, and in the case of the exercise of authority by the Indemnitee under the Delaware Act or this Agreement, other than service for another enterprise, in a manner reasonably believed by such Indemnitee to be in the best interests of the Company and, in all other cases, that the Indemnitee’s conduct was not a willful and intentional act in opposition to the Company’s best interests, and with respect to any criminal action or proceeding, the Indemnitee did not have reasonable cause to believe that his conduct was unlawful.

(ii)      In no event, however, shall indemnification ever be made: (A) in relation to a proceeding in which the Indemnitee has been found liable for fraud or a criminal act or for gross negligence, breach of fiduciary duty, willful or intentional misconduct in the Indemnitee’s performance of its duty to the Company or in relation to a proceeding which arises out of a Material Breach by the Indemnitee of the terms and provisions of this Agreement; (B) with respect to a claim or suit brought by one Member (and/or an Affiliate thereof) against another Member (and/or an Affiliate thereof); and/or (C) with respect to TNHC’s obligation to make additional Capital Contributions for Controllable Construction Cost Overruns.

(iii)      The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that an Indemnitee did not act in good faith and in a manner reasonably believed by such Indemnitee to be in the best interests of the Company or not opposed to the Company’s best interests.

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(b)      If a claim or assertion of liability is made or asserted by a third party against an Indemnitee by reason of the fact that such Indemnitee was or is a party or is threatened to be a party by reason of the fact that such Indemnitee is or was a Member or is a director, officer, shareholder, constituent partner, constituent member, or employee of a Member or an individual representative on the Executive Committee, Indemnitee will forthwith give to the Company and the Executive Committee written notice of the claims or assertion of liability and request the Company to defend the same and any other related claims or assertions of liability that are included in the same complaint. Failure to so notify the Company will not relieve the Company of any liability which the Company might have to Indemnitee except to the extent that such failure actually prejudices the Company’s legal position. The Company will have the obligation to defend against such claims or assertions and the Company will give written notice to the Indemnitee of acceptance of the defense of such claims and the name of the counsel selected by the Company to defend such claims. The Indemnitee will be entitled to be kept informed by the Company and its counsel of the status of such defense and also will be entitled at its option (and expenses) to employ separate counsel for such defense. In the event the Company does not accept the defense of the claims or in the event that the Company or its counsel fails to use reasonable care in maintaining such defense, the Indemnitee will have the right to employ counsel for such defense at the expense of the Company. The Company and the Indemnitee will cooperate with each other in the defense of any such action and the relevant records of each will be made available to the other with respect to such defense. If, at the conclusion of any such proceedings, it is determined that the Indemnitee would not have been entitled to indemnification pursuant to this Section 7.10 for such claims or assertions, then the Indemnitee shall immediately reimburse the Company for any costs and expenses paid by the Company to defend the Indemnitee pursuant to this Section 7.10(b).

(c)      No Indemnitee will be entitled to indemnification under this Section 7.10 if it has entered into any settlement or compromise of any claim giving rise to any indemnifiable loss without the written consent of the Company. If a bona fide settlement offer is made with respect to a claim and the Company desires to accept and agree to such offer, the Company will give written notice to the Indemnitee to that effect (the “Settlement Notice”). If the Indemnitee fails to consent to the settlement offer within ten calendar days after receipt of the Settlement Notice, then the Indemnitee will be deemed to have rejected such settlement offer and will be responsible for continuing the defense of such claim and, in such event, the maximum liability of the Company as to such claim will not exceed the amount of such settlement offer plus any and all reasonable costs and expenses paid or incurred by the Indemnitee up to the date of the Settlement Notice and which are otherwise the responsibility of the Company pursuant to this Section 7.10.

(d)      Any indemnification permitted under this Section 7.10 shall be made only out of the assets of the Company and no Member shall be obligated to contribute to the capital of or loan funds to, the Company to enable the Company to provide such indemnification.

(e)      The indemnification provided by this Section 7.10 shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement or vote

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of the Members, as a matter of law or otherwise, as to action in the Indemnitee’s capacity as a Member, as a director, officer, employee, constituent member, or a constituent partner of a Member, or as a member of the Executive Committee, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, administrators and personal representatives of the Indemnitee.

(f)      Except as otherwise provided in this Agreement, the Company may purchase and maintain insurance on behalf of any one or more Indemnitees if approved by the Executive Committee.

(g)     In no event may an Indemnitee subject another Member or its Affiliates to personal liability by reason of the indemnification provisions of this Agreement.

(h)     The provisions of this Section 7.10 are for the benefit of the Indemnitees and the heirs, successors, assigns, administrators, and personal representatives of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons.

(i)      Any action to be taken by the Company pursuant to this Section 7.10 shall instead be taken by and require the approval of the Executive Committee.

(j)      EXCEPT AS PROVIDED IN SECTION 7.10(A)(II)(C), THIS SECTION 7.10 INCLUDES AN INDEMNITY BY THE COMPANY OF EACH INDEMNITEE AGAINST SUCH INDEMNITEE’S ORDINARY NEGLIGENCE.

7.11    Liability of a Member.

(a)      Neither a Member nor a Member’s shareholders, directors, officers, employees, constituent members, constituent partners, or Executive Committee representatives shall be liable to the Company or to the other Members for errors in judgment or for any acts or omissions that do not constitute fraud, gross negligence, criminal misconduct, willful and wanton misconduct, and/or breach of this Agreement.

(b)      The Managing Member may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through agents.

7.12    Duties.

(a)      The Managing Member shall manage the Company and its business and affairs in accordance with the terms of this Agreement and shall use all of its reasonable efforts to carry out the business of the Company. Each Member shall act honestly, in good faith, and in the best interest of the Company and shall devote such time to the business of the Company as shall be reasonably required to perform such Member’s duties and obligations under this Agreement. The Managing Member shall devote itself to the business of the Company to the extent necessary for the efficient carrying on thereof and in a manner that will permit the Managing Member to fulfill those duties and

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responsibilities described in Section 7.12(b) below and elsewhere in this Agreement. Whenever requested by any Member, the Managing Member shall render a just and faithful account of all material dealings and transactions relating to the business of the Company.

(b)      The Managing Member, in addition to its other obligations under this Agreement, shall perform the following services in its capacity as the Managing Member, at the expense of the Company:

(i)        Carry out and implement the Major Decisions approved by the Executive Committee;

(ii)       Give all notices and utilize commercially reasonable efforts to ensure compliance with all laws, ordinances, rules, and regulations affecting the grading, development, construction, operation, and sale of the Project;

(iii)      Prepare, or cause to be prepared, each Annual Budget and any necessary or appropriate amendments to any Annual Budget, all maps, schematic drawings, Plans and Specifications, working drawings, and other documentation (including all revisions thereto) necessary to develop the Project Site and construct the applicable Improvements, and obtain all necessary governmental approvals therefor;

(iv)      Conduct such other pre-development activities with respect to the Project Site as Managing Member deems necessary to develop and improve the Project Site in accordance with any approved Annual Budget;

(v)       Develop or supervise the development of a marketing plan for the Residential Units and then coordinate all efforts to market and sell Residential Units, including efforts to develop and implement marketing strategies;

(vi)      Prepare and distribute to each Member any and all reports required under Section 9.3 hereof;

(vii)      Prepare and submit an Annual Budget pursuant to Section 7.13 hereof for approval by the Executive Committee;

(viii)     Manage and maintain the Project Site and pay all applicable ad valorem taxes, insurance premiums, and other similar carrying costs associated with the Project; and

(ix)      Cause the Company to comply with the terms of all applicable loan agreements governing the Company Obligations and other Company indebtedness, and notify the other Members of any default of any party under any loan, Company Obligation, and/or any other significant agreement affecting the Company.

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7.13    Annual Budget.

(a)      The Members have unanimously approved the initial Annual Budget for the Company covering the period from the Effective Date through December 31, 2013, a copy of which is attached hereto as Exhibit F. At least 60 days prior to the commencement of each Fiscal Year, commencing with the Fiscal Year beginning January 1, 2014, the Managing Member shall submit a proposed revised and updated Annual Budget for the Company for the period of time commencing on January 1 of the upcoming Fiscal Year and extending through the projected term of the Company.

(b)      The Executive Committee shall review and, if acceptable, approve the proposed Annual Budget to the extent required under Section 7.3(b)(i). A proposed Annual Budget shall not become effective, however, until such Annual Budget has been approved by the Executive Committee.

(c)      If the Executive Committee fails to approve a proposed Annual Budget prior to the commencement of a particular Fiscal Year, then pending a final resolution of the dispute with respect to such Annual Budget, the Managing Member shall continue to manage, maintain, supervise, direct, and operate the Company, but all expenditures must be approved by the Executive Committee except for those non-controllable expenditures that are required to be paid in order to keep the Company operating (i.e., payroll costs, utility costs, insurance costs, taxes, and similar costs and expenses).

(d)      After an Annual Budget has been approved, the Managing Member has the right from time to time during the applicable Fiscal Year to revise the Annual Budget to the Executive Committee for its approval. If Executive Committee approval of any such revision is required under Section 7.3(b)(i), such proposed revision to the Annual Budget shall not be effective until approved by the Executive Committee. Once approved, such revisions shall be incorporated in and become part of the approved Annual Budget.

7.14    Indemnification for Fees.

(a)      NB represents and warrants to TNHC that, except for the Finders Fee Agreement, no broker or other Person is entitled to a commission, fee, or other compensation in connection with the formation of the Company and/or the contribution of the equity capital to the Company, and NB hereby indemnifies and holds TNHC harmless from and against any claims, losses, damages, costs, and expenses that the Company and/or TNHC may suffer or incur in the event that any broker or other Person asserts a claim through NB for such a commission, fee, or other compensation.

(b)      TNHC represents and warrants to NB that, except for the Finders Fee Agreement no broker or other Person is entitled to a commission, fee, or other compensation in connection with the formation of the Company and/or the contribution of the equity capital to the Company, and TNHC hereby indemnifies and holds NB harmless from and against any claims, losses, damages, costs, and expenses that the Company and/or NB may suffer or incur in the event that any broker or other Person

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asserts a claim through TNHC for such a commission, fee, or other compensation other than claims brought pursuant to the Finders Fee Agreement. Any amounts payable under the Finders Fee Agreement shall constitute part of Company Costs and Expenses and shall be paid by the Company as and when due.

7.15    Special Right to Participate With Respect to Davis City Opportunity.

(a)      If TNHC or any Affiliate of TNHC desires to pursue the Davis City Opportunity, TNHC shall promptly give a written notice (the “Opportunity Notice”) to NB. The Opportunity Notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the Opportunity Notice is contained and must alert NB to the thirty (30) day time limit for response as described below. The Opportunity Notice shall provide that NB (or its designated Affiliate) has the right to participate in the Davis City Opportunity on the Agreed Terms (as defined in Section 7.15(c) below) and shall include the following information (for purposes of this Section 7.15, any reference to TNHC or NB shall automatically mean, where applicable, a reference to any designated Affiliate of TNHC or NB):

(i)      A description of the Davis City Opportunity; and

(ii)     A due diligence package containing all information that NB would reasonably need to make an informed decision on whether or not to exercise its rights under this Section 7.15 (to the extent TNHC has or could reasonably obtain such information).

(b)      The delivery of the Opportunity Notice constitutes an offer (the “Section 7.15 Offer”) by TNHC to allow NB to participate in the Davis City Opportunity on the Agreed Terms in accordance with this Section 7.15.

(i)      NB shall immediately review the Opportunity Notice. NB shall have a period of thirty (30) days from the date of NB’s receipt of the Opportunity Notice to elect to pursue the Davis City Opportunity on the Agreed Terms in accordance with this Section 7.15 (this thirty (30) day period is referred to as the “Election Period”).

(ii)     If NB desires to pursue the Davis City Opportunity, then prior to the end of the Election Period, NB must send a written notice of acceptance of the Section 7.15 Offer to TNHC. If NB does not make an election prior to the end of the Election Period to accept the Section 7.15 Offer, NB shall be deemed to have rejected the Section 7.15 Offer.

(c)      (i)      If NB sends written notice of its acceptance of the Section 7.15 Offer prior to the end of the Election Period, then NB and TNHC shall jointly pursue and acquire the Davis City Opportunity, form a new limited liability company (the “Davis Entity”), and enter into a definitive limited liability company agreement (or a comparable agreement for another pass-through entity)

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(“Davis Company Agreement”) on the Agreed Terms to acquire, own, develop, finance, manage, lease, sell, and/or dispose of the Davis City Opportunity.

(ii)      For purposes of this Agreement, the “Agreed Terms” with respect to the Davis City Opportunity means:

(A)      NB (or its designated Affiliate) and TNHC (or its designated Affiliate) shall have the same management, control, non-compete, transfer, “EB-5” financing, and economic rights under the Davis Company Agreement as NB and/or TNHC have under this Agreement, except as set forth below:

(I)       The “contribution percentage” of TNHC will be between 15% and 35% (as determined by TNHC in its sole discretion) and the “contribution percentage” of NB will be the difference between 100% and TNHC’s “contribution percentage.”

(II)      TNHC will continue to receive a 23.08% “promoted” interest (i.e., the same as under this Agreement). The “percentage interests” of TNHC and NB shall be determined after TNHC designates its “contribution percentage” as follows: (x) to determine the “non-promoted” portion of each Member’s “percentage interest,” the “contribution percentage” of each Member shall be multiplied by 76.92% (this product is referred to as the “Non-Promoted Interest”); (y) TNHC’s “percentage interest” shall then equal the sum of TNHC’s Non-Promoted Interest plus 23.08%; and (z) NB’s “percentage interest” shall equal NB’s Non-Promoted Interest. For example, if TNHC elects to have a 29% “contribution percentage,” then (1) TNHC’s promoted interest shall be 23.08%, (2) NB’s “contribution percentage” will be 71%, (3) TNHC’s “percentage interest” will be 45.39% (i.e., (0.29 x 0.7692) + 0.2308), and (4) NB’s “percentage interest” will be 54.61% (i.e., 71% x 0.7692).

(III)     TNHC will make certain mutually acceptable representations and warranties for the benefit of the Company and NB regarding the Davis City Opportunity based on TNHC’s actual knowledge concerning the Davis Project.

(B)      If NB accepts the Section 7.15 Offer and TNHC and NB sign the Davis Company Agreement, then NB shall cause an Affiliate of NB (the “Davis City Lender”) to provide an acquisition and development loan to finance, in part, the acquisition of the applicable project site for the Davis City Opportunity and the construction of horizontal infrastructure improvements thereon (the “Davis City Loan”) in an amount not less than sixty percent (60%) of total projected costs for such acquisition and construction costs. Such loan shall be made to the entity acquiring the

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Davis City Opportunity on terms that are substantially the same (e.g., 7% interest rate, 1% origination fee, release prices based on “125% of par” basis for each pod, three year initial term, etc.) as the loan made by Finance Partners, L.P. to TNHC-HW San Jose, LLC (with appropriate adjustments to the performance covenants based on the particular development plan associated with the Davis City Opportunity).

(iii)     On execution of the Davis Company Agreement, TNHC shall contribute all business plans and any purchase contracts relating to the Davis Opportunity to the Davis Entity, NB shall contribute to the Davis Entity an amount equal to 50% of approved pre-formation and pre-development costs and obligations incurred by TNHC in connection with the Davis City Opportunity prior to the effective date of the Davis Company Agreement, and the Davis Entity shall promptly distribute to TNHC as a return of capital the cash capital contribution that was made by NB. Thereafter, NB and TNHC shall each fund 50% of any additional pre-development costs until the Davis Entity acquires the Davis City project site. In connection with such project site acquisition and thereafter, NB and TNHC will generally fund additional capital contributions in proportion to their “contribution percentages.” Concurrently with close of escrow for the Company’s acquisition of such project site, NB and TNHC shall make capital contributions in the aggregate amount of the funds required to complete such closing and in such ratios so that after such additional capital contributions have been made, the respective unreturned capital accounts of TNHC and NB shall be in the ratio of their respective “contribution percentages.”

(d)      If within forty-five (45) days after NB’s notice of acceptance of the Section 7.15 Offer: (i) despite the diligent and good faith efforts of TNHC and NB, the Davis Company Agreement has not been executed by the Members; and (ii), then TNHC or an Affiliate of TNHC may acquire the Davis City Opportunity and NB shall have no further right to participate with TNHC in the acquisition of the Davis City Opportunity.

(e)      If NB either affirmatively rejects the Section 7.15 Offer prior to the end of the Election Period, or if NB is deemed to have rejected the Section 7.15 Offer because of NB’s failure to accept prior to the end of the Election Period, then TNHC or an Affiliate of TNHC may acquire the Davis City Opportunity and NB shall have no further right to participate with TNHC in the acquisition of the Davis City Opportunity; provided, however, if TNHC (or its Affiliate) changes the economic terms of such Davis City Opportunity from the Agreed Terms such that the projected internal rate of return to the investor would be more than one and one-half percent (1.5%) greater than the projected internal rate of return last offered to NB in the Davis City Opportunity in which NB declined to participate, then TNHC must re-offer the Davis City Opportunity to NB by delivering to NB an Opportunity Notice pursuant to Section 7.15(a) that contains the more economically favorable terms.

(f)      The rights and obligations under this Section 7.15 shall survive the closing of a buy/sell transaction under Section 11.9 initiated by TNHC, the termination of this Agreement, and/or the dissolution and winding up of the Company (other than a

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termination of this Agreement and/or the dissolution and winding up of the Company that may occur after the closing of the “put” or “call” of a Membership Interest pursuant to Section 11.11 and/or Section 11.12).

ARTICLE VIII

PHASES AND DEVELOPMENT PHASE PLANS

8.1    Development and Construction of Project in Phases.

(a)      It is contemplated that the Company shall construct the proposed Improvements on the Project Site in more than one phase (each such phase is referred to as a “Phase”).

(b)      The Managing Member shall not commence any Phase unless; (i) such Phase is consistent with an approved Annual Budget; and (ii) the commencement of such Phase has been approved by the Executive Committee pursuant to Section 7.3.

(c)      The commencement of any such Phase may be subject to such conditions as the representatives on the Executive Committee may, in their sole and absolute discretion, impose.

8.2      Financing.  Subject to Section 8.3, the Members acknowledge and agree that it is their intent to maximize third-party financing for the Project. In furtherance of this objective, but subject to Section 4.2(h) and Section 7.3, the Members shall cooperate with each other in using commercially reasonable efforts to obtain any and all acquisition, development and construction financing (“AD&C” Loans) from one or more Persons that are not Affiliates of any Member, in such amount as the Company may require to finance development of the Improvements in accordance with the intent of the Members or refinance any AD&C Loans prior to maturity thereof. Any such AD&C Loans must be approved by the Executive Committee pursuant to Section 7.3(b). Under no circumstances shall NB be obligated to provide any such AD&C Loans. In addition, the Members acknowledge and agree that no Member or any Affiliate of a Member shall have any personal liability, either directly or indirectly, on a AD&C Loan or any other Company Obligations, except for any Credit Enhancement that such Member or its Affiliates may have provided (including guarantees of Capital Contribution obligations under Section 4.2).

8.3      PEPI Loan.  In connection with the execution of this Agreement, the Company has been negotiating with PEPI for the PEPI Loan as described in the PEPI Loan discussion letter, dated February 13, 2013, a copy of which is attached as Exhibit H. Company and the Members acknowledge and understand that PEPI is an Affiliate of NB. The Company and the Members acknowledge and agree that the Company is not obliged to reach any agreement with PEPI for the PEPI Loan or otherwise. The Company and the Members further acknowledge and agree that even though PEPI is an Affiliate of NB, PEPI shall not owe any duty whatsoever (fiduciary, duty of loyalty, duty of care, or otherwise) to the Company, another Member, a representative on the Executive Committee, any Affiliate of any other Member, or any assignee or transferee of a Member or a Member’s Membership Interest. The Company and the Members hereby expressly eliminate and waive any such duties and liabilities that PEPI may be deemed to have to the Company or any Member as a result of PEPI being an Affiliate of NB.

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ARTICLE IX

BOOKS, RECORDS, ACCOUNTING AND REPORTS

9.1      Records and Accounting.  The Managing Member shall keep or cause to be kept appropriate books and records with respect to the Company’s business, which shall at all times be kept at the principal office of the Company or such other office as the Executive Committee may designate for such purposes. Any books and records maintained by the Company in the regular course of its business, including books of account and records of Company proceedings, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the books and records so kept are convertible into clearly legible written form within a reasonable period of time. The books of the Company shall be maintained for financial reporting purposes on the accrual basis. The Executive Committee shall have the right to make final determinations as to how any transaction, revenue, expense, asset or liability item of the Company will be accounted for on the books of the Company if generally accepted accounting principles are unclear in any instance.

9.2      Fiscal Year. The Fiscal Year of the Company shall be the calendar year for tax and accounting purposes.

9.3      Reports.

(a)      The Managing Member shall deliver to the Members, not later than 60 days following the end of each Fiscal Year, a balance sheet, an income statement, and an annual statement of source and application of funds of the Company for such Fiscal Year. The Managing Member shall, at the expense of the Company, cause the Company’s Independent Accountants to audit and certify such statements.

(b)      No later than 45 days after the last day of each fiscal quarter during the term of this Agreement, other than the last quarter of the Fiscal Year in question, the Managing Member shall use its best efforts to cause the Company to prepare, or cause to be prepared and delivered to each Member a balance sheet together with a profit and loss statement for such fiscal quarter together with a cumulative profit and loss statement to date and with comparative statements for the like periods immediately preceding.

(c)      At any time requested by a Member, the Managing Member shall deliver to each Member a copy of the general ledger for the Company showing all activity that impacted the general ledger during the period requested.

(d)      No later than 30 days after the end of each calendar month, the Managing Member shall cause the Company to prepare, or shall cause to be prepared and delivered to each Member: (i) a statement of cash receipts and cash disbursements for the month; (ii) a reconciliation, on a line item basis, of costs and expenses incurred to date with the costs and expenses set forth in the Annual Budget with a written explanation of any material variations; (iii) a schedule of showing the draw downs and uses of the proceeds of Company indebtedness; (iv) a list of key construction contracts and supplier contracts; and (v) monthly status reports showing the status of any construction in progress, and actual and projected costs over-runs.

(e)      At the request of a Member, the Managing Member shall additionally cause to be promptly provided to the Member: (i) an annual analysis detailing the components, and changes therein, of each Member’s Capital Accounts, each Member’s Adjusted Capital Accounts, and each Member’s (as applicable) accrued and unpaid First Priority Preference Amount, Undistributed First Priority Capital, accrued and unpaid Second Priority Preference Amount, and Undistributed Second Priority Capital Amount; (ii) an annual analysis detailing all allocations of Profit, Loss, and other items of income, gain, loss and deduction; (iii) an annual reconciliation of accounting and taxable income; (iv) a list of key construction contracts and supplier contracts; and (v) such other financial statements or information as may be reasonably requested by a Member.

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9.4      Inspection of Documents and Project Site.  Each Member shall have the right to inspect and review and make copies (at Company expense) of all documents relating to the business of the Company, including without limitation, all reports, studies, and other items prepared by or obtained by the Managing Member in connection with the performance of its duties hereunder. Each Member and any lenders or potential lenders (including investors in such lenders or representatives of the lenders or such investors) that have provided or may provide funds for the Project shall also have the right to visit and inspect the Project Site upon reasonable notice and during normal business hours.

ARTICLE X

TAX MATTERS

10.1    Tax Matters Partner. The Managing Member shall be the tax matters partner (the “Tax Matters Member”) for federal income tax purposes pursuant to section 6231 of the Code with respect to each applicable taxable year of the Company. The Managing Member is authorized to do whatever is necessary to qualify as such.

10.2    Annual Tax Returns.

(a)      The Managing Member shall cause the Company’s accountants to prepare, at the Company’s expense, and shall timely file, or cause the timely filing of, all tax returns and shall, on behalf of the Company, timely file, or cause the timely filing of, all other writings required by any governmental authority having jurisdiction to require such filing. The Managing Member shall submit the proposed returns to each Member for its review and approval no later than 90 following the end of the preceding Fiscal Year.

(b)      If a Member disagrees with the treatment of any Company item (within the meaning of section 6231(a)(3) of the Code and Regulations) on a tax return of the Company, then such Member shall give written notice to the Managing Member. If, after good faith consultation, an agreement regarding the treatment of such item cannot be reached within ten days after the receipt of notice, the Company shall seek written advice from independent tax counsel approved by the Executive Committee or from the Independent Accountants. Such advice shall recommend the treatment which is

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consistent with the terms of this Agreement, the respective interests of the Members, and for which there exists substantial authority in support thereof. Such recommended treatment shall be the one reported on the return.

(c)      Without the prior approval of the Executive Committee, no Member shall file an amended return of the Company or a request for an administrative adjustment under section 6227 of the Code, nor shall any Member (other than the Tax Matters Member, as provided herein) commence any administrative or judicial proceeding relating to a return of the Company. If, after good faith consultation, such approval is not provided, no Member shall file such return or request, or commence such proceeding unless a mutually agreed upon independent tax counsel renders an opinion that there is substantial authority for the proposed treatment of the tax items with respect to which such return, request or proceeding relates. Nothing herein shall be construed to prevent a Member from undertaking any administrative or judicial proceeding with respect to its own return.

10.3    Notice and Limitations on Authority.

(a)      Each Member shall notify the other Members upon receipt of any notice regarding an audit or tax examination of the Company and upon any request for material information of the Company by United States federal, state, local, or other tax authorities.

(b)      The Managing Member shall, within ten (10) days after the receipt thereof, forward to each Member a photocopy of any material correspondence relating to the Company received from the Internal Revenue Service. The Managing Member shall, within ten (10) days thereof, advise each Member in writing of the substance of any conversation affecting the Company held with any representative of the Internal Revenue Service.

(c)      The Managing Member shall have all the authority granted by the Code and Regulations to the Tax Matters Member; provided, however, the Managing Member cannot take any of the actions described below unless the Managing Member first obtains the prior approval of the Executive Committee:

(i)        entering into a settlement agreement with the Internal Revenue Service in any matter relating to the Company and/or any item reported and/or not reported on a Company tax return;

(ii)       filing a petition as contemplated in section 6226(a) or 6228 of the Code;

(iii)      intervening in any action as contemplated in section 6226(b)(5) of the Code;

(iv)      filing any request contemplated in section 6227(b) of the Code; and

(v)      entering into an agreement extending the period of limitations as contemplated in section 6229(b)(1)(B) of the Code.

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10.4    Tax Elections.  Subject to Section 7.3 and this Article X, the Managing Member shall do all acts, make all elections and take whatever reasonable steps are required to maximize, in the aggregate, the federal, state, and local income tax advantages available to the Company and shall defend all tax audits and litigation with respect thereto at the expense of the Company. The Managing Member shall maintain the books, records, and tax returns of the Company in a manner consistent with the acts, elections, and steps taken by the Company. Subject to Section 7.3, in making any “tax” election for any Fiscal Year, the Managing Member shall make such election, to the extent reasonably possible, in a manner that maximizes the benefit and minimizes the detriment of each such election to each Member.

10.5    Actions in Event of Audit.  Subject to Section 10.3, if an audit of the Company’s tax returns occurs, the Managing Member shall, at the expense of the Company, notify the Members thereof and participate in the audit and contest. The Managing Member may, with the approval of the Executive Committee, settle or otherwise compromise assertions of the auditing agent which may be adverse to the Company in accordance with this Article X. The Managing Member may, if it determines that the retention of accountants and/or other professionals would be in the best interests of the Company, retain such accountants and/or other professionals to assist in such audits. The Company shall indemnify and reimburse the Managing Member for all reasonable expenses, including legal and accounting fees, claims, liabilities, losses, and damages borne by the Managing Member which were incurred in connection with any administrative or judicial proceeding with respect to any audit of the Company’s tax returns, except to the extent caused by the negligence or willful misconduct of the Managing Member.

10.6    Organizational Expenses.  The Company shall elect to deduct expenses incurred in organizing the Company as provided in section 709 of the Code.

10.7    Taxation as a Partnership.  The Members intend for the Company to be taxed as a partnership for federal income tax purposes. No election shall be made by the Company or any Member for the Company to be classified as an association or a corporation under section 7701 of the Code and the Regulations issued thereunder and no election shall be made to otherwise be excluded from the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions of any state tax laws. If the default classification rules under section 7701 of the Regulations are ever amended so as to classify the Company as an association or corporation unless it elects otherwise, either Member shall cause the Company to elect to be classified as a partnership pursuant to section 7701 of the Regulations, as amended, for the taxable year in which such amendment to the Code or Regulations occurs.

ARTICLE XI

TRANSFERS AND PLEDGES OF MEMBERSHIP INTERESTS

11.1    Pledge and Transfer Restrictions.

(a)      Except as otherwise provided in Section 11.3, Section 11.9, Section 11.11, Section 11.12, or elsewhere in this Agreement, no Membership Interest shall be

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Transferred or Pledged, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any Transfer, Pledge, or purported Transfer or Pledge of any Membership Interest not made in accordance with this Article XI shall be null and void and shall give the alleged Transferee no right to require any information or account of the Company’s transactions or to inspect the Company’s books. The Company shall be entitled to treat the alleged Transferor in a Transfer of a Membership Interest not made in accordance with this Article XI as the absolute owner thereof in all respects, and shall incur no liability to any alleged Transferee for distributions to the Member owning such Membership Interest of record or for allocations of Profits, Losses, and other items of income, gain, losses, deductions or credits or for transmittal of reports and notices required to be given to holders of Membership Interests.

(b)      NB represents and warrants to TNHC that, as of the Effective Date, one or more NB Parties currently have Majority Control of NB. Notwithstanding anything to the contrary in this Section 11.1, but subject to Section 11.2 and Section 11.3, and subject also to the terms of the documents evidencing or securing any Company Obligation, NB shall not permit a Transfer or Pledge of ownership interests in NB, or in the direct or indirect ownership or control of NB, without first obtaining the consent of the Executive Committee, unless after giving effect to such proposed Transfer or Pledge, an NB Party continues to have Majority Control of NB. Notwithstanding any other provision of this Agreement to the contrary, nothing in this Agreement shall be construed to prohibit or restrict any NB Reorganization or to require any consent of TNHC, the Executive Committee or any Member thereof to any NB Reorganization so long as at least one of the senior executive officers of NB continues to provide significant managerial responsibility over NB and also continues to serve as a representative of NB on the Executive Committee.

(c)      TNHC represents and warrants to NB that, as of the Effective Date, TNHC is wholly-owned by TNHC Southern, and TNHC Southern is wholly-owned by The New Home Company, LLC, a Delaware limited liability company (“New Home Company”). Notwithstanding anything to the contrary in this Section 11.1 (other than the last sentence of this Section 11.1(c), but subject to Section 11.2 and Section 11.3, and subject also to the documents evidencing or securing any Company Obligation, TNHC shall not permit either New Home Company to Transfer or Pledge any portion of its ownership interests in TNHC Southern or permit TNHC Southern to Transfer or Pledge any portion of its ownership interests in TNHC without first obtaining the consent of the Executive Committee unless after giving effect to such proposed Transfer or Pledge, New Home Company continues to have Majority Control of TNHC. In addition, TNHC shall not permit a Transfer or Pledge of ownership interests in The New Home Company or in the direct or indirect ownership or control of The New Home Company, without first obtaining the consent of the Executive Committee, unless after giving effect to such proposed Transfer or Pledge: (i) one or more of the Individual TNHC Members Control TNHC Partners; (ii) TNHC Partners continues to own its interest in The New Home Company; and (iii) TNHC Partners continues to exercise day-to-day control over the Company and has the right to approve Major Decisions through TNHC without having to obtain the consent or approval of any other Person in the same way that TNHC Partners exercises such day-to-day control over the Company and approves Major Decisions

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through TNHC on the Effective Date. Notwithstanding any other provision of this Agreement to the contrary, Institutional Housing Partners (“IHP”) or an Affiliate of IHP may be admitted as a member of TNHC without the consent or approval of NB or the Executive Committee. Notwithstanding any other provision of this Agreement to the contrary: (A) nothing in this Agreement shall be construed to prohibit or restrict any TNHC Reorganization or to require any consent of NB, the Executive Committee or any member thereof to any TNHC Reorganization so long as: (I) two or more of the Individual TNHC Members remain as partner(s), member(s), shareholder(s) or officer(s) of the entity resulting from such TNHC Reorganization; (II) such two or more Individual TNHC Members continue to have significant managerial responsibility over the Company and the Project; and (III) at least one of such Individual TNHC Members serves as TNHC’s representative on the Executive Committee; and (B) any entity resulting from such TNHC Reorganization shall automatically succeed to the rights and obligations of TNHC as a Member of the Company in the place of TNHC.

11.2    Consent of the Executive Committee.  Except as provided in Section 11.3, Section 11.9, Section 11.11, Section 11.12, or elsewhere in this Agreement, the Membership Interest of any Member may not be Transferred to a Person that is not a Member without the written consent of the representatives on the Executive Committee of the other Member, which consent may be unreasonably withheld.

11.3    Permitted Transfers and Pledges.   Notwithstanding anything to the contrary in Section 11.2 above, but subject to Section 11.4, Section 11.5, and Section 11.6 below:

(a)      NB may Transfer or Pledge its Membership Interest to a Transfer Affiliate of NB without having to obtain the consent of any Person; and

(b)      TNHC may pledge its Membership Interest to a Transfer Affiliate of TNHC without having to obtain the consent of any Person.

(c)      NB may Pledge its right to receive distributions from the Company (or any Person that owns an interest directly or indirectly in NB may Pledge their right to receive distributions from NB) in connection with any “EB-5 financing” that NB (or any of its direct or indirect owners) may obtain (but this right to Pledge distributions shall not include the right to Pledge any management and/or control rights over NB’s interests in the Company). To the extent NB (or its direct or indirect owner) makes a Pledge of its right to receive distributions, then the beneficiary of such Pledge may foreclose and acquire the right to receive the Pledged distributions without having to obtain the consent of any other Member.

11.4    Registration.   If any Membership Interest is to be Transferred, the proposed Transfer must be exempt from registration requirements under the Securities Act, as amended, and any applicable state securities laws. The Company and the Members have no obligation or intention whatsoever either to register Membership Interests for resale under any federal or state securities laws or to take any action which would make available to any Person any exemption from the registration requirements of such laws.

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11.5    Prohibited Transfers.  Any Transfer or purported Transfer, whether by operation of law or otherwise, of a Membership Interest shall be null and void and of no legal effect unless it is permitted by this Article XI or by other provisions of this Agreement.

11.6    Rights of Assignee.

(a)      Except as provided in this Article XI, and as required by operation of law, the Company shall not be obligated for any purpose whatsoever to recognize the Transfer by any Member of a Membership Interest unless such Transfer is made in accordance with the terms of this Agreement.

(b)      Any Transfer of Membership Interests must be in writing, may not contravene any of the provisions of this Agreement or the Delaware Act, and must be executed by the Transferor and delivered to the Company and recorded on the books of the Company. Any Transfer which contravenes any of the provisions of this Agreement or the Delaware Act shall be of no force and effect and shall not be recognized by the Company.

(c)      A Transferee of Membership Interests who is not admitted as a Member pursuant to Section 11.7 shall have no right to require any information or account of the Company’s transactions or to inspect the Company books or to vote, but shall only be entitled to receive the allocations and distributions to which his Transferor would otherwise be entitled under this Agreement.

(d)      Any Transferee who does not become a Member and desires to make a further Transfer of such Membership Interest shall be subject to all of the provisions of this Article XI to the same extent and in the same manner as any Member desiring to Transfer his Membership Interest.

11.7    Admission as a Member.

(a)      Subject to the other provisions of this Article XI, a permitted Transferee of a Membership Interest shall be admitted as a Member only after the satisfactory completion of items (i) through (iv) below, and if applicable, item (v):

(i)       the Transferee accepts and agrees to be bound by the terms and provisions of this Agreement;

(ii)      a counterpart of this Agreement and such other documents or instruments as the Executive Committee may reasonably require is executed by the Transferee to evidence such acceptance and agreement;

(iii)     the Transferee pays or reimburses the Company for all reasonable legal fees and filing and publication costs incurred by the Company in connection with the admission of the Transferee as a Member;

(iv)     except for Transferees that receive their Membership Interest pursuant to a Transfer permitted under Section 11.3 above or Section 11.9,

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Section 11.11, and/or Section 11.12 below, the Executive Committee approves the admission of such permitted Transferee, which approval may be withheld in the unreasonable discretion of such Executive Committee; and

(v)      if the Transferee is not an individual, the Transferee provides the Company with evidence satisfactory to counsel for the Company of the authority of such Transferee to become a Member under the terms and provisions of this Agreement.

(b)      The Managing Member shall make all official filings and publications as promptly as practicable after the satisfaction by the Transferee of the conditions contained in this Article XI to the admission of such transferee as a Member.

11.8    Distributions and Allocations in Respect of Transferred Membership Interests.  If any Membership Interest is Transferred or adjusted during any Fiscal Year in compliance with the provisions of this Article XI, Profits, Losses, and all other items attributable to the Transferred or adjusted Membership Interest for such period shall be divided and allocated between the affected Persons by taking into account their varying interests during the period in accordance with Code section 706(d), using any conventions permitted by law and approved by the Executive Committee. All distributions on or before the date of such Transfer shall be made to the Transferor.

11.9    Special Buy-Out Provision.

(a)      Buy-Sell Group.  For the purposes of this Section 11.9, TNHC and each of its Transferees (other than any member of the NB Members) shall be considered collectively as a group (the “TNHC Members”), and NB and each of its Transferees (other than any member of the TNHC Members) shall also be considered collectively as a group (the “NB Members”). The members of each group shall be deemed to be one Member, and the members must act as a group with regard to all decisions or elections to be made pursuant to this Section 11.9. Any such decisions or elections to be made by a group of Members pursuant to this Section 11.9 shall be made by a majority of the Percentage Interests of the applicable group.

(b)      Procedures.

(i)       At any time after the Trigger Date, the TNHC Member and its Affiliates or the NB Member and its Affiliates (the group so acting hereinafter called the “Movant”) may deliver a written notice (“Notice”) to the other group (hereinafter called the “Respondent”) which shall contain alternative offers to the Respondent either: (A) to buy from the Respondent all of the Membership Interests owned by the Respondent; or (B) to sell to Respondent all of the Membership Interests owned by the Movant; provided, however, no Member may be a Movant under this Agreement during any time in which such Member is a Defaulting Purchaser, a Defaulting Seller, or has committed a Material Monetary Default, or as otherwise provided in this Agreement.

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(ii)      (A)     The Notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the Notice is contained and must alert the Respondent to the 60-day time limit for response as described below. Delivery shall be to each member of the Respondent group whose address has been previously provided in writing to Movant in accordance with the notice provisions of this Agreement.

(B)      The Notice shall state Movant’s determination of the gross value of all assets of the Company other than any value attributable to Section 7.15 and/or the Davis City Opportunity (the “Stated Value”). Each Member shall cooperate and promptly respond to any requests for information that a Member may make in order to formulate the Notice and/or to analyze the potential consequences of accepting or rejecting the alternative offers in the Notice under this Section 11.9.

(C)      If the TNHC Members are the selling Members, the actual price (the “TNHC Price”) to be paid for the Membership Interests of the TNHC Members shall equal the amount which the TNHC Members would receive pursuant to Section 13.3(d) if, on the Buy/Sell Closing Date, the entire assets of the Company were sold at a cash price equal to 97% of the Stated Value (without further adjustment for commissions and transaction costs), Profit, Loss, and other items of income, gain, loss or deduction were allocated among the Members in accordance with Article V, and appropriate distributions were made pursuant to Section 13.3(d). For purposes of determining the amount of the deemed gross proceeds available for distribution pursuant to Section 13.3(d), the deemed gross proceeds are first applied against Company trade payables and Company liabilities (including the funding of an appropriate reserve for contingent liabilities in the amount set forth in the Notice) as of the Buy/Sell Closing Date.

(D)      If the NB Members are the selling Members, the actual price (the “NB Price”) to be paid for the Membership Interests of the NB Members will be the amount which the NB Members would receive pursuant to Section 13.3(d) if, on the Buy/Sell Closing Date, the entire assets of the Company were sold at a cash price equal to 97% of the Stated Value (without further adjustment for commissions and transaction costs), Profit, Loss, and other items of income, gain, loss or deduction were allocated among the Members in accordance with Article V, and appropriate distributions were made pursuant to Section 13.3(d). For purposes of determining the amount of the deemed gross proceeds available for distribution pursuant to Section 13.3(d), the deemed gross proceeds are first applied against Company trade payables and Company liabilities (including the funding of an appropriate reserve for contingent liabilities in the amount set forth in the Notice) as of the Buy/Sell Closing Date.

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(iii)     The Respondent shall have 60 days from its receipt of the Notice to elect by written notice given to Movant: (A) to accept Movant’s offer to buy all of Respondent’s Membership Interest for the purchase price determined pursuant to Section 11.9(b)(ii) above; or (B) to accept Movant’s offer to sell all of Movant’s Membership Interest for the purchase price determined pursuant to Section 11.9(b)(ii) above (the 60-day period of time that the Respondent has to respond to a Notice is referred to herein as the “Response Period”).

(iv)     (A)     If the Respondent fails to respond within the Response Period, then the Respondent shall be deemed to have accepted Movant’s offer to buy all of Respondent’s Membership Interest for the purchase price determined pursuant to Section 11.9(b)(ii) above.

(B)     The selling Members shall assign all of their Membership Interests to the purchasing Members by written assignment with commercially reasonable representations and warranties in a form reasonably acceptable to the purchasing Members. Except as otherwise provided herein, such assignment shall be prepared in a recordable form mutually acceptable to the parties. Subject to Section 11.9(b)(iv)(E), the selling Members shall convey their entire Membership Interests, free and clear of all liens, claims and encumbrances, and the selling Members shall execute and deliver to the purchasing Members all documents which may be required to give effect to the sale and purchase of such Membership Interests.

(C)     The documents and instruments of conveyance shall also include the indemnification of each selling Member by each purchasing Member from and against any and all liabilities relating to the Membership Interest of each selling Member accruing before or after the Buy/Sell Closing Date (including contingent liabilities that the purchasing Members had knowledge of and/or that the purchasing Members could have had knowledge of after reasonable inquiry and/or contingent liabilities that the selling Members had disclosed to the purchasing Members prior to the Offer), but excluding liabilities resulting from Bad Conduct, Uncured Bad Conduct, Material Breach and/or the breach of fiduciary duty of a selling Member and/or liabilities that could not properly be taken into account under this Section 11.9 because of a Member’s failure to provide information required to be provided by such Member under this Agreement or because of a breach of a Member’s duty under this Agreement. If any selling Member (or any Affiliate of a selling Member) has any liability, contingent or otherwise, on any Company indebtedness, then except for that portion of such liabilities resulting from the Bad Conduct, Uncured Bad Conduct, Material Breach and/or a breach of fiduciary duty, of the selling Member and/or its Affiliate, the purchasing Members shall take such actions as may be required to obtain a release of the selling Member and its Affiliates from any such liability on or prior to the Buy/Sell Closing Date.

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(D)     The purchase price to be paid to the selling Members shall be payable entirely in cash at closing.

(E)     Notwithstanding anything to the contrary in this Section 11.9, the rights and obligations of the Members under Section 7.15 shall survive the closing of a buy/sell transaction under this Section 11.9 which is initiated by NB after the occurrence of a Removal Event or which is initiated by TNHC.

(v)      The actual conveyance shall take place on the date (the “Buy/Sell Closing Date”) that is 60 days after the earlier of the following dates: (A) the date of delivery to the Movant of the response from the Respondent, or (B) the expiration of the Response Period.

(vi)     From and after the date on which a Notice has been delivered until the Buy/Sell Closing Date, no Member shall take any action to cause or permit the sale of the assets of the Company (except pursuant to a written contract executed by Movant and Respondent prior to the date of the Notice), enter into any binding agreement, make any new finance commitments on behalf of the Company, or take any other action that could materially affect the interests of the Company (including the Stated Value of any of the Company’s assets) or its Members, unless such action has been approved in writing by the Executive Committee as a Supermajority Major Decision. The Managing Member, however, may continue to conduct the day-to-day operations of the Company (subject to the limitations set forth in this Agreement) in a careful and prudent manner so long as the Managing Member provides weekly updates to each of the other Members of the status of Company affairs, including the Stated Value of the Company’s assets, the amount of any Company liabilities and any changes in such liabilities, and the existence of any new contingent liabilities. Furthermore, no Member shall sell any assets of the Company or acquire additional assets of the Company other than those assets necessary and incidental to the general administration of the Company.

11.10  Specific Performance and Other Remedies.

(a)      It is expressly agreed that the remedy at law for breach of any of the obligations to transfer a Membership Interest is inadequate in view of: (i) the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of a Member to comply fully with each of said obligations, and (ii) the uniqueness of the Company business and the Company relationship. Accordingly, each of the aforesaid obligations to transfer and/or convert a Membership Interest shall be, and is hereby expressly made, enforceable by specific performance.

(b)      If a Member is a purchasing Member pursuant to Section 11.9, and such Member defaults on its obligation to purchase the Membership Interests of the selling Members (the purchasing Member that so defaulted is referred to as the “Defaulting Purchaser” and the selling Members are referred to as the “Innocent Seller”), then the

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Innocent Seller shall, in addition to the remedy of specific performance set forth in Section 11.10(a) above, have the following rights and remedies against the Defaulting Purchaser:

(i)       The Innocent Seller may, within 90 days after the date on which the Defaulting Purchaser defaulted on its obligation under Section 11.9, elect to purchase the Membership Interests of the Defaulting Purchaser and its Affiliates. The actual price to be paid by such Innocent Seller shall be recomputed by using a Stated Value that is 80% of the Stated Value for all of the Company’s assets that was used in determining the purchase price that the Defaulting Purchaser could have paid to purchase the Membership Interests of the Innocent Seller. The actual price to be paid by the Innocent Seller to the Defaulting Purchaser shall then be redetermined pursuant to Section 11.9(b)(ii) using this reduced Stated Value. The Innocent Seller may exercise its right pursuant to this Section 11.10(b)(i) by giving the Defaulting Purchaser 15 days’ prior written notice of its intent to purchase the Membership Interest of the Defaulting Purchaser. The remaining provisions of Section 11.9 shall then apply in connection with the Innocent Seller’s consummation of the purchase of the Membership Interest of the Defaulting Purchaser; and

(ii)      In the alternative, the Innocent Seller may pursue all other legal and equitable remedies against the Defaulting Purchaser, including a suit for damages.

(c)      If a Member is a Selling Member pursuant to this Section 11.9 and such Member defaults on its obligation to sell its Membership Interests (the selling Member that so defaults is referred to as the “Defaulting Seller” and the purchasing Member is referred to as the “Innocent Purchaser”), then the Innocent Purchaser may: (i) abandon the purchase and sale contemplated by Section 11.9 and carry forward as if the applicable Notice had not been delivered, (ii) enforce specific performance of the sale contemplated by Section 11.9, or (iii) exercise any remedy to which it may be entitled at law or in equity. If the Innocent Purchaser shall not have used one or more of the options described in the preceding clauses (i) through (iii) of this Section 11.10(c) within six (6) months after the default by the Defaulting Seller, then the Innocent Purchaser shall be deemed to have elected the option described in Section 11.10(c)(i).

11.11  Call Right.

(a)      At any time following a Call Event, the Member that is not the subject of the Call Event (the “Calling Member”) shall have the right (the “Call Right”) to purchase all of the Membership Interests (collectively, the “Call Interest”) of the Member who was the subject of the Call Event and any Affiliates of such Member (collectively, the “Called Member”) in the manner described in this Section 11.11.

(b)      If the Calling Member elects to institute the procedures set forth in this Section 11.11, then the Calling Member shall deliver a notice (a “Call Notice”) to the Called Member.

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(c)      The Call Notice shall contain: (i) a written statement that the Calling Member desires to exercise the Call Right under this Section 11.11 (ii) the Calling Member’s proposed determination of the Fair Market Value of the Call Interest; and (iii) the name of the Qualified Appraiser (the “First Call Appraiser”) to be engaged by the Calling Member to determine the Fair Market Value of the Call Interest if the Calling Member and the Called Member cannot otherwise agree on such Fair Market Value. For purposes of this Section 11.11, the Fair Market Value of the Call Interests shall exclude any value attributable to Section 7.15 and/or the Davis City Opportunity.

(d)      Within thirty (30) days after the Called Member’s receipt of the Call Notice, the Called Member shall take either of the following actions: (i) accept (by written notice given to the Calling Member) the Fair Market Value proposed by the Calling Member, or (ii) engage a second Qualified Appraiser (the “Second Call Appraiser”) to determine the Fair Market Value of the Call Interest. If the Called Member does not object to the Calling Member’s proposed Fair Market Value within such thirty (30) day period and/or does not engage a Second Call Appraiser, then the Called Member will be deemed to have accepted the Calling Member’s proposed Fair Market Value of the Call Interests.

(e)      If the Calling Member and the Call Member cannot agree on the Fair Market Value of the Call Interests pursuant to Section 11.11(d), then the appraisal procedures set forth in this Section 11.11(e) shall be used to determine such Fair Market Value:

(i)       The First Call Appraiser and the Second Call Appraiser shall each determine the Fair Market Value of the Call Interests within 30 days after the engagement of the Second Call Appraiser. If the Fair Market Value determinations of the First Call Appraiser and the Second Call Appraiser differ by an amount equal to or less than 10% of the higher of the two determinations of the Fair Market Value, then the Fair Market Value shall equal the arithmetic average of the two determinations (which shall be binding on the Calling Member and the Called Member).

(ii)      If the Fair Market Value determinations of the First Call Appraiser and the Second Call Appraiser differ by an amount that is more than 10% of the higher of the two determinations of the Fair Market Value, then each of the First Call Appraiser and the Second Call Appraiser shall promptly submit a list of three other Qualified Appraisers to each other.

(A)     If the name of one Qualified Appraiser appears on both the list submitted by the First Call Appraiser and the list submitted by the Second Call Appraiser, then such Qualified Appraiser shall be selected to determine the Fair Market Value of the Call Interests (the Qualified Appraiser selected pursuant to this Section 11.11(e)(ii) to determine the Fair Market Value of the Call Interests shall be referred to as the “Third Call Appraiser”).

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(B)     If the name of more than one Qualified Appraiser appears on both the list submitted by the First Call Appraiser and the list submitted by the Second Call Appraiser, then the Qualified Appraiser who appears on both such lists and whose surname is first in an alphabetical list of the Qualified Appraisers who appear on both such lists shall be selected as the Third Call Appraiser.

(C)     If the name of no Qualified Appraisers appears on both the list submitted by the First Call Appraiser and the list submitted by the Second Call Appraiser, then one Qualified Appraiser shall be drawn by lot from the six Qualified Appraisers by a representative of the Called Member in the presence of a representative of the Calling Member, and the Qualified Appraiser whose name is so drawn shall be the Third Call Appraiser.

(D)     If either of the First Call Appraiser or the Second Call Appraiser fails to submit the names of any Qualified Appraisers, then the First Call Appraiser or the Second Call Appraiser, as the case may be, who submitted the names of one or more Qualified Appraisers shall select the Third Call Appraiser from the names submitted by such First Call Appraiser or Second Call Appraiser, as the case may be.

(E)     The Third Call Appraiser shall determine the Fair Market Value of the Call Interests within 30 days after the engagement of such Third Call Appraiser. After the Third Call Appraiser has completed its appraisal of the Call Interests, the Fair Market Value of the Call Interests shall then equal the arithmetic average of the two appraisals that are closest together. Such Fair Market Value determination shall be binding on the Called Member and the Calling Member.

(iii)     To the extent applicable, the costs of the First Call Appraiser shall be borne by the Calling Member, the costs of the Second Call Appraiser shall be borne by the Called Member, and the costs of the Third Call Appraiser, if any, shall be shared equally by the Calling Member and the Called Member.

(f)       The purchase price (the “Call Price”) for the Call Interest shall be: (i) with respect to a Call Event that results from the Bankruptcy of a Member, an amount equal to the Fair Market Value of the Call Interest as determined pursuant to Section 11.11(d) or Section 11.11(e); and (ii) with respect to any other Call Event, an amount equal to the product of: (A) 0.80; multiplied by (B) the Fair Market Value of the applicable Call Interest as determined pursuant to Section 11.11(d) or Section 11.11(e). The Call Price shall be paid in cash or other immediately available funds on the Call Closing Date.

(g)       The closing of the sale of the Call Interests pursuant to this Section 11.11 shall occur within 15 days after the Fair Market Value of the Call Interests has been determined pursuant to Section 11.11(d) or Section 11.11(e), as applicable (the “Call Closing Date”). At such closing, the Called Member shall deliver such documents as the

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Calling Member may reasonably request to transfer good and indefeasible title to the Call Interests. The Called Member shall transfer its Membership Interest free and clear of all liens, security interests, claims, and encumbrances.

11.12  NB Put Option.

(a)       At any time after a Call Event has occurred with respect to TNHC, NB shall have the right (the “Put Right”) to cause the Company to purchase all but not less than all of the Membership Interest of NB and its Affiliates in the manner described in this Section 11.12.

(b)      If NB desires to sell the Membership Interest of NB and its Affiliates to the Company pursuant to this Section 11.12, then NB shall deliver a written notice (the “Put Notice”) to the Managing Member.

(c)      The Put Notice shall contain: (i) a written statement that NB desires to exercise the Put Right under this Section 11.12; (ii) NB’s proposed determination of the Fair Market Value of the Membership Interest of NB (the “NB Interest FMV”); (iii) NB’s proposed determination of the Fair Market Value of the Membership Interest of TNHC and its Affiliates (the “TNHC Interest FMV”) and (iv) the name of the Qualified Appraiser (the “First Put Appraiser”) to be engaged by NB to determine the NB Interest FMV and the TNHC Interest FMV if TNHC, on behalf of the Company, and NB cannot otherwise agree on the NB Interest FMV and the TNHC Interest FMV. For purposes of this Section 11.12, the NB Interest FMV and the TNHC Interest FMV shall exclude any value attributable to Section 7.15 and the Davis City Opportunity.

(d)      Within 30 days after the Company’s receipt of the Put Notice, TNHC shall take either of the following actions: (i) accept (by written notice given to NB) the NB Interest FMV and the TNHC Interest FMV proposed by NB, or (ii) engage a second Qualified Appraiser (the “Second Put Appraiser”) to determine the NB Interest FMV and the TNHC FMV. If TNHC does not object to NB’s proposed NB Interest FMV and the TNHC FMV within such 30 day period and/or does not engage a Second Put Appraiser, then TNHC will be deemed to have accepted NB’s proposed NB Interest FMV and TNHC Interest FMV.

(e)      If TNHC and NB cannot agree on the NB Interest FMV and the TNHC Interest FMV pursuant to Section 11.12(d), then the appraisal procedures set forth in this Section 11.12(e) shall be used to determine the NB Interest FMV and the TNHC Interest FMV:

(i)       The First Put Appraiser and the Second Put Appraiser shall each determine the NB Interest FMV and the TNHC Interest FMV within 30 days after the engagement of the Second Put Appraiser. If the NB Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount equal to or less than 10% of the higher of the two determinations of the NB Interest FMV, and if the TNHC Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount equal to or less than

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10% of the higher of the two determinations of the TNHC Interest FMV, then the NB Interest FMV and the TNHC Interest FMV shall equal the arithmetic average of the applicable two determinations (which shall be binding on NB and the Company).

(ii)      If:  (A)  the NB Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount that is more than 10% of the higher of the two determinations of the NB Interest FMV; or (B) if the TNHC Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount that is more than 10% of the higher of the two determinations of the TNHC Interest FMV, then each of the First Put Appraiser and the Second Put Appraiser shall promptly submit a list of three other Qualified Appraisers to each other.

(A)     If the name of one Qualified Appraiser appears on both the list submitted by the First Put Appraiser and the list submitted by the Second Put Appraiser, then such Qualified Appraiser shall be selected to determine the NB Interest FMV and the TNHC Interest FMV (the Qualified Appraiser selected pursuant to this Section 11.12(e)(ii) to determine the NB Interest FMV and the TNHC Interest FMV shall be referred to as the “Third Put Appraiser”).

(B)     If the name of more than one Qualified Appraiser appears on both the list submitted by the First Put Appraiser and the list submitted by the Second Put Appraiser, then the Qualified Appraiser who appears on both such lists and whose surname is first in an alphabetical list of the Qualified Appraisers who appear on both such lists shall be selected as the Third Put Appraiser.

(C)     If the name of no Qualified Appraisers appears on both the list submitted by the First Put Appraiser and the list submitted by the Second Put Appraiser, then one Qualified Appraiser shall be drawn by lot from the six Qualified Appraisers by a representative of NB in the presence of a representative of TNHC, and the Qualified Appraiser whose name is so drawn shall be the Third Put Appraiser.

(D)     If either of the First Put Appraiser or the Second Put Appraiser fails to submit the names of any Qualified Appraisers, then the First Put Appraiser or the Second Put Appraiser, as the case may be, who submitted the names of one or more Qualified Appraisers shall select the Third Put Appraiser from the names submitted by such First Put Appraiser or Second Put Appraiser, as the case may be.

(E)     The Third Put Appraiser shall determine the NB Interest FMV and the TNHC Interest FMV within 30 days after the engagement of such Third Put Appraiser. After the Third Put Appraiser has completed its determination of the NB Interest FMV and the TNHC Interest FMV, the

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NB Interest FMV shall be the arithmetic average of the two appraisals of the NB Interest FMV that are closest together and the TNHC Interest FMV shall be the arithmetic average of the two appraisals of the TNHC Interest FMV that are closest together. Such NB Interest FMV and the TNHC Interest FMV determination shall be binding on NB and the Company.

(iii)     To the extent applicable, the costs of the First Put Appraiser shall be borne by NB, the costs of the Second Put Appraiser shall be borne by TNHC, and the costs of the Third Put Appraiser, if any, shall be shared equally by NB and TNHC.

(f)       The purchase price (the “Put Price”) for NB’s Membership Interest, as determined pursuant to Section 11.12(d) or Section 11.12(e), shall be an amount equal to the sum of: (i) the NB Interest FMV; plus (ii) the product of: (A) 0.20; multiplied by (B) 90% of the TNHC Interest FMV (with no further allowance for avoided transaction costs). The Put Price shall be paid in cash or other immediately available funds on the Put Closing Date.

(g)      The closing of the sale of the Membership Interest pursuant to this Section 11.12 shall occur within 15 days after the NB Interest FMV and the TNHC Interest FMV has been determined pursuant to Section 11.12(d) or Section 11.12(e), as applicable (the “Put Closing Date”). At such closing, NB shall deliver such documents as the Company may reasonably request to transfer good and indefeasible title to NB’s Membership Interest. NB shall transfer its Membership Interest free and clear of all liens, security interests, claims, and encumbrances.

ARTICLE XII

REMOVAL OF MANAGING MEMBER

12.1    Removal Events.  If one of the events described in this Section 12.1 occurs (any such event is referred to as a “Removal Event”), then any representative on the Executive Committee that has been designated by NB, may, in its sole discretion, elect to remove TNHC as the Managing Member in the manner described in this Article XII and, if removed, TNHC will suffer certain other consequences set forth in Section 12.3. A Removal Event for these purposes occurs if TNHC has engaged in Bad Conduct or Uncured Bad Conduct, has committed a Material Breach, has committed a Material Monetary Default, has become a Defaulting Purchaser under this Agreement, or has suffered a Bankruptcy or if TNHC Realty has engaged in TNHC Realty Bad Conduct. Notwithstanding anything in this Agreement to the contrary, no TNHC Reorganization shall constitute a Removal Event so long as: (a) two or more of the Individual TNHC Members remain as partner(s), member(s), shareholder(s) or officer(s) of the entity resulting from such TNHC Reorganization; (II) such two or more Individual TNHC Members continue to have significant managerial responsibility over the Company and the Project; and (III) at least one of such Individual TNHC Members serves as TNHC’s representative on the Executive Committee.

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12.2    Removal of Managing Member.  Upon the occurrence of a Removal Event, any representative on the Executive Committee designated by NB may, in its sole discretion, elect to remove TNHC by delivering a written notice (the “Removal Notice”) to TNHC at any time after the occurrence of such Removal Event. The removal of TNHC shall be effective immediately after the delivery of the Removal Notice to TNHC. A Person designated by the representatives on the Executive Committee appointed by NB shall replace TNHC as the sole Managing Member upon any such removal.

12.3    Consequences of Removal.  If TNHC is removed as the Managing Member pursuant to a Removal Event described in Section 12.1, then in addition to the rights of the other Members under Section 4.3 and applicable law, the following remedies and/or consequences shall take effect (to the extent applicable) immediately after the Removal Notice is delivered to TNHC:

(a)      TNHC’s representative to the Executive Committee shall automatically be removed and TNHC shall have no right to participate in the management of the Company or to appoint representatives to the Executive Committee;

(b)      TNHC’s Percentage Interest shall be reduced by 15 “whole” percentage points (i.e., if TNHC had a 50% Percentage Interest prior to the occurrence of the Removal Event, then after TNHC had been removed, TNHC’s Percentage Interest would be reduced from 50% to 35%). The Members acknowledge and agree that the Percentage Interest of the new Managing Member shall be increased by the same 15% that was forfeited by TNHC.

(c)      TNHC shall no longer have the right to receive the TNHC Management Fee pursuant to Section 7.8(b), the Construction Contract and the Sales and Marketing Agreement shall immediately be terminated on the delivery of the Removal Notice, and TNHC, its Affiliates, TNHC Realty, and all other Project Employees shall be released from all duties accruing thereafter with respect to the Project (other than any obligation TNHC may have under this Agreement to contribute capital to the Company and the obligation of TNHC and TNHC Realty to assist (and to cause its Affiliates to assist) in all reasonable respects for 60 days following such termination with a transition in management and a transfer of all applicable books and records to the Person designated as the new Managing Member);

(d)      In connection with the termination of any agreements between TNHC (and/or its Affiliates) and the Company (including the Construction Contract and the Sales and Marketing Agreement), the Company may offset payment of all reimbursements to TNHC and/or to its Affiliates pursuant to any such agreements and/or pursuant to Section 7.5 hereof against amounts that TNHC or its Affiliates may owe the Company.

12.4    Cooperation.  TNHC shall fully cooperate with the other Member by executing all documents, providing all information, and taking or refraining from taking such other action as may be necessary or appropriate to evidence its removal as the Managing Member, and the substitution of a Person designated by the representatives on the Executive Committee appointed

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by NB as the new Managing Member. If, however, TNHC fails or refuses to execute any such instruments, TNHC shall be deemed to have constituted and appointed the representatives on the Executive Committee appointed by NB as its true and lawful agent and attorney-in-fact with full power of substitution and with full power and authority to execute such instruments as such other Person deems necessary or desirable to effectuate the removal of TNHC and the substitution of such other Person as the new Managing Member. The foregoing power of attorney is hereby declared to be irrevocable and coupled with an interest, and it shall survive the dissolution or liquidation of TNHC, and upon the transfer of its Membership Interest, shall extend to the successors and assigns of TNHC.

12.5    Consent to Remedies.  The Members acknowledge and agree that the remedies set forth in this Article XII are not the exclusive remedies available to a Member if TNHC commits or is alleged to have committed a Removal Event. In addition to the remedies described herein, a Member shall continue to have all other legal and equitable remedies available against TNHC or an Affiliate of TNHC (including a suit for damages and/or if applicable, a suit for specific performance) if TNHC (and/or any Person that is an Affiliate of TNHC) commits or is alleged to have committed a Removal Event.

ARTICLE XIII

DISSOLUTION AND LIQUIDATION

13.1    Dissolution.

(a)      Except as set forth in this Agreement, no Member shall have the right to terminate this Agreement or to dissolve the Company by its express will or by withdrawal without the consent of the other Members.

(b)      The Company shall be dissolved upon the first to occur of any of the following events and/or on the following dates (each such event is referred to as a “Dissolution Event”):

(i)       the entry of a decree of judicial dissolution under section 18-802 of the Delaware Act;

(ii)      an election to dissolve the Company is approved in writing by the Executive Committee (as a Supermajority Majority Decision);

(iii)     The sale or other disposition by the Company of all or substantially all of the Company’s assets and the collection by the Company and distribution to the Members of the proceeds from such sale (whether proceeds shall be cash, notes, or other property) pursuant to this Agreement; or

(iv)     Any other event causing a dissolution of the Company as described in section 18-801 of the Delaware Act (it being recognized that an event causing a dissolution of the Company as described in section 18-801 of the Delaware Act that can be altered or eliminated by an agreement of the Members, shall be deemed to be altered or eliminated and not included in this Section 13.1(b)(iv).

(c)      Upon the occurrence of a Dissolution Event, the Company shall conduct only those activities necessary to wind up its affairs.

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13.2    Liquidation.

(a)      Upon dissolution of the Company, a Person selected by the Executive Committee shall serve as the liquidator (the “Liquidator”) of the Company.

(b)      Upon dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by the Executive Committee. The right to appoint a successor or substitute Liquidator in the manner provided herein shall be recurring and continuing for so long as the functions and services of the Liquidator are authorized to continue under the provisions hereof, and every reference herein to the Liquidator will be deemed to refer also to any such successor or substitute Liquidator appointed in the manner herein provided.

(c)      Except as expressly provided in this Article XIII, the Liquidator appointed in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Managing Member under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, including the limitations set forth in Section 7.3) to the extent necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding up and liquidation of the Company as provided for herein.

(d)      The Liquidator, with the approval of the Executive Committee, shall liquidate the assets of the Company, and, after making all allocations and distributions otherwise required by this Agreement and approved by the Executive Committee, shall apply and distribute the net proceeds of such liquidation in the following order of priority:

(i)       to the creditors of the Company, including Members, in the order of priority provided by applicable law; and

(ii)      to the Members in the same manner and order of priority as provided for distributions under Section 6.1; provided, however, that the Liquidator may place in escrow a reserve of cash or other assets of the Company for contingent liabilities in an amount determined by the Executive Committee to be appropriate for such purposes.

13.3    Reserves.   After all of the assets of the Company have been distributed, the Company shall terminate. If at any time thereafter any funds in any cash reserve fund referred to in Section 13.2(d) are released because the need for such cash reserve fund has ended, such funds shall be distributed to the Members in the same manner as if such distribution had been made pursuant to Section 13.2(d).

75 Amended and Restated LLC    Agreement of TNHC Newport LLC

13.4    Distribution in Kind.   Notwithstanding the provisions of Section 13.2, which require the liquidation of the assets of the Company, but subject to the order of priorities set forth therein, if upon the dissolution of the Company the Executive Committee determines that an immediate sale of part or all of the Company’s assets would be impractical or would cause undue loss to the Members, the Liquidator may, in good faith, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Company (other than those to Members). The Liquidator may distribute to the Members, in lieu of cash, such Company assets as the Liquidator and the Executive Committee deem not suitable for liquidation. Any distributions in kind shall be subject to such conditions relating to the disposition and management thereof as the Liquidator and the Executive Committee deem reasonable and equitable. The Liquidator shall value any property distributed in kind based upon such property’s fair market value as determined by the Liquidator and the Executive Committee using such reasonable method of valuation as it may adopt.

13.5    Disposition of Documents and Records.   All documents and records of the Company, including, without limitation, all financial records, vouchers, canceled checks and bank statements, shall be delivered to the Managing Member upon termination of the Company. Any Member may at any time exercise its rights to audit the Company’s books and records after the liquidation and dissolution of the Company. Any such audit shall commence immediately after such notice is delivered to the Managing Member. Unless otherwise approved by the Executive Committee, the Managing Member shall retain such documents and records for a period of not less than 7 years and shall make such documents and records available after reasonable notice during normal business hours to any other Member for inspection and copying at the other Member’s cost and expense.

13.6    Cancellation of Certificate of Formation.  Upon the completion of the distribution of Company property as provided in Sections 13.2, 13.3, and 13.4, the Company shall be terminated, and the Liquidator (or the Members if necessary) shall cause the cancellation of the Certificate of Formation in the State of Delaware and shall take such other actions as may be necessary to terminate the Company.

13.7    Return of Capital.   No Member shall be personally liable for the return of the Capital Contributions of any other Member, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.

13.8    Waiver of Partition.  Each Member hereby waives any rights to partition of the Company property.

ARTICLE XIV

AMENDMENT OF AGREEMENT

14.1    Amendment Procedures.

(a)      Amendments to this Agreement may be proposed by any Member, which shall give written notice to all Members of the text of such amendment, together with a statement of the purpose of such amendment.

(b)      Proposed amendments to this Agreement shall be adopted only if they have been approved in writing by each Member. The Managing Member shall, within a reasonable time after the adoption of any amendment to this Agreement, make official filings or publications required or desirable to reflect such amendment, including any required filing for recordation of any parallel amendment to the Certificate of Formation.

76 Amended and Restated LLC    Agreement of TNHC Newport LLC

ARTICLE XV

GENERAL PROVISIONS

15.1    Addresses and Notices.    Any notice provided in or permitted under this Agreement shall be made in writing and may be given or served by: (a) delivering the same in person to the party to be notified; (b) depositing the same in the mail, postage prepaid, registered or certified with return receipt requested, and addressed to the party to be notified at the address herein specified; (c) delivering the same on a prepaid basis via a nationally recognized courier service, such as FedEx; or (d) sending the same by facsimile transmission, followed by delivery of a hard copy via a nationally recognized courier service, such as FedEx. If notice is deposited in the mail pursuant to this Section 15.1, it will be deemed received on the 4^th Business Day after it is so deposited. Notice given in any other manner shall be deemed received only if and when actually received by the party to be notified. For the purpose of notice, the address of the parties shall be, until changed as hereinafter provided for, as follows:

If to NB:	NB Residences, LLC
	3090 Olive Street, Suite 300
	Dallas, Texas 75219-7640
	Attn: Scott Norman
	Fax No.: 972.201.2889
With a copy to:	Hillwood West
	6-B Liberty, Suite 140
	Aliso Viejo, California 92656
	Attn: L.M. Cummings
	Fax No.: 972.201.2889
With a copy to:	Haynes and Boone, LLP
	2323 Victory Ave., Suite 700
	Dallas, Texas 75219
	Attn: Scott Drablos
	Fax No.: 214.200.0759
If to TNHC:	TNHC Meridian Investors LLC
	95 Enterprise, Suite 325
	Aliso Viejo, CA 92656
	Attn: Thomas Redwitz
	Fax No.: 949.382.7801

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With a copy to:	The New Home Company LLC
	95 Enterprise, Suite 325
	Aliso Viejo, CA 92656
	Attn: Wayne Stelmar
	Fax No.: 949.382.7801
With a copy to:	Dzida, Carey & Steinman
	3 Park Plaza, Suite 750
	Irvine, California 92614
	Attn: Steven J. Dzida
	Fax No.: 949.399.0363

The parties shall have the right from time to time and at any time to change their respective addresses and each shall have the right to specify as its address any other address by at least 15 days’ prior written notice to the other parties. Each party shall have the right from time to time to specify additional parties to whom notice hereunder must be given by delivering to the other party 15 days’ prior written notice thereof, setting forth the address of such additional parties. Notice required to be delivered hereunder to any party shall not be deemed to be effective until the additional parties, if any, designated by such party have been given notice in a manner deemed effective pursuant to the terms of this Section 15.1.

15.2    Titles and Captions.  All article and section titles and captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” and “Sections” are to Articles and Sections of this Agreement.

15.3    Pronouns and Plurals.  Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The locative adverbs “hereof,” “herein,” “hereafter,” etc. refer to this Agreement as a whole.

15.4    Further Action.  The parties shall execute all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

15.5    Binding Effect.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

15.6    Integration.  This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

15.7    No Third Party Beneficiary.   This Agreement is made solely and specifically between and for the benefit of the parties hereto, and their respective successors and assigns subject to the express provisions hereof relating to successors and assigns, and no other Person

78 Amended and Restated LLC    Agreement of TNHC Newport LLC

whatsoever shall have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. It is expressly understood that the right of the Company or the Members to require any additional Capital Contributions under the terms of this Agreement shall not be construed as conferring any rights or benefits to or upon any Person not a party to this Agreement, including but not limited to, the holder of any obligations secured by a mortgage, deed of trust, security interest or other lien or encumbrance upon or affecting the Company or any interest of a Member therein.

15.8    Waiver.   No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

15.9    Counterparts.   This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or, in the case of a transferee, upon executing and delivering such documents as required by the Executive Committee.

15.10  Applicable Law.   This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.

15.11  Invalidity of Provisions.  If any provision of this Agreement is declared or found to be illegal, unenforceable or void, in whole or in part, then the parties shall be relieved of all obligations arising under such provision, but only to extent that it is illegal, unenforceable or void, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to make it legal and enforceable while preserving its intent or, if that is not possible, by substituting therefore another provision that is legal and enforceable and achieves the same objectives.

15.12  Attorneys Fees.   The prevailing party in any legal proceeding regarding this Agreement shall be entitled to recover from the other party all reasonable attorneys’ fees and costs incurred in connection with such proceeding.

15.13  Computation of Time.  The time periods provided for in this Agreement shall be computed by excluding the first day and including the last day. All periods of time referred to in this Agreement shall include all Saturdays, Sundays and national holidays unless the period of time specified is Business Days; provided, however, that if the date of the last day to perform any act or to give any notice with respect to this Agreement shall fall on a Saturday, a Sunday, or a national holiday, then such act or notice may be timely performed or given on the next succeeding day which is not a Saturday, Sunday, or national holiday.

15.14  Representations and Warranties.  Each of the Members severally and not jointly represents and warrants to the Company and each other Member as follows (which representations and warranties shall survive the Effective Date):

(a)      Such Member has full power and authority to enter into and to perform this Agreement in accordance with its terms.

79 Amended and Restated LLC    Agreement of TNHC Newport LLC

(b)      This Agreement has been duly executed and delivered by such Member and constitutes the valid and binding obligation of such Member, enforceable against such Member in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights, or by general equity principles).

(c)      Such Member is an “accredited investor,” as such term is defined in Regulation D promulgated under the Securities Act and has executed and delivered such documents in evidence thereof as the Company has reasonably requested.

(d)      Such Member has been furnished access to the business and financial records of the Company and such additional information and documents as such Member has requested, and has been afforded an opportunity to ask questions of, and receive answers from, representatives of the Company concerning the terms and conditions of this Agreement, the Membership Interests, the Project Documents, operations, capitalization, financial condition, and prospects of the Company, and all other matters deemed relevant to Members.

(e)      Such Member is acquiring Membership Interests for its own account for investment purposes only, and not with a view to resale or distribution. Such Member has no present intention to distribute or sell the Membership Interests. Such Member has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness, or commitment providing for the Transfer of any of the Membership Interests and understands that the same are prohibited or restricted by this Agreement.

(f)      Such Member understands that the Membership Interests have not been registered under the Securities Act or the laws of any state, and that the Membership Interests may not be Transferred without compliance with the provisions of this Agreement, the Securities Act, and applicable state securities laws.

(g)      Such Member has sufficient knowledge and experience in financial or business matters to evaluate the merits and risks of an investment in the Membership Interests. Such Member can afford to bear the economic risk of holding the Membership Interests for an indefinite period of time and can afford to suffer the complete loss of the investment in the Membership Interests. Such Member understands that due to the substantial restrictions on the transferability of the Membership Interests and the lack of a public market, it may not be possible for such Member to liquidate the investment in the Membership Interests in the case of emergency, if at all.

(h)      Such Member has no knowledge that amounts paid or contributed to such Member were directly or indirectly derived from, or related to, any activity that is deemed criminal under the laws of any applicable jurisdiction, including, without limitation, anti-money laundering laws.

80 Amended and Restated LLC    Agreement of TNHC Newport LLC

(i)       Such Member does not have any knowledge that such Member is: (i) a country, territory, person or entity named on the list provided by the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”) or its website at www.treas.gov/ofac; or (ii) a foreign political figure or an immediate family member or close associate of a senior foreign political figure (a “High Risk Person”).

(j)       Such Member is in compliance with all applicable laws and regulations relating to the prevention of money-laundering, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, the regulations thereunder, and other applicable anti-money laundering laws and regulations of any applicable jurisdiction.

(k)      Such Member does not transact with entities or individuals that are subject to economic sanctions administered by OFAC, High Risk Persons or Prohibited Investors.

15.15  Confidentiality.

(a)      The Members acknowledge and agree that the Company is a private investment company. No Member shall disclose the terms of this Agreement to any other Person without first obtaining the consent of the representative(s) on the Executive Committee of the other Member. The Members also agree that they shall not disclose, via public announcements, press releases, interviews, or otherwise, any financial statements or financial information, any business, financial, or operational plans, any financial or other analysis, or any summaries, strategies, pro formas, valuations, agreements, plans, or projections of or pertaining to the Company or any other proprietary information of the Company (defined to include all information not previously publicly disclosed by the Company) unless such Member first obtains the consent of the representative(s) on the Executive Committee of the other Member, which consent shall not unreasonably be withheld and except: (i) as may be required by applicable law; or (ii) as may be required in connection with a judicial proceeding. Notwithstanding anything to the contrary in this Section 15.15(a), a Member may disclose (without the consent of any Member) the terms of this Agreement, any financial statements, or financial information, any business, financial, or operational plans, any financial or other analysis, or any summaries, strategies, pro formas, valuations, agreements, plans, or projections of or pertaining to the Company or any other proprietary information of the Company (including the names and description of the Members) to lenders, prospective lenders, investors, prospective investors, governmental authorities, and the employees, legal, accounting, financial, and business advisors and representatives of such Member and the Affiliates of such Member and such other Persons.

(b)      Any documents provided by one party to another party pursuant to this Agreement shall be kept confidential and shall not be disclosed to any Person except: (i) as may be required by applicable law; (ii) as may be required in connection with a judicial proceeding; (iii) as may be required or permitted under Section 15.15(a) above; or (iv) with the consent of the party that provided such documents to the other party.

(c)      Subject to Section 15.15(a) above, each Member covenants and agrees that it will not, during the term of its ownership of a Membership Interest and thereafter, make any disparaging remarks in public about the Company, any Member, and/or any Affiliate of a Member, unless made as part of a public court filing in connection with a judicial proceeding.

81 Amended and Restated LLC    Agreement of TNHC Newport LLC

15.16  Waiver of Jury Trial.  TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE COMPANY, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS AGREEMENT; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF THE PARTIES HERETO FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, EACH OF THE PARTIES HERETO HEREBY CERTIFIES THAT NONE OF ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OR RIGHT OF JURY TRIAL PROVISION. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION 15.16 ARE A MATERIAL INDUCEMENT TO THE ACCEPTANCE OF THIS AGREEMENT BY THE OTHER PARTIES HERETO.

[REMAINING PORTION OF PAGE LEFT INTENTIONALLY BLANK.]

82 Amended and Restated LLC    Agreement of TNHC Newport LLC

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed this Agreement as of the day and year first above written.

NB:	NB RESIDENCES, LLC, a California limited liability company
	By:
	Name:			Robert T. Vicente
	Title:		Executive Vice President
TNHC:	TNHC MERIDIAN INVESTORS LLC, a Delaware limited liability company
	By:
	Name:			H. LAWRENCE WEBB
	Title:		Executive Vice President
	By:
	Name:			TOM REDWITZ
	Title:		PRESIDENT

Signature Page 1 of 2 Amended and Restated LLC    Agreement of TNHC Newport LLC

The New Home Company Southern California, LLC has entered into this Agreement solely to evidence its withdrawal as a Member of the Company.

Dated as of this 1^st day of March, 2013.

WITHDRAWING MEMBER:	THE NEW HOME COMPANY SOUTHERN CALIFORNIA, LLC, a Delaware limited liability company
	By:
	Name:			Wayne J. Stelmar
	Title:		Chief Financial Officer

Signature Page 2 of 2 Amended and Restated LLC    Agreement of TNHC Newport LLC

EXHIBIT A

LEGAL DESCRIPTION OF PROJECT SITE

Situated in the City of Newport Beach, County of Orange, State of California, and is described as follows:

PARCEL 1, IN THE CITY OF NEWPORT BEACH, COUNT OF ORANGE, STATE OF CALIFORNIA, AS PER MAP 2004-225 FILED IN BOOK 361, PAGES 1, 2 AND 3 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, AS MODIFIED BY THE PARCEL MAP CERTIFICATE OF CORRECTION RECORDED APRIL 23, 2008 AS INSTRUMENT NO. 2008000190230 OF OFFICIAL RECORDS.

EXCEPT ANY AND ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM, AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING AND OPERATING THEREFOR AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES; WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND, AS RESERVED IN THE DEED FROM THE IRVINE COMPANY, A MICHIGAN CORPORATION, RECORDED JANUARY 4,1993 AS INSTRUMENT NO. 93-003805, OFFICIAL RECORDS.

ALSO EXCEPT ANY AND ALL WATER, RIGHTS OR INTERESTS THEREIN, NO MATTER HOW ACQUIRED BY GRANTOR, AND OWNED OR USED BY GRANTOR IN CONNECTION WITH OR WITH RESPECT TO THE LAND, TOGETHER WITH THE RIGHT AND POWER TO EXPLORE, DRILL REDRILL, REMOVE AND STORE THE SAME FROM THE LAND OR TO DIVERT OR OTHERWISE UTILIZE SUCH WATER, RIGHTS OR INTERESTS ON ANY OTHER PROPERTY OWNED OR LEASED BY GRANTOR, WHETHER SUCH WATER RIGHTS SHALL BE RIPARIAN, OVERLYING, APPROPRIATIVE, LITTORAL, PERCOLATING, PRESCRIPTIVE, ADJUDICATED, STATUTORY OR CONTRACTUAL; BUT WITHOUT, HOWEVER, ANY RIGHT TO ENTER UPON THE SURFACE OF THE LAND IN THE EXERCISE OF SUCH RIGHTS, AS RESERVED IN THE DEED FROM THE IRVINE COMPANY, A MICHIGAN CORPORATION, RECORDED JANUARY 4, 1993 AS INSTRUMENT NO 93-003805, OFFICIAL RECORDS.

APN: 442-011-68

EXHIBIT B

INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS

MEMBER	INITIAL CAPITAL CONTRIBUTION
TNHC	$2,625,000
NB	$4,875,000
Total:	$7,500,000

EXHIBIT C

TNHC INITIAL COSTS

(to be attached)

TNHC Newport LLC

Newport Beach Condo Site

Initial Capital Reconciliation

2/19/13

					Total		Notes
Pre acquisition costs TNHC					$	7,243,808	Detail attached
Pre acquisition costs Hillwood						-
Initial 30-day working capital						256,192	minimum liquidity
Total capital at JV formation					$	7,500,000
	35% TNHC		65% Hillwood		Total
Member target capital at JV formation	$	2,625,000	$	4,875,000	$	7,500,000
Current capital		7,243,808		-		7,243,808
(Distribution) Contribution at JV formation	$	(4,618,808)	$	4,875,000	$	256,192

The New Home Company

Newport Beach Site Preacquisition Costs

As of February 19, 2013

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
0104	Land Deposits	FATCO	00000167, 0001	SoCal Beg bal QB Marriott beg bal QB	12/31/2011	1,000,000
0104	Land Deposits	FATCO	00001615, 0003	Addt’l dep to Escrow, Marriott site wire out	5/8/2012	1,000,000
0104	Land Deposits	FATCO	00004471, 0001	Addt’l dep to Escrow, Marriott site	12/14/2012	1,000,000
0104	Land Deposits	FATCO	00004471, 0001	Addt’l dep to Escrow, Marriott site, IHP loan funds IHP wire directly to Escrow	12/14/2012	1,000,000
0110	Feasibility Costs	Quickbooks Beg Balance	00000167, 0001	SoCal Beg bal QB Marriott beg bal QB	12/31/2011	348,418
0110	Feasibility Costs	Newport Beach, City of	00001807, 0001	City of Newport Beach Ck # 501799 destroyed per S. Jordan void ck	5/25/2012	(679)
0115	Feasibility Legal	Dzida, Carey & Steinman	26089	Inv:26089:Dzida, Carey & Steinman Marriott- review golf course agreement	2/21/2012	5,234
0115	Feasibility Legal	Manatt, Phelps & Phillips	197784	Inv:197784:Manatt, Phelps & Phillips Jan 2012 pvs; MOA revision	2/21/2012	7,581
0115	Feasibility Legal	Payne & Fears LLP	206671	Inv:206671:Payne & Fears LLP Mariott- review Fuscoe engineering anf MVE contract	2/21/2012	1,373
0115	Feasibility Legal	Manatt, Phelps & Phillips	197784A	Inv:197784A:Manatt, Phelps & Phillips	2/28/2012	(7,581)
0115	Feasibility Legal	Manatt, Phelps & Phillips	197784B	Inv:197784B:Manatt, Phelps & Phillips voided ck#134 for $7581.10 which included duplicate pmt of $3376.35 and reissued a new check	2/28/2012	4,205
0115	Feasibility Legal	Dzida, Carey & Steinman	26703	Inv:26703:Dzida, Carey & Steinman 5/2-5/14 Prepare executive summary of revised sale agreement	6/18/2012	2,419
0115	Feasibility Legal	Dzida, Carey & Steinman	200999, 000090	Feasability Legal Hillwood Fashion Island Per Statement No. 27487	12/14/2012	1,580
0115	Feasibility Legal	Dzida, Carey & Steinman	200999, 000099	Feasability Legal costs for Newport Beach Statement No. 27635	12/26/2012	2,548
0115	Feasibility Legal	Dzida, Carey & Steinman	27750	Inv:27750:Dzida, Carey & Steinman	12/27/2012	1,857
0130	Preacq Other/Closing	Koenemann, Robin	Exp thru 1/17/12	Inv:Exp thru 1/17/12:Koenmann, Robin Airfare and Parking	2/9/2012	224
0130	Preacq Other/Closing	Abbeyside Construction, Inc.	012-014	Inv:012-014:Abbeyside Construction, Inc. Preconstruction svc per agreement	2/13/2012	14,000
0130	Preacq Other/Closing	Dzida, Carey & Steinman	25889	Inv:25889:Dzida, Carey & Steinman 12/7/11-12/29/11, Review redlinded/revised host sale agreement	2/13/2012	3,662
0130	Preacq Other/Closing	Fuscoe Engineering, Inc.	107658	Inv:107658:Fuscoe Engineering, Inc. 9/01/11-9/30/11	2/13/2012	844
0130	Preacq Other/Closing	Government Solutions	100783	Inv:100783:Government Solutions 12/1/11-12/16/11, Coordination Mtg w/ NBCC, w/ CCA, mtg w/Laura	2/13/2012	2,647
0130	Preacq Other/Closing	Government Solutions	100798	Inv:100798:Government Solutions 1/3/12-1/31/12 Coordination w/client & cith re: application requirements	2/13/2012	7,106
0130	Preacq Other/Closing	Manatt, Phelps & Phillips	194217	Inv:194217:Manatt, Phelps & Phillips SVC thru 12/31/11, Revise the 4 party agreement; review original MOU and notes from Leonie Mulvihill; Review the public benefit agreement	2/13/2012	3,376
0130	Preacq Other/Closing	MVE Studio, Inc.	32671	Inv:32671:MVE Studio, Inc. SVC thru 1/11/12, Predesign/site development	2/13/2012	26,775
0130	Preacq Other/Closing	MVE Studio, Inc.	32673	Inv:32673:MVE Studio, Inc. SVC thru 1/23/12 predesign/site development	2/13/2012	18,904
0130	Preacq Other/Closing	Payne & Fears LLP	206220	Inv:206220:Payne & Fears LLP 12/1/11-12/29/11, review emails and agreement; telcon with T. Vincent	2/13/2012	4,995
0130	Preacq Other/Closing	Redwitz, Tom	Exp thru 2/13/12	Inv:Exp thru 2/13/12:Redwitz, Tom mtg w/S. Burnham for marriott	2/24/2012	65
0130	Preacq Other/Closing	Redwitz, Tom	Exp thru 2/13/12	Inv:Exp thru 2/13/12:Redwitz, Tom Ed Selich mtg for marriott	2/24/2012	36
0130	Preacq Other/Closing	Newport Beach, City of	Ck Req 3/2/12	Inv:Ck Req 3/2/12:Newport Beach, City of Marriott, city fee	3/2/2012	1,200
0130	Preacq Other/Closing	Newport Beach, City of	Ck Req 3/5/12	Inv:Ck Req 3/5/12:Newport Beach, City of City Council Hearing	3/5/2012	290
0130	Preacq Other/Closing	Abbeyside Construction, Inc.	012-016	Inv:012-016:Abbeyside Construction, Inc. Preconstruction services per agreement Feb 2012	3/9/2012	14,000
0130	Preacq Other/Closing	Jordan, Stephen	Exp Report 3/8/12	Inv:Exp Report 3/8/12:Jordan, Stephen Southwest	3/14/2012	188
0130	Preacq Other/Closing	Jordan, Stephen	Exp Report 3/8/12	Inv:Exp Report 3/8/12:Jordan, Stephen Southwest	3/14/2012	204
0130	Preacq Other/Closing	Jordan, Stephen	Exp Report 3/8/12	Inv:Exp Report 3/8/12:Jordan, Stephen Bart	3/14/2012	20
0130	Preacq Other/Closing	Jordan, Stephen	Exp Report 3/8/12	Inv:Exp Report 3/8/12:Jordan, Stephen JWA parking	3/14/2012	80
0130	Preacq Other/Closing	Jordan, Stephen	Exp Report 3/8/12	Inv:Exp Report 3/8/12:Jordan, Stephen Westin Hotel	3/14/2012	214
0130	Preacq Other/Closing	Dzida, Carey & Steinman	26184	Inv:26184:Dzida, Carey & Steinman 2/3/12-2/22/12, Telphone from client and to seller counsel re: finalization of sale agreement	3/26/2012	1,244

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
0130	Preacq Other/Closing	Dzida, Carey & Steinman	26336	Inv:26336:Dzida, Carey & Steinman 3/1-3/16 Review NAB Councel comments to agreement, Modification of landscape easement agreement	4/17/2012	1,106
0130	Preacq Other/Closing	HHR Newport Beach LLC Attn: Mr. Gerard Haberman	PSA Section 4.4	Inv:PSA Section 4.4:HHR Newport Beach LLC PSA	5/3/2012	100
0130	Preacq Other/Closing	Dzida, Carey & Steinman	26490	Inv:26490:Dzida, Carey & Steinman 4/5-4/30 Re: execution of sale agreement; buyer claims for seller failure to execute sale agreement	5/17/2012	1,521
0130	Preacq Other/Closing	Crystal Cove Allianace	Ck Req 6/6	Inv:Ck Req 6/6:Crystal Cove Allianace GALA Underwriter Level	6/6/2012	1,000
0130	Preacq Other/Closing	Dzida, Carey & Steinman	26865	Inv:26865:Dzida, Carey & Steinman Prof Fees 6/4/12 Review four party Mou and Coastal report.	7/31/2012	119
0130	Preacq Other/Closing	Dzida, Carey & Steinman	26988	Inv:26988:Dzida, Carey & Steinman 7/13-7/31 correspondence to client & NBCC counsel re review of golf course agreement; review file re formation of developer entity; review amendment to slur; draft developer ltd liab company agreement.	8/15/2012	2,358
0130	Preacq Other/Closing	Dzida, Carey & Steinman	200999, 000038	Pre-Acquisition Legal Fees	11/14/2012	1,640
0130	Preacq Other/Closing	Franchise Tax Board	2012 CA LLC 3522	Inv:2012 CA LLC 3522:Franchise Tax Board 2012 CA LLC 3522	12/19/2012	800
1110	Civil Engr	Fuscoe Engineering, Inc.	108872	Inv:108872:Fuscoe Engineering, Inc. 2/1/12-2/29/12, Design development engineering, Feb 2012 subconsulting	3/26/2012	1,148
1110	Civil Engr	Fuscoe Engineering, Inc.	109356	Inv:109356:Fuscoe Engineering, Inc. 04/01 to 04/30 design dev engineering,Design Dev Coordination	6/6/2012	3,596
1110	Civil Engr	Fuscoe Engineering, Inc.	109664	Inv:109664:Fuscoe Engineering, Inc. Design development engineering & coordination - 5/1-31/12	6/26/2012	6,264
1110	Civil Engr	Fuscoe Engineering, Inc.	109878	Inv:109878:Fuscoe Engineering, Inc. 6/1/12-6/30/12-design development engineering & coordination, supplemental togography, plot plan, final tract map	7/24/2012	20,142
1110	Civil Engr	Fuscoe Engineering, Inc.	110219	Inv:110219:Fuscoe Engineering, Inc.	8/31/2012	16,333
1110	Civil Engr	Fuscoe Engineering, Inc.	200999, 000009	Construction Phase Engineering	11/28/2012	18,147
1110	Civil Engr	Fuscoe Engineering, Inc.	200999, 000009	Construction Phase Engineering	11/28/2012	13,581
1110	Civil Engr	Fuscoe Engineering, Inc.	200999, 000009	Construction Phase Engineering	11/28/2012	10,409
1110	Civil Engr	Fuscoe Engineering, Inc.	200999, 000009	Construction Phase Engineering	12/14/2012	25,704
1110	Civil Engr	ADS Environmental Services	200999, 000124	Total Scope of Work	2/13/2013	3,981
1110	Civil Engr	Fuscoe Engineering, Inc.	200999, 000009	Construction Phase Engineering	2/15/2013	73,258
1115	Soils & Geology	Petra Geotechnical, Inc	0053781-IN	Inv:0053781-IN:Petra Geotechnical, Inc Preliminary investigation and grading plan review for SB condos	6/12/2012	1,788
1115	Soils & Geology	Petra Geotechnical, Inc	0053963-IN	Inv:0053963-IN:Petra Geotechnical, Inc prelim investigation & grading plan review	7/13/2012	7,155
1115	Soils & Geology	Petra Geotechnical, Inc	0054144-IN	Inv:0054144-IN:Petra Geotechnical, Inc	8/15/2012	255
1115	Soils & Geology	Petra Geotechnical, Inc	200999, 000012	Total Amendment	11/14/2012	1,780
1115	Soils & Geology	Petra Geotechnical, Inc	200999, 000012	Total Amendment	11/14/2012	3,625
1115	Soils & Geology	Dzida, Carey & Steinman	27645	Inv:27645:Dzida, Carey & Steinman 11/13-11/30 -review changes to llc agreement, phone correspondence with W Stelmar re: IHP structure, confer with co-counsel re Hillwood loan	12/14/2012	2,015
1115	Soils & Geology	Petra Geotechnical, Inc	200999, 000004	Providing a geotechnical report, engineering, engineering geologic, field and laboratory services during grading and post grading.	12/14/2012	2,045
1115	Soils & Geology	Petra Geotechnical, Inc	200999, 000012	Total Amendment	12/31/2012	615
1115	Soils & Geology	Dzida, Carey & Steinman	00005863, 0001	Reclass Dzida legal to TNHC G&A Non project costs for LLC setup, Invoices 27645, 27761	2/15/2013	(2,015)
1115	Soils & Geology	Petra Geotechnical, Inc	200999, 000004	Providing a geotechnical report, engineering, engineering geologic, field and laboratory services during grading and post grading.	2/15/2013	3,968
1125	Landscape Arch	EPTDesign, Inc.	00001157, 0001	reclass from 0000 lot to Newport Condos 0003 EPT design	3/30/2012	2,260
1125	Landscape Arch	EPTDesign, Inc.	21202133	Inv:21202133:EPTDesign, Inc. Prof Services through 2/29/12 - add’l concept design and schematic design and project meetings	4/10/2012	10,886
1125	Landscape Arch	EPTDesign, Inc.	21204113	Inv:21204113:EPTDesign, Inc.	5/22/2012	14,810
1125	Landscape Arch	EPTDesign, Inc.	21205122	Inv:21205122:EPTDesign, Inc. Schematic design, design development & project meetings	6/26/2012	17,345
1125	Landscape Arch	EPTDesign, Inc.	21206112	Inv:21206112:EPTDesign, Inc. 6/1/12-6/30/12 design develop and proj meetings	7/13/2012	10,400
1125	Landscape Arch	EPTDesign, Inc.	21207128	Inv:21207128:EPTDesign, Inc.	8/28/2012	21,937
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	Remaining contract balance: Schematic and DD complete Construction Documents $46,800 Irrigation Plans $9,000 Plan Check Coordination $12,800	11/14/2012	12,700

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
				Remaining contract balance:
				Schematic and DD complete
				Construction Documents $46,800
				Irrigation Plans $9,000
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	Plan Check Coordination $12,800	11/14/2012	5,850
				Remaining balances of fees on an hourly basis Not To
				Exceed:
				1. EPTDesign Project Meetings $4,300
				2. Structural Engineering $12,000
				3. Arborist Services $5,000
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	4. Agronomic Soils Testing and Recommendations $2,500	11/14/2012	1,240
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	Not To Exceed Reimbursables remaining:	11/14/2012	2,696
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	Not To Exceed Reimbursables remaining:	11/14/2012	407
				Remaining contract balance:
				Schematic and DD complete
				Construction Documents $46,800
				Irrigation Plans $9,000
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	Plan Check Coordination $12,800	11/28/2012	16,958
				Remaining contract balance:
				Schematic and DD complete
				Construction Documents $46,800
				Irrigation Plans $9,000
1125	Landscape Arch	EPTDesign, Inc.	200999, 000032	Plan Check Coordination $12,800	12/14/2012	15,775
				To reclass cost from 0000 lot to 0003 Marriott, Newport
1140	Gov’t Consult	EPTDesign, Inc.	00001058, 0001	Beach reclass from 0000 to 0003	3/26/2012	8,759
1140	Gov’t Consult	Allen Matkins	410510	Inv:410510:Allen Matkins	8/28/2012	671
1140	Gov’t Consult	Government Solutions	200999, 000043	Consultation Services for month of September  2012	11/28/2012	1,308
1140	Gov’t Consult	Government Solutions	200999, 000043	Consultation Services for month of September 2012	11/28/2012	4,298
1140	Gov’t Consult	Government Solutions	200999, 000043	Consultation Services for month of September 2012	12/14/2012	2,803
1140	Gov’t Consult	Government Solutions	200999, 000043	Consultation Services for month of September 2012	1/21/2013	1,147
1140	Gov’t Consult	Government Solutions	200999, 000043	Consultation Services for month of September 2012	1/30/2013	827
1140	Gov’t Consult	Government Solutions	200999, 000043	Consultation Services for month of September 2012	2/15/2013	467
		John Burns Real Estate		Inv:7074:John Burns Real Estate Consulting, Inc. Retainer:
1145	Mktg Consult	Consulting, Inc.	7074	Qualitative research	2/21/2012	7,074
		John Burns Real Estate
1145	Mktg Consult	Consulting, Inc.	7074A	Inv:7074A:John Burns Real Estate Consulting, Inc.	2/27/2012	1,176
				Inv:176-000 Webb:Big Canyon Country Club Focus Groups -
1145	Mktg Consult	Big Canyon Country Club	176-000 Webb	March 14-15, 2012 Tickets 390705, 391209 & 391211	4/10/2012	3,315
		John Burns Real Estate		Inv:7169:John Burns Real Estate Consulting, Inc. Gift card
1145	Mktg Consult	Consulting, Inc.	7169	purchase and delivery charges - 36 @ $100	7/13/2012	3,758
		John Burns Real Estate		Inv:7317:John Burns Real Estate Consulting, Inc. Qualitative
1145	Mktg Consult	Consulting, Inc.	7317	research and expense recovery less retainer	7/13/2012	15,816
				Consulting fees for Santa Barbara Condominiums- Meridian
1145	Mktg Consult	Meyers Research, LLC	200999, 000040	Invoice #5099	11/14/2012	3,575
				Consulting Fees for Santa Barbara Condominiums- Meridian
1145	Mktg Consult	Meyers Research, LLC	200999, 000040	Invoice #5124	11/14/2012	3,429
				Inv:020:Karin Asset Mgmt Services, LLC Newport Condos
1150	Finance Consult	Omar Badawi	020	proj	10/10/2012	1,920
				Inv:021:Karin Asset Mgmt Services, LLC Newport Condos
1150	Finance Consult	Omar Badawi	021	project	10/10/2012	3,640
1150	Finance Consult	Omar Badawi	200999, 000085	Financial Analyst Services	11/29/2012	1,000
1150	Finance Consult	Omar Badawi	200999, 000085	Financial Analyst Services	12/14/2012	1,440
				Inv:207147:Payne & Fears LLP Review consultant contracts
1155	Other Site Consult	Payne & Fears LLP	207147	etc	3/14/2012	3,668
				Inv:100831:Government Solutions March time for McDermott
1155	Other Site Consult	Government Solutions	100831	and support services	4/10/2012	2,616
				Inv:201847:Manatt, Phelps & Phillips Prof services thru
1155	Other Site Consult	Manatt, Phelps & Phillips	201847	2/29/12; MOA changes, city responses, Hawkins letter	4/10/2012	6,658
				Inv:109119:Fuscoe Engineering, Inc. Design development
1155	Other Site Consult	Fuscoe Engineering, Inc.	109119	coordination 3/1-3/31	4/23/2012	778
				Inv:21203119:EPTDesign, Inc. 3/1-3/31 Ph1&2 Schematic
1155	Other Site Consult	EPTDesign, Inc.	21203119	design, Ph 2 design dev., Ph6 Project meetings	5/3/2012	24,127
1155	Other Site Consult	Manatt, Phelps & Phillips	203975	Inv:203975:Manatt, Phelps & Phillips svc thru 3/31/12	5/3/2012	1,937
1155	Other Site Consult	Government Solutions	100847	Inv:100847:Government Solutions 4/2-4/24 SVC	5/17/2012	3,197
				Inv:41945:Butsko Utility Design, Inc. utility coordination &
				management, utility composite, team, site and utility
1155	Other Site Consult	Butsko Utility Design, Inc.	41945	meetings the month of April 2012	5/29/2012	1,380
1155	Other Site Consult	Abbeyside Construction, Inc.	012-028	Inv:012-028:Abbeyside Construction, Inc. May 2012	6/6/2012	14,000

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
				Inv:207382:Manatt, Phelps & Phillips Telephone calls to P
				Titcher, Carol McDermott Coastal Commission Meeting,
1155	Other Site Consult	Manatt, Phelps & Phillips	207382	Park Timing	6/6/2012	2,277
1155	Other Site Consult	Government Solutions	100861	Inv:100861:Government Solutions	6/18/2012	1,028
				Inv:210829:Manatt, Phelps & Phillips Review & revise MOU
1155	Other Site Consult	Manatt, Phelps & Phillips	210829	from Henry & provide comments to McDermott & Jordan	6/26/2012	387
				Inv:210287:Payne & Fears LLP review and revise OCIP exhibit
1155	Other Site Consult	Payne & Fears LLP	210287		6/26/2012	113
				Inv:012-030:Abbeyside Construction, Inc. Preconstruction services & approved change dated 6/7/12
1155	Other Site Consult	Abbeyside Construction, Inc.	012-030		7/3/2012	18,350
1155	Other Site Consult	Government Solutions	100871	Inv:100871:Government Solutions June time C. McDermott	7/13/2012	2,990
				Inv:213114:Manatt, Phelps & Phillips services thru 6/30/12  redline of 4 party MOA and transmit Commission package and clean 4 party MOA
1155	Other Site Consult	Manatt, Phelps & Phillips	213114		7/24/2012	720
				Inv:216314:Manatt, Phelps & Phillips 7/3-7/26/12 Revise & finalize the 4party MOU; call to Leonie Mulvihill re4 party MOU; review staff report for immaterial ammendment; follo up w Paul Titcher re permit extension for CDP
1155	Other Site Consult	Manatt, Phelps & Phillips	216314		8/28/2012	651
1155	Other Site Consult	Butsko Utility Design, Inc.	42023	Inv:42023:Butsko Utility Design, Inc.	9/15/2012	840
1155	Other Site Consult	Butsko Utility Design, Inc.	42046	Inv:42046:Butsko Utility Design, Inc.	9/15/2012	2,460
				Inv:27219:Dzida, Carey & Steinman Aug’12: correspondence to client & seller re: Newport Org chart; review current NBCC Counsel; review 1st amendment to sale agreement; annotate & transmit to client.
1155	Other Site Consult	Dzida, Carey & Steinman	27219		9/15/2012	3,249
				Inv:100887:Government Solutions 8/1-8/31/12 Deliver submittal to CCC; revise application & re-distribute. Prep arguments for use w/ City re PC text amendment. Coordinate extn request.
1155	Other Site Consult	Government Solutions	100887		9/15/2012	6,914
1155	Other Site Consult	Payne & Fears LLP	213523	Inv:213523:Payne & Fears LLP	9/15/2012	923
				General and Administrative services
1155	Other Site Consult	Allen Matkins	200999, 000037	Inv. 413727	11/14/2012	1,403
				Review of letter re: Architectural Review
1155	Other Site Consult	Allen Matkins	200999, 000037	Invoice #418806-001	11/14/2012	183
1155	Other Site Consult	Manatt, Phelps & Phillips	200999, 000036	Fees for professional services through 8/31/12	11/14/2012	6,090
1155	Other Site Consult	Manatt, Phelps & Phillips	200999, 000036	Fees for professional services rendered through 9/30/12	11/14/2012	221
				Remaining balance of original contract amount
				Utility Coordination and Management - $10,920
				Utility Composite Exhibit - $7,020
1155	Other Site Consult	Butsko Utility Design, Inc.	200999, 000078	Team, Site and Utility Meetings - $1,120	11/28/2012	3,269
1155	Other Site Consult	Dzida, Carey & Steinman	200999, 000071	Legal fees per statement no. 27473	11/28/2012	316
				Remaining balance of original contract not yet invoiced.
1155	Other Site Consult	Firesafe Planning Solutions	200999, 000079	For Fire Master Plan for Santa Barbara Condos/Meridian.	11/28/2012	18,200
				Professional fees
1155	Other Site Consult	Manatt, Phelps & Phillips	200999, 000072	Not to Exceed purchase order	11/28/2012	2,159
				Legal fees for general podium matters. Services thru
1155	Other Site Consult	Payne & Fears LLP	200999, 000042	10/31/2012	11/28/2012	6,227
				Remaining balance of original contract amount
				Utility Coordination and Management - $10,920
				Utility Composite Exhibit - $7,020
1155	Other Site Consult	Butsko Utility Design, Inc.	200999, 000078	Team, Site and Utility Meetings - $1,120	12/14/2012	1,620
				Professional fees
1155	Other Site Consult	Manatt, Phelps & Phillips	200999, 000072	Not to Exceed purchase order	12/14/2012	166
				Legal Consult for Hillwood Fashion Island
1155	Other Site Consult	Dzida, Carey & Steinman	200999, 000109	Statement No. 27761	12/27/2012	2,686
				Legal services for podium general matters for Newport Beach
1155	Other Site Consult	Payne & Fears LLP	200999, 000097	Not to Exceed purchase order	12/31/2012	1,913
				Legal Consult for Hillwood Fashion Island
1155	Other Site Consult	Dzida, Carey & Steinman	200999, 000109	Statement No. 27761	1/16/2013	296
				Provide consulting engineering services per contract
				SCNBC1010
				Construction Documents $3,000
				Plan Check Services $1,500
1155	Other Site Consult	Burnett & Young, Inc.	200999, 000088	Construction Services $1,500	1/30/2013	3,000
				Reclass Dzida legal to TNHC G&A Non project costs for
1155	Other Site Consult	Dzida, Carey & Steinman	00005863, 0001	LLC setup, Invoices 27645, 27761	2/15/2013	(2,686)
				Reclass Dzida legal to TNHC G&A Non project costs for
1155	Other Site Consult	Dzida, Carey & Steinman	00005863, 0001	LLC setup, Invoices 27645, 27761	2/15/2013	(296)
1160	Reprograph/Reimb	ARC	00000167, 0001	SoCal Beg bal QB Marriott beg bal QB	12/31/2011	134

Major   Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
1160	Reprograph/Reimb	MVE Studio, Inc.	32668	Inv:32668:MVE Studio, Inc. Reimbusable 5/26/2011 thru12/23/2011	2/21/2012	3,253
1160	Reprograph/Reimb	ARC	6316420	Inv:6316420:ARC 1136.03.02 3/26/12	4/10/2012	57
1160	Reprograph/Reimb	ARC	6322927	Inv:6322927:ARC Delivery to Carol McDermott in Newport Beach	4/10/2012	146
1160	Reprograph/Reimb	ARC	6382384	Inv:6382384:ARC Marriott Color sets	5/8/2012	1,254
1160	Reprograph/Reimb	ARC	6390652	Inv:6390652:ARC	5/22/2012	77
1160	Reprograph/Reimb	FedEx	7-877-55165	Inv:7-877-55165:FedEx Fedex 4/24-5/1 Fedex 5/1	5/22/2012	12
1160	Reprograph/Reimb	ARC	6394936	Inv:6394936:ARC	6/6/2012	61
1160	Reprograph/Reimb	FedEx	7-885-02384	Inv:7-885-02384:FedEx FedEX, May 3	6/6/2012	16
1160	Reprograph/Reimb	ARC	6437388	Inv:6437388:ARC	6/18/2012	407
1160	Reprograph/Reimb	ARC	6438898	Inv:6438898:ARC reprographics 6/8/12	6/26/2012	318
1160	Reprograph/Reimb	ARC	6438912	Inv:6438912:ARC reprographics for EPT, Fuscoe, CB Engineers, Conxtech & MVE	6/26/2012	1,167
1160	Reprograph/Reimb	ARC	6445847	Inv:6445847:ARC reprographics 6/13/12	6/26/2012	91
1160	Reprograph/Reimb	EPTDesign, Inc.	21205122	Inv:21205122:EPTDesign, Inc. Schematic desgin, design development & project meetings mileage & reprographics	6/26/2012	94
1160	Reprograph/Reimb	Fuscoe Engineering, Inc.	109664	Inv:109664:Fuscoe Engineering, Inc. Design development engineering & coordination - 5/1-31/12 Mileage Slasor	6/26/2012	2
1160	Reprograph/Reimb	ARC	6454756	Inv:6454756:ARC digital processing, PPC bond, stapling, set & courier	6/28/2012	229
1160	Reprograph/Reimb	ARC	6455407	Inv:6455407:ARC PW DMF/document Mgmt & set up	6/28/2012	47
1160	Reprograph/Reimb	ARC	6468071	Inv:6468071:ARC reprographics - newport center residence	7/13/2012	389
1160	Reprograph/Reimb	EPTDesign, Inc.	21206112	Inv:21206112:EPTDesign, Inc. 6/1/12-6/30/12 design develop and proj meetings	7/13/2012	904
1160	Reprograph/Reimb	Government Solutions	100871	Inv:100871:Government Solutions June time C. McDermott	7/13/2012	5
1160	Reprograph/Reimb	ARC	6492101	Inv:6492101:ARC order on 7/18/12	7/31/2012	523
1160	Reprograph/Reimb	ARC	6493318	Inv:6493318:ARC order on 7/18/12	7/31/2012	977
1160	Reprograph/Reimb	ARC	6493319	Inv:6493319:ARC order on 7/18/12	7/31/2012	23
1160	Reprograph/Reimb	ARC	6496526	Inv:6496526:ARC order on 7/20/12	7/31/2012	221
1160	Reprograph/Reimb	ARC	6497203	Inv:6497203:ARC order on 7/20/12	7/31/2012	270
1160	Reprograph/Reimb	ARC	6498095	Inv:6498095:ARC order on 7/23/12	7/31/2012	260
1160	Reprograph/Reimb	ARC	6500759	Inv:6500759:ARC order on 7/20/12	7/31/2012	548
1160	Reprograph/Reimb	ARC	6502952	Inv:6502952:ARC order on 7/25/12	7/31/2012	13
1160	Reprograph/Reimb	ARC	6493331	Inv:6493331:ARC	8/15/2012	47
1160	Reprograph/Reimb	ARC	6495054	Inv:6495054:ARC	8/15/2012	140
1160	Reprograph/Reimb	ARC	6495541	Inv:6495541:ARC	8/15/2012	208
1160	Reprograph/Reimb	ARC	6495557	Inv:6495557:ARC	8/15/2012	176
1160	Reprograph/Reimb	ARC	6495766	Inv:6495766:ARC	8/15/2012	145
1160	Reprograph/Reimb	ARC	6495767	Inv:6495767:ARC	8/15/2012	170
1160	Reprograph/Reimb	ARC	6495768	Inv:6495768:ARC	8/15/2012	243
1160	Reprograph/Reimb	ARC	6495769	Inv:6495769:ARC	8/15/2012	268
1160	Reprograph/Reimb	ARC	6495770	Inv:6495770:ARC	8/15/2012	266
1160	Reprograph/Reimb	ARC	6495772	Inv:6495772:ARC	8/15/2012	695
1160	Reprograph/Reimb	ARC	6512289	Inv:6512289:ARC	8/15/2012	194
1160	Reprograph/Reimb	ARC	6513138	Inv:6513138:ARC	8/15/2012	135
1160	Reprograph/Reimb	ARC	6518727	Inv:6518727:ARC	8/15/2012	433
1160	Reprograph/Reimb	ARC	6518874	Inv:6518874:ARC	8/15/2012	60
1160	Reprograph/Reimb	ARC	6519114	Inv:6519114:ARC	8/15/2012	13
1160	Reprograph/Reimb	ARC	6519312	Inv:6519312:ARC	8/15/2012	312
1160	Reprograph/Reimb	ARC	6519487	Inv:6519487:ARC	8/15/2012	589
1160	Reprograph/Reimb	FedEx	7-966-16465	Inv:7-966-16465:FedEx Newport Beach Susan Hori	8/15/2012	12
1160	Reprograph/Reimb	ARC	6491434	Inv:6491434:ARC	8/17/2012	199
1160	Reprograph/Reimb	ARC	6526405	Inv:6526405:ARC	8/28/2012	408
1160	Reprograph/Reimb	FedEx	2-047-09275 PP	Inv:2-047-09275 PP:FedEx Marriott Fedex	10/25/2012	44
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	319
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	195
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	631
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	566
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	13
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	180
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	13
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	429
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	2,269
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	172
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	114
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	315
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/14/2012	382

Major   Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/28/2012	62
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/28/2012	1,034
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/28/2012	590
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/28/2012	639
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	11/28/2012	818
1160	Reprograph/Reimb	ARC	200999, 000075	Reprographics for Newport Beach	11/28/2012	41
1160	Reprograph/Reimb	ARC	200999, 000075	Reprographics for Newport Beach	11/28/2012	595
1160	Reprograph/Reimb	Fuscoe Engineering, Inc.	200999, 000034	Not to Exceed for Reimbursables	11/28/2012	2
1160	Reprograph/Reimb	Fuscoe Engineering, Inc.	200999, 000034	Not to Exceed for Reimbursables	11/28/2012	27
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	31
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	1,387
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	348
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	186
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	215
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	161
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	460
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	506
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	77
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	296
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	559
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/14/2012	2,187
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/31/2012	78
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/31/2012	53
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	12/31/2012	56
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	2/15/2013	335
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	2/15/2013	47
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	2/15/2013	81
1160	Reprograph/Reimb	ARC	200999, 000033	Not to Exceed Purchase Order for reprographics	2/15/2013	167
1160	Reprograph/Reimb	Burnett & Young, Inc.	4286	Inv:4286:Burnett & Young, Inc.	2/15/2013	22
1305	Entitlement Fees	Government Solutions	reimb of City fee	Inv:reimb of City fee:Government Solutions	2/2/2012	1,000
1305	Entitlement Fees	California Coastal Commission	CK Req 4/30/12	Inv:CK Req 4/30/12:California Coastal Commission Immaterial Amendment Application	4/30/2012	1,000
1305	Entitlement Fees	California Coastal Commission	00003139, 0002	reclass from lot 0000 lot to 0003 for Coastal permit ext	8/1/2012	1,060
1310	Review, Permit & Inspect Fees	Newport Beach, City of	Ck req 8/7	Inv:Ck req 8/7:Newport Beach, City of Plan Check	8/7/2012	3,406
1310	Review, Permit & Inspect Fees	County of Orange	Ck req 8/9/12	Inv:Ck req 8/9/12:County of Orange Complete map check	8/9/2012	2,394
1310	Review, Permit & Inspect Fees	Newport Beach, City of	Ck Rqst 8/22/12	Inv:Ck Rqst 8/22/12:Newport Beach, City of Plan Check Fees	8/22/2012	895
5005	Architecture	MVE Studio, Inc.	32680	Inv:32680:MVE Studio, Inc. Marriott, thru 2/23/12, Predesign and site development	3/26/2012	39,899
5005	Architecture	MVE Studio, Inc.	32684	Inv:32684:MVE Studio, Inc. Marriott, thru 2/23/12, Schematic Design	3/26/2012	22,000
5005	Architecture	MVE Studio, Inc.	32687	Inv:32687:MVE Studio, Inc. Thru 3/23, Predesign/Site development	4/17/2012	37,968
5005	Architecture	MVE Studio, Inc.	32688	Inv:32688:MVE Studio, Inc. Thru 3/23, Design development	4/17/2012	34,500
5005	Architecture	MVE Studio, Inc.	32691	Inv:32691:MVE Studio, Inc. Thru 3/23/12 reimbursable expenses	4/17/2012	1,097
5005	Architecture	MVE Studio, Inc.	32693	Inv:32693:MVE Studio, Inc. SVC thru 4/23/12	5/17/2012	29,463
5005	Architecture	MVE Studio, Inc.	32697	Inv:32697:MVE Studio, Inc. Prof services through 5/23/12 for design development for SB Condos	6/12/2012	138,000
5005	Architecture	MVE Studio, Inc.	32699	Inv:32699:MVE Studio, Inc. Thru 5/23/12	6/18/2012	7,791
5005	Architecture	MVE Studio, Inc.	32700	Inv:32700:MVE Studio, Inc. Thru 5/23/12	6/18/2012	45,080
5005	Architecture	MVE Studio, Inc.	32701	Inv:32701:MVE Studio, Inc. thru 5/31/12	6/30/2012	42,486
5005	Architecture	MVE Studio, Inc.	32709	Inv:32709:MVE Studio, Inc. services through 6/23/12 SB condos design development	7/13/2012	51,750
5005	Architecture	MVE Studio, Inc.	32701R	Inv:32701R:MVE Studio, Inc. Reverse invoice per S. Jordan and should not have been billed - need change order	7/18/2012	(42,486)
5005	Architecture	MVE Studio, Inc.	32701a	Inv:32701a:MVE Studio, Inc. Pre-design/site development through 5/23/12	7/31/2012	42,486
5005	Architecture	MVE Studio, Inc.	32706	Inv:32706:MVE Studio, Inc. predesign & site development through 6/23/12	7/31/2012	10,523
5005	Architecture	MVE Studio, Inc.	32713	Inv:32713:MVE Studio, Inc.	8/16/2012	51,750
5005	Architecture	MVE Studio, Inc.	32714	Inv:32714:MVE Studio, Inc.	8/16/2012	13,570
5005	Architecture	MVE Studio, Inc.	32717	Inv:32717:MVE Studio, Inc.	9/15/2012	157,000
5005	Architecture	MVE Studio, Inc.	32721	Inv:32721:MVE Studio, Inc.	9/15/2012	550
5005	Architecture	MVE Studio, Inc.	200999, 000045	Remaining balance of original architecture contract to date: $1,164,018.20 Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	1,661

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
5005	Architecture	MVE Studio, Inc.	200999, 000045	Remaining balance of original architecture contract to date: $1,164,018.20 Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	7,619
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	22,830
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	1,524
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	4,400
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	9,096
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	2,473
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	201,500
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	125,000
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	14
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	88,000
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	30,665
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	1,582
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	11/28/2012	15,220
5005	Architecture	MVE Studio, Inc.	200999, 000045	$1,164,018.20 Plus all Additional Architecture Addendums to date:	11/28/2012	2,200
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	10,666
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	4,124
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	22,830
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	96,500
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	1,236
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	1,978

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	12/14/2012	2,200
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	2/15/2013	1,803
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	2/15/2013	88,000
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	2/15/2013	22,830
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	2/15/2013	1,236
				Remaining balance of original architecture contract to date: $1,164,018.20
5005	Architecture	MVE Studio, Inc.	200999, 000045	Plus all Additional Architecture Addendums to date: $420,445.18	2/15/2013	3,300
5005	Architecture	MVE Studio, Inc.	200999, 000118	Total for both Addendum No.’s 16 and 17	2/15/2013	4,884
5005	Architecture	MVE Studio, Inc.	200999, 000118	Total for both Addendum No.’s 16 and 17	2/15/2013	7,326
5015	DRE/HOA	Gallagher & Moore c/o FCM Law, Inc.	22124	Inv:22124:Gallagher & Moore 6/21/12 - review of conditions of approval, preparation of communications and comments for kick off meeting	7/31/2012	949
5015	DRE/HOA	Department of Real Estate	Ck Req Pink Report	Inv:Ck Req Pink Report:Department of Real Estate Pink Report for Newport Beach CondoProject $500 Pink, $10x79 units= $790, Prepaid charge for Whites$1700	9/28/2012	2,990
5015	DRE/HOA	Gallagher & Moore c/o FCM Law, Inc.	200999, 000074	Review communications about square footages and advertising	11/28/2012	130
5015	DRE/HOA	NTB Realty Advisors, Inc.	200999, 000027	DRE Budget	12/14/2012	5,250
5025	Other House Consultant	Abbeyside Construction, Inc.	012-019	Inv:012-019:Abbeyside Construction, Inc. Preconstruction services per agreement March 2012	4/10/2012	14,000
5025	Other House Consultant	Abbeyside Construction, Inc.	012-022	Inv:012-022:Abbeyside Construction, Inc.	5/3/2012	14,000
5025	Other House Consultant	Butsko Utility Design, Inc.	41923	Inv:41923:Butsko Utility Design, Inc. Utility coordination & management	5/3/2012	1,380
5025	Other House Consultant	MVE Studio, Inc.	32698	Inv:32698:MVE Studio, Inc. Prof Serv through 5/23/12 for Schematic design & design developments - SB Condos	6/12/2012	6,930
5025	Other House Consultant	Payne & Fears LLP	00002846, 0001	Reclass Payne & Fears Inv#208074 paid on 4/30/12 Rcls Payne & Fear on 4/17	7/1/2012	2,679
5025	Other House Consultant	Butsko Utility Design, Inc.	41969	Inv:41969:Butsko Utility Design, Inc. utility coordination, composite exhibit & site meetings	7/13/2012	840
5025	Other House Consultant	MVE Studio, Inc.	32707	Inv:32707:MVE Studio, Inc. services through 6/23/12 SB condos Consultants DD	7/13/2012	31,165
5025	Other House Consultant	MVE Studio, Inc.	32708	Inv:32708:MVE Studio, Inc. services through 6/23/12 MEP design criteria	7/13/2012	5,720
5025	Other House Consultant	Abbeyside Construction, Inc.	012-034	Inv:012-034:Abbeyside Construction, Inc. July 2012	7/31/2012	18,350
5025	Other House Consultant	MVE Studio, Inc.	32710	Inv:32710:MVE Studio, Inc.	8/15/2012	14,835
5025	Other House Consultant	MVE Studio, Inc.	32711	Inv:32711:MVE Studio, Inc.	8/15/2012	4,290
5025	Other House Consultant	MVE Studio, Inc.	32715	Inv:32715:MVE Studio, Inc. swimming pool consultant	8/16/2012	2,373
5025	Other House Consultant	Payne & Fears LLP	212547	Inv:212547:Payne & Fears LLP 7/2-7/27/12 Phone conf. w M Coleman; review correspondence, pre-construction agreement; review correspondence & scope of services for Mechanical Consultant Agreement, Prep Atlas Proj Agreement	8/28/2012	2,880
5025	Other House Consultant	Butsko Utility Design, Inc.	41995	Inv:41995:Butsko Utility Design, Inc.	8/31/2012	840
5025	Other House Consultant	Abbeyside Construction, Inc.	012-038	Inv:012-038:Abbeyside Construction, Inc.	9/15/2012	18,350
5025	Other House Consultant	MVE Studio, Inc.	32716	Inv:32716:MVE Studio, Inc.	9/15/2012	16,503
5025	Other House Consultant	MVE Studio, Inc.	32718	Inv:32718:MVE Studio, Inc.	9/15/2012	2,860
5025	Other House Consultant	MVE Studio, Inc.	32719	Inv:32719:MVE Studio, Inc.	9/15/2012	2,788
5025	Other House Consultant	MVE Studio, Inc.	32720	Inv:32720:MVE Studio, Inc.	9/15/2012	3,393
5025	Other House Consultant	Atlas Mechanical, Inc.	200999, 000028	Design for Phase 1- Inclusive of Phase 2 as well	11/6/2012	72,500
5025	Other House Consultant	Abbeyside Construction, Inc.	200999, 000015	Design Process Oversite and Management Monthly fees for the Newport Beach Condominiums Contract monthly from July 2012-March 2013 $18,435.00/month	11/14/2012	18,350

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
5025	Other House Consultant	Abbeyside Construction, Inc.	200999, 000015	Design Process Oversite and Management Monthly fees for the Newport Beach Condominiums Contract monthly from July 2012-March 2013 $18,435.00/month	11/14/2012		19,310
5025	Other House Consultant	Payne & Fears LLP	200999, 000039	Professional fees re: podium general matters through 9/30/2012	11/14/2012		2,408
5025	Other House Consultant	Abbeyside Construction, Inc.	200999, 000029	Change Order #2 -Preconstruction Services Additional hours for Steve Nicholson per month as well as Mike Coleman per month November 2012 thru March 2013 at $14,770/per month	12/5/2012		33,205
5025	Other House Consultant	Allana Buick & Bers, Inc.	200999, 000094	Phase 1 Investigation & Evaluation Services	12/14/2012		66,322
5025	Other House Consultant	Abbeyside Construction, Inc.	200999, 000029	Change Order #2 -Preconstruction Services Additional hours for Steve Nicholson per month as well as Mike Coleman per month November 2012 thru March 2013 at $14,770/per month	1/15/2013		24,904
5025	Other House Consultant	Abbeyside Construction, Inc.	200999, 000125	Preconstruction Management Services for Newport Beach January 2013 thru April 2013 @ $24,594.00 per month	2/15/2013		24,594
5025	Other House Consultant	Allana Buick & Bers, Inc.	200999, 000094	Phase 1 Investigation & Evaluation Services	2/15/2013		33,161
5095	Contingency - House Conslt	Payne & Fears LLP	208074	Inv:208074:Payne & Fears LLP Thru 3/31/12 Review correspondence re: MVE and revised Scope of Work for MVE received	4/17/2012		2,679
5095	Contingency - House Conslt	Payne & Fears LLP	00002846, 0001	Reclass Payne & Fears Inv#208074 paid on 4/30/12 Rcls Payne & Fear on 4/17	7/1/2012		(2,679	)
5205	Bldg Permits	Newport Beach, City of	200999, 000080	Plan Check fees for 900 Newport Center Drive, Newport Beach, CA 1. Building Plan Check Fee $12,374.64 2. Fire Dept. Fee $2474.93 3. Electrical Plan Check Fee $1732.45 4. Plumbing Plan Check Fee $1237.46 5. Mechanical Plan Check Fee $1484.96	11/29/2012		19,304
5205	Bldg Permits	Newport Beach, City of	200999, 000087	Plan Check fee- Foundation Only	12/5/2012		4,837
5205	Bldg Permits	Newport Beach, City of	Shoring PC fee	Inv:Shoring PC fee:Newport Beach, City of	12/12/2012		724
5205	Bldg Permits	Newport Beach, City of	200999, 000115	Plumbing PC fee	1/10/2013		292
5205	Bldg Permits	Newport Beach, City of	200999, 000117	City deposit account for processing and permitting Not To Exceed	1/17/2013		10,000
5405	GC Salaries & Burden	TNHC	00004638, 0003	PR actual 12.14.12	12/14/2012		5,769
5405	GC Salaries & Burden	TNHC	00005003, 0002	PR actual 11.30.12	12/14/2012		5,769
5405	GC Salaries & Burden	TNHC	00004956, 0003	PR actual 12.30.12	12/30/2012		5,769
5405	GC Salaries & Burden	TNHC	00005353, 0003	PR actual 01.11.13	1/19/2013		5,769
5405	GC Salaries & Burden	TNHC	00005687, 0003	PR actual 01.25.13	1/25/2013		5,769
5425	GC Misc People Costs	TNHC	00003139, 0001	Reclass from 000 to lot 003 Marriott for marketing lunch	8/1/2012		68
5425	GC Misc People Costs	TNHC	00005723, 0001	Reclass expense report 12/01 to 01/14 to Meridian Project	2/13/2013		415
5430	GC Field Office	The GDR Group	68365	Inv:68365:The GDR Group	2/19/2013		2,493
5805	Interest	IHP Capital Partners	00005035, 0001	Dec 14-31 IHP interest Accrual on $1m note	12/31/2012		7,000
5805	Interest	IHP Capital Partners	00005861, 0001	IHP Interest accrual 01/01/13 to 01/31/13	1/31/2013		12,056
5825	Other Finance	CT Corp	8121675-RI	Inv:8121675-RI:CT Corp Domestic Rep (LLC) Delaware	9/15/2012		342
5825	Other Finance	CT Corp	8533724-RI e	Inv:8533724-RI e:CT Corp	2/11/2013		350
5825	Other Finance	Ernst & Young US LLP	US0130761794	Inv:US0130761794:Ernst & Young US LLP First Progress Billing TNHC Newport	2/15/2013		500
6030	Marketing Setup	Meridian Interiors, LLC	W00144	Inv:W00144:Meridian Interiors, LLC	8/28/2012		20,000
6030	Marketing Setup	Paolucci Communication Arts	20227	Inv:20227:Paolucci Communication Arts	8/28/2012		18,000
6030	Marketing Setup	MVE Studio, Inc.	00003767, 0001	Capitalize MVE Studio Inv 32712 Incorrectly expensed in August Cptlze MVE Studio Inv 32712	9/30/2012		10,909
6030	Marketing Setup	Paolucci Communication Arts	200999, 000019	Newport Marriot Initial Branding Creative Direction/Marketing Plan	10/31/2012		62
6030	Marketing Setup	MVE Studio, Inc.	200999, 000046	Remaining balance of all addendums to date: # 5, 7,10, 12, 13 & 15 For Computer Renderings, View Photography	11/28/2012		1,673
6030	Marketing Setup	MVE Studio, Inc.	200999, 000046	Remaining balance of all addendums to date: # 5, 7,10, 12, 13 & 15 For Computer Renderings, View Photography	11/28/2012		4,461
6030	Marketing Setup	MVE Studio, Inc.	200999, 000046	Remaining balance of all addendums to date: # 5, 7,10, 12, 13 & 15 For Computer Renderings, View Photography	11/28/2012		26,068
6030	Marketing Setup	MVE Studio, Inc.	200999, 000046	Remaining balance of all addendums to date: # 5, 7,10, 12, 13 & 15 For Computer Renderings, View Photography	11/28/2012		16,152

Major Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
6030	Marketing Setup	Paolucci Communication Arts	200999, 000068	Meridian/Hillwood Map	11/28/2012	490
6030	Marketing Setup	Paolucci Communication Arts	200999, 000069	Meridian Domain Name Purchase	11/28/2012	13
6030	Marketing Setup	Alternative Spaces, Inc.	200999, 000114	December Setup- Customized programming and iFrame setup for registrations	12/31/2012	1,500
6030	Marketing Setup	IHP Capital Partners	200GA, 000039	Invoice Date: 12/5/12 Marketing Services for New Home Company’s Newport Beach “Santa Barbara Condominiums” -  Meet with Tom Redwitz regarding Architectural Character -  Meet with Tom Redwitz regarding Floor Plans -  Tom Redwitz meeting discussing phasing, timing of sales opening, condition of project at sale opening, modeling and general marketing strategy (9/18/12) -  Review pricing study with IHP (11/30/12) = $1,800.00	12/31/2012	1,800
6030	Marketing Setup	Paolucci Communication Arts	200GA, 000032	12/20/12 Meridian Interactive Fee = $5,000.00	12/31/2012	5,000
6030	Marketing Setup	Paolucci Communication Arts	200GA, 000033	Meridian Logo Design and Final Production = $1,000.00	12/31/2012	1,016
6030	Marketing Setup	Paolucci Communication Arts	200GA, 000034	Meridian Signage Design and Final Production = $3,000.00	12/31/2012	3,040
6030	Marketing Setup	Paolucci Communication Arts	200GA, 000035	Meridian Images Completion of 4 = $10,023.00	12/31/2012	10,023
6030	Marketing Setup	MVE Studio, Inc.	200999, 000046	Remaining balance of all addendums to date: # 5, 7,10, 12, 13 & 15 For Computer Renderings, View Photography	1/31/2013	19,480
6030	Marketing Setup	MVE Studio, Inc.	200999, 000046	Remaining balance of all addendums to date: # 5, 7,10, 12, 13 & 15 For Computer Renderings, View Photography	1/31/2013	6,671
6305	Adv-Creative Agency	IHP Capital Partners	200GA, 000043	IHP pd in error need to reverse PO commitment	1/31/2013	(1,800)
6305	Adv-Creative Agency	Svrcek, Rudy	SB condo Mkt Serv	Inv:SB condo Mkt Serv:Svrcek, Rudy Marketing Serv for Newpor Beach Santa Barbara condo, review pricing with TOm R, meeting discussions re phasing, sales opening, marketing strategy.	1/31/2013	1,800
6315	Adv-Media	MVE Studio, Inc.	32712	Inv:32712:MVE Studio, Inc.	8/15/2012	10,909
6315	Adv-Media	MVE Studio, Inc.	00003767, 0001	Capitalize MVE Studio Inv 32712 Incorrectly expensed in August Cptlze MVE Studio Inv 32712	9/30/2012	(10,909)

Total Preacquisition Costs by TNHC   $ 7,243,808     

EXHIBIT D

FORM OF CONSTRUCTION CONTRACT

CONSTRUCTION CONTRACT

PROJECT DESCRIPTION:

Project Name:                                  

Tract(s)                     (“Project”)

This Owner-Contractor General Contract (“Contract”), is entered into on                       , 20     (“Effective Date”) by TNHC NEWPORT LLC, a Delaware limited liability company (“Owner”), and TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation (“Contractor”). Owner and Contractor are collectively referred to as the “parties” and individually as a “party”.

ARTICLE 1

DURATION OF CONTRACT

The obligations of the parties under this Contract shall commence on the Effective Date. It is understood that Owner shall have the right but not the obligation to request Contractor to perform all or a part of the “Work” (as defined below) called for according to the terms of this Contract. Owner shall not be required to request such Work to be done and Contractor shall be obligated to perform the Work only if Owner requests that Contractor perform all or a part of the Work. Contractor shall at all times be ready, willing and able to commence prosecution of the Work in accordance with time frames required by Owner. Contractor acknowledges that it has received valuable consideration for entering into this Contract.

ARTICLE 2

SCOPE OF WORK

(a)      Contractor shall furnish all supervision, coordination, scheduling, bidding, estimating, labor, tools, equipment, materials, licenses, permits, inspections and all things necessary to fulfill the construction objectives of Owner as said objectives have been described to Contractor in the drawings and specifications (“Drawings and Specifications”) and all addenda (hereinafter “Addenda”) issued by Owner and all changes (“Changes”) issued by Owner after execution of this Contract, (the “Work”).

(b)      The above description of the Work is intended solely as a general summary and does not eliminate any requirements in this Contract or any items required for completion of the Project intended by this Contract or otherwise required by Owner. The Project generally consists of                                     .

(c)      Owner shall provide to Contractor all exhibits, the Drawings and Specifications, any Addenda, Changes and other materials regarding the Work comprising the contract documents, (collectively the “Contract Documents”) and the Work shall be completed in accordance with the Contract Documents.

(d)      Contractor’s authority is expressly limited to the provisions provided herein or as may be amended in writing from time to time by Owner and mutually agreed to and accepted by Contractor in writing.

(e)      Prior to the execution of this Contract, [                                      ], a [                                    ] (“TNHC”), as managing member, and [                                ], a [                                ], as a member, entered into that certain Amended and Restated Limited Liability Company Agreement of TNHC NEWPORT LLC (as it may be amended and restated, the “Company Agreement”). TNHC is an affiliate of Contractor. Notwithstanding anything to the contrary contained herein, after the Company Agreement is executed, Contractor shall have no right or authority, express or implied, under this Contract to take any action or expend any funds with respect to the services that Contractor has been engaged to perform under this Contract to the extent that, if such action were undertaken or such expenditure were made by TNHC, in its capacity as “managing member” of the Owner, such action or expenditure would require the approval of the Executive Committee (as defined in the Company Agreement), unless TNHC first obtains the prior approval of the Executive Committee in accordance with the Company Agreement.

ARTICLE 3

PAYMENT

Subject to the Company Agreement, all obligations of Contractor under this Agreement shall be performed at the cost of Owner. Owner shall pay Contractor for performance of this Contract in accordance with the terms of the “Payment Procedure and Schedule” attached hereto as Attachment “A.” As a condition precedent to Owner’s obligation to make any payment to Contractor, Owner will require that a partial waiver of liens, or a final waiver of liens, whichever is appropriate to the circumstances, be executed by Contractor and all subcontractors and material suppliers. In addition, if Owner has reason to believe that Contractor is not paying (or may not be able to pay) any of its subcontractors, Owner reserves the right to make payments jointly to Contractor and such subcontractors to the extent necessary to pay fully such subcontractors. If Contractor has received payment from Owner for subcontract work and Contractor withholds payment to the subcontractor for any reason, Contractor will notify Owner of its decision and the reason for withholding payment to the subcontractor; Owner may then deduct such amount from the next payment due Contractor and until such time as Contractor releases the funds to the subcontractor.

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ARTICLE 4

CHANGES

Owner may make Changes in the Work to be performed and materials to be furnished under this Contract at any time by written order (“Change Order”). Contractor shall promptly comply with any such changes.

ARTICLE 5

PROSECUTION OF THE WORK

(a)      All Work shall be done under the general supervision and direction of Owner; Contractor shall at all times furnish adequate, qualified job site supervision to direct the Work. The decision of Owner about the meaning the Contract Documents shall be final. Notwithstanding the foregoing, Contractor represents and warrants that it is technically, financially, and legally ready, willing, and able to perform the Work hereunder and that it is familiar with and knowledgeable about the applicable laws and regulations, and government agency policy documents to the extent necessary to carry out its duties in a professional, complete, and compliant manner. Contractor further represents and warrants that Work performed by or delivered through Contractor shall be in accordance with the generally accepted standards of the profession at the time of performance and shall conform to the provisions of this Contract. Contractor shall replace any part of the Work that fails to comply with this Contract.

(b)      Contractor shall commence the purchase of materials, retaining of subcontractors, and construction of the Project within a time period reasonably designated by Owner after receipt from Owner of a “Notice to Proceed.” For purposes of this Contract, the Notice to Proceed shall be a written notice from Owner to Contractor, directing Contractor to proceed with construction of the Project described in this Contract, provided that the Notice to Proceed is delivered to Contractor only after each of the following conditions have been fully performed and satisfied:

(i)                  Contractor and Owner have agreed upon all the terms and conditions of this Contract, including particulars relating to the Drawings, Specifications and construction of the Project;

(ii)                All entitlements have been issued by necessary public agencies as required to fully commence and complete that portion of the Project subject to the Notice to Proceed;

(iii)               Contractor and Owner have executed all documents necessary to evidence their agreement relating to the Project described in this Contract, except Changes as needed in the future;

(iv)               Contractor has provided Owner with duplicate copies of the insurance policies which Contractor is to procure, or cause to be procured, under the provisions of the Insurance Section of this Contract.

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ARTICLE 6

LABOR AND MATERIAL

(a)      Contractor shall furnish enough properly skilled workmen to diligently prosecute the Work.

(b)      Contractor acknowledges that all employees comply with current immigration laws.

(c)      Contractor shall not employ or contract with any person or entity whose employment is objected to by Owner.

ARTICLE 7

SUBCONTRACTORS

Contractor shall be responsible for hiring, coordinating and supervising the various subcontractors, suppliers and materialmen (“Subcontractors”) necessary to complete the Project. Contractor shall contract solely in its own name and behalf, and not in the name or behalf of Owner with the selected Subcontractors. Nothing contained herein shall create any contractual relationship between Owner and any Subcontractors. By its subcontracts, Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to Contractor by the terms of this Contract, and to assume toward Contractor all the obligations and responsibilities which Contractor, by this Contract, assumes toward Owner. The subcontracts shall preserve and protect the rights of Owner under this Contract with respect to the Work to be performed by the Subcontractors so that the subcontracting thereof will not prejudice such rights. Where appropriate, Contractor shall require each Subcontractor to enter into similar agreements with its sub-subcontractor.

ARTICLE 8

CLEAN-UP

Contractor shall ensure the Project remains clean and orderly and shall cause all rubbish, debris and surplus materials to be removed from the Project site on a regular basis. On completion of the Project, Contractor will remove debris and surplus material from the Project site, and will thoroughly clean the Project, leaving it in a neat and broom-clean condition.

ARTICLE 9

SAFETY

Contractor shall provide safe and sufficient facilities at all times. Contractor shall take all safety measures necessary to ensure the safety of the public and of workers on the job, and to prevent accidents or injury to any persons on, about, or adjacent to the premises where the Work is being performed. Contractor shall give all notices and comply with all codes relative to safety of persons or property and their protection from damage, injury or loss and the prevention of accidents including, without limitation, the California Occupational Safety and Health Act of 1973 and all rules and regulations promulgated by the California Department of Industrial Relations pursuant to said act.

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ARTICLE 10

PROTECTION OF WORK

Contractor shall be responsible for the protection of the Work until final completion and acceptance by Owner.

ARTICLE 11

INSURANCE

The Contractor shall provide, and shall require its subcontractors to provide, insurance of the type and on the terms and conditions as required by Owner.

ARTICLE 12

COMPLIANCE WITH LAW

(a)      Contractor shall keep and have available all records and make all payments, reports, collections, deductions and otherwise do all things to comply with all federal, state, and local laws, ordinances and regulations as they affect its performance of this Contract including, but not limited to, those relating to production, purchase and sale, furnishing and delivering, pricing and use or consumption of materials, supplies and equipment hire, tenure or conditions of employment of employees and their hours of work and rates of and the payment of their wages, and payment, collection, and deduction of federal, state and local taxes and contributions.

(b)      Contractor shall obtain all permits, licenses and official inspections for the Work.

ARTICLE 13

RELEASE OF LIENS

Contractor shall deliver the Work and materials to Owner free of all claims, security agreements, levies, encumbrances or liens, including providing all lien releases as required by Owner.

ARTICLE 14

ASSIGNMENT

Contractor shall not assign this Contract in whole or in part, or the proceeds of it, without written consent of Owner.

ARTICLE 15

ATTORNEYS FEES

If Owner or Contractor becomes involved in arbitration or litigation arising out of this Contract, or the performance of it, the court or tribunal in such arbitration or litigation, or in a separate suit, shall award reasonable costs and expenses of arbitration and litigation, including, but not limited to, expert witness fees and attorneys fees, to the prevailing party or parties.

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ARTICLE 16

INDEPENDENT CONTRACTOR

Contractor hereby declares that it is engaged in an independent business, and agrees to perform the Work described in this Contract as an independent contractor, and not as an agent, employee, or servant of Owner. Contractor has, and hereby retains, the right to exercise full control and supervision of the work, and full control over the employment, direction, compensation, and discharge of all persons assisting in the work. Except as otherwise provided in the Company Agreement, Contractor agrees to be solely responsible all matters relating to payment of its employees, including compliance with social security, withholding, and all other regulations governing such matters. Contractor agrees to be responsible for its own acts and those of its subordinates, employees, and subcontractors during the life of this Contract.

ARTICLE 17

ENTIRE AGREEMENT

This Contract contains the entire agreement between the parties and no prior written or oral proposals, agreements, representations or statements made by Owner before execution of this Contract are valid unless the representation or statement is contained in this Contract. Captions of articles are for convenience and are not part of this Contract.

ARTICLE 18

THIRD PARTY BENEFICIARY

This Contract, or any part of it, shall not give third parties other than Owner any claim, demand or right of action against Owner or Contractor beyond those that exist in the absence of this Contract.

ARTICLE 19

CALIFORNIA MECHANIC’S LIEN LAW

Owner shall have the right to treat Contractor as a general contractor in regard to Contractor’s compliance with the California Mechanic’s Lien Law.

ARTICLE 20

GOVERNING LAW

This Contract is governed by California law.

ARTICLE 21

VENUE

Any legal proceedings arising from this Contract shall be brought only in a court of competent jurisdiction in the County in which the Project is located.

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ARTICLE 22

INVALIDITY OF ANY PROVISION

If any term or other provision of this Contract is determined to be invalid, illegal or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Contract shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Contract so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

ARTICLE 23

BINDING EFFECT

This Contract shall be binding upon and inure to the benefit of the parties hereto, their partners, members, directors, heirs, personal representatives, successors and duly approved assignees. If there is any conflict between the this Contract and the Company Agreement, the Company Agreement shall control.

ARTICLE 24

NOTICE

When this Contract provides for notice it shall be given by: (a) registered or certified mail, addressed to the place designated in this Article; (b) a writing delivered to the place designated in this Article, or to Contractor’s representative at the Project site; or (c) orally to Contractor’s representative at the Project site in an emergency; or (d) telephone to Contractor at the place designated in this Article if Contractor is in default. Such oral notice shall be promptly confirmed in writing in accordance with either sub-articles (a) or (b). Notice to the other side shall be given at the address set forth on the first page of this Contract. Unless otherwise specifically provided, forty-eight (48) hours’ notice shall be given. Notice time shall run from the time it is given, and under subdivision (d) from the time of telephone notice.

ARTICLE 25

JOINDER OF PARTIES

In the event there exists an agreement between either party and a third party that provides for arbitration, judicial reference or other alternative dispute resolution proceeding as the forum for the resolution of disputes, and a claim, dispute or other controversy exists between either party and such third party which may involve claims between the parties hereto, both parties expressly agree to be joined as an additional party in any and all such arbitration or other proceedings, or if a separate arbitration or other proceeding already exists or is separately initiated, both parties expressly agree to the consolidation of all such arbitration or other proceedings, it being the intent of the parties hereto to resolve all of the rights and obligations of all interested parties at one time in one forum rather than in multiple proceedings.

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ARTICLE 26

ATTACHMENTS

All of the provisions set forth in the Attachment(s) attached hereto are hereby incorporated into this Contract.

The following statement is required by California law. Nothing in this statement shall modify the provisions of this Contract:

Contractors are required by law to be licensed and regulated by the Contractors’ State License Board which has jurisdiction to investigate complaints against contractors if a complaint regarding a patent act or omission is filed within four years of the date of the alleged violation. A complaint regarding a latent act or omission pertaining to structural defects must be filed within 10 years of the date of the alleged violation. Any questions concerning a contractor may be referred to the Registrar, Contractors’ State License Board, P.O. Box 26000, Sacramento, California 95826.

Signatures on this Contract, as well as any document identification herein, may be by facsimile or electronic signature, unless prohibited by law or required to be in a particular form for purposes of recordation, notarization, etc. This provision shall also apply to any documents to be signed by subcontractors, suppliers and materialmen of Contractor.

CONTRACTOR:	OWNER:
TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation	TNHC NEWPORT LLC, a Delaware limited liability company
	By:	[                                           ],
By:		a [                                         ]
		Its Managing Member
Its:
		By:
		Its:

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ATTACHMENT “A”

Payment Procedure

Contractor shall be paid by Owner for the Work undertaken at the Project in accordance with the following terms:

1. Owner shall pay Contractor from loan proceeds draws for the Project, at such times as those draws may occur.

2. The total amount payable to Contractor shall be equal to the actual costs incurred by Contractor (with no markup whatsoever) in connection with constructing the Project.

Contractor shall be paid by Owner for warranty and customer service work undertaken at the Project in accordance with the following terms:

1. Owner shall pay Contractor from those funds reserved by Owner for warranty and customer service work at the Project, as reflected in Owner’s financials.

2. It is anticipated that the total warranty and customer service work reserves accruals and/or charges for the Project will be one percent (1%) of gross sales revenues for the Project.

3. Contractor shall submit warranty and customer service work payment requests to Owner, which reflect time and materials, overhead, insurance, and such other ordinary and customary costs (with no markup whatsoever) which are incurred by Contractor in effectuating the warranty and customer service work at the Project.

EXHIBIT E

FORM OF SALES AND MARKETING CONTRACT

SALES AND MARKETING CONTRACT

This Sales and Marketing Contract (“Agreement”) is entered into on                       , 20    (“Effective Date”), by TNHC NEWPORT LLC, a Delaware limited liability company (“Owner”) and TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation (“Broker”). Broker and Owner may be collectively referred to as the “parties” and individually as a “party”.

RECITALS

A.        Owner is the owner and developer of the [                                ] residential development located in Newport Beach, California (“Project”).

B.        Broker is a licensed California Real Estate Broker.

C.        Owner desires to engage Broker to provide brokerage services for the sale of residential units in the Project (“Residences”).

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:

1.        Broker’s License.  Broker represents that it is duly licensed as a real estate broker by the State of California as follows: License Identification No.                     , Expiration Date:                     , 20   . During the term of this Agreement, Broker shall remain continuously licensed as a real estate broker by the State of California. To that end, Broker shall fulfill all continuing educational and other requirements and pay all required renewal and education fees, all at Broker’s sole cost.

2.        Broker Sales Office.  Owner shall, at its sole cost and expense, provide a sales office and model home complex for the Project to be used by Broker.

3.        Salespersons.  Broker shall engage real estate sales people for the sale of Residences all of whom will be real estate sales agents duly licensed as such by the State of California. Salespersons shall be employees or agents of Broker and not Owner. Broker shall supervise all salespersons and insure that all salespersons work in a professional manner to assist Broker in performing its obligations under this Agreement. The cost of salary, commission and benefits for such salespersons shall be reimbursed to Broker by Owner. [Questions: What are these costs? What are the commissions? Are these costs and commissions in the budgets?]

4.       Owner Obligations.

(a)      Office Equipment.  Owner shall, at Owners cost and expense, provide Broker with all office equipment and supplies necessary, as determined sales offices, including, without limitation, displays, computers and software, desks, telephones, signs, business cards and stationery.

(b)      Sales Documents and Materials.  Owner, at its sole cost and expense, shall promptly provide Broker with copies of all documents of any kind in its possession related to the Project and/or marketing activities for the Project, including, without limitation, marketing materials, financing documents and programs, homeowner warranty, standard, upgrade and option lists and ordering procedures, sales agreements and addenda, covenants, conditions, restrictions and all other homeowners association documents, association budget and Project disclosures. Owner shall, at its sole cost and expense, obtain all preliminary, conditional and final subdivision public reports issued by the California Department of Real Estate for the Project.

(c)      Marketing.  Owner, at its sole cost and expense, shall provide (i) all advertising, public relations and other marketing support as may be required by Owner with respect to the Project, and (ii) all model and sales office furnishings and supplies of all types.

(d)      Project Costs.  Owner shall be responsible for all Project costs of any kind. Except as provided in Section 5(a) below, Broker shall have no responsibility for any costs of ownership, entitlement, development, marketing or sale of the Project.

(e)      Prior to the execution of this Agreement, [                                  ], a [                                ] (“TNHC”), as managing member, and [                                ], a [                                ], as a member, entered into that certain Amended and Restated Limited Liability Company Agreement of TNHC NEWPORT LLC (as it may be amended and restated, the “Company Agreement”). TNHC is an affiliate of Broker. Notwithstanding anything to the contrary contained herein, after the Company Agreement is executed, Broker shall have no right or authority, express or implied, under this Agreement to take any action or expend any funds with respect to the services that Broker has been engaged to perform under this Agreement to the extent that, if such action were undertaken or such expenditure were made by TNHC, in its capacity as “managing member” of the Owner, such action or expenditure would require the approval of the Executive Committee (as defined in the Company Agreement), unless TNHC first obtains the prior approval of the Executive Committee in accordance with the Company Agreement. If there are an conflicts between this Agreement and the Company Agreement the Company Agreement shall control.

5.       Broker’s Duties and Obligations.  Broker agrees that Broker shall at all times faithfully, industriously and to the best of Broker’s ability, experience and talents perform and/or comply with all the following duties and obligations:

(a)      Governmental Licenses.  Broker shall obtain at its sole cost all governmental permits and authorizations of whatever nature that are personal to Broker and required for Broker to perform its obligations under this Agreement (other than such items that

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are required for the Project, including public reports from the California Department of Real Estate), provided that if Broker obligated to obtain a branch office license for the Project, such cost shall be reimbursed Broker by Owner.

(b)      Goodwill.  Broker shall conduct its activities and regulate its habits so as to maintain and to increase, rather than diminish, the goodwill and reputation of Owner and the Project.

(c)      Compliance with Law.  Broker shall comply with all applicable rules, regulations and laws applying solely to Broker, including, without limitation, all rules and regulations of the California Department of Real Estate and any other public agency having jurisdiction over the sale of Residences.

(d)      Owner Rules.  Broker shall comply with all rules and policies established from time to time by Owner that relate to the Project and the activities related to the sale of Residences.

(e)      Correspondence.  All letters and electronic mail received and copies of all letters and electronic mail written by Broker or any person employed by Broker pertaining to the Project or the business of Owner shall be the property of Owner and be turned over to Owner for its records.

(f)       Deposits.  All money, documents or property received by Broker in connection with any transaction related to the sale of Residences shall be immediately delivered to escrow; provided that such delivery is in compliance with California real estate law. All checks or money orders shall be made payable to Owner or the escrow holder approved by Owner. Broker shall promptly make a complete and accurate accounting to Owner of all transactions.

(g)      Sales Process.  Broker shall manage the contract execution and escrow process including coordination of all necessary signatures and documents for finance and escrow.

(h)      Salespersons.  Broker shall insure that sales agents employed by Broker comply with all terms and provisions of this Agreement as they apply to Sales Agent.

(i)       Purchaser Assistance.  Broker shall assist purchasers in the execution and delivery of all sales, Residence escrow, lender and related documentation and in the delivery and deposit of all funds.

(j)       Selection of Optional Items.  Broker shall coordinate the selection of Residence optional items and upgrades by Residence purchases based on upgrade and option lists and procedures, including selection and deposit schedules, provided or approved by Owner.

(k)      Inspections and Move Ins.  Broker shall coordinate the walk through inspection and move-ins for all Residences with purchases based on procedures and schedules provided or approved by Owner.

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6.       Intentionally Omitted.

7.       Broker Authority.

(a)      Agent for Soliciting Offers.  Broker is only the agent of Owner for purposes of soliciting offers for the purchase of Residences in accordance with this Agreement. Broker is not an agent for Owner for any other purpose.

(b)      No Authority to Bind.  Except as authorized in writing by Owner, Broker shall not have the authority to bind Owner or any third parties in connection with any matter, including, without limitation, the purchase or sale of Residences, materials or services or in any other way obligate Owner or expose Owner to liability, without first obtaining the prior written consent of Owner.

(c)      Independent Contractor.  Neither Broker nor any employee or agent of Broker shall be an employee of Owner for any purpose, including, without limitation tax purposes, and Broker shall be solely an independent contractor under this Agreement. Any amounts paid Broker under this Agreement shall constitute earnings from self-employment income, and Owner shall not withhold any amount therefrom for tax, insurance or any other withholding purpose. Broker shall not be entitled to any benefits normally provided by Owner to its employees, including, without limitation, health insurance, profit sharing, life insurance, vacation benefits or otherwise.

8.       Broker’s Insurance.  Broker shall maintain insurance in form and coverage as required by Owner.

9.       Term.  The term of this Agreement shall commence on the date this Agreement is executed and shall expire on the date which is sixty (60) days following the close of escrow for the sale of the final residence in the Project.

10.     Miscellaneous.

(a)      No Assignment.  This Agreement and the right to receive payment hereunder is personal to Broker and any attempted assignment in whole or in part without the prior written consent of Owner, which consent may be withheld in Owner sole discretion, shall be ineffective and shall constitute a breach of this Agreement.

(b)      Amendments.  This Agreement may not be amended or modified in any respect whatsoever except in writing duly executed by the parties.

(c)      No Third Party Beneficiaries.  This Agreement is between the parties hereto only and is not intended to be, nor shall it be construed as being, for the benefit of any third party or parties except the parties.

(d)      Governing Law.  This Agreement shall be governed by and construed under the laws of the State of California.

E-4

(e)      Invalidity of Provision.  If any provision of this Agreement shall be held under any law or rule to be invalid or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement, the application of such provision under different circumstances or the validity or enforceability of the Agreement as a whole.

(f)      Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but which together shall constitute but one and the same instrument.

(g)      Notices.  All notices or other communications between the parties required or permitted hereunder shall be in writing and personally delivered or sent by certified mail, return receipt requested and prepaid, or sent by reputable overnight courier (such as Federal Express, UPS ), or transmitted by electronic facsimile transmission (with electronic confirmation of receipt) to the addresses set forth on the signature page. A notice shall be effective on the date of personal delivery if personally delivered before 5:00 p.m., otherwise on the day following personal delivery, or on the date of receipt, if transmitted by electronic facsimile transmission (with electronic confirmation of receipt) prior to 5:00 p.m. or otherwise on the next business day, or two (2) business days following the date the notice is postmarked, if mailed, or on the day following delivery to the applicable overnight courier, if sent by overnight courier. Either party may change the address to which notices are to be given to it by giving notice of such change of address in the manner set forth above for giving notice.

(h)      Waiver.  No waiver by Owner of any breach or default of any of the provisions of this Agreement by Broker and no failure to enforce any of the provisions hereof shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other provision. No waiver of any breach or default of Broker hereunder shall be implied from any delay or failure by Owner to take any action on account of such breach or default, whether or not such breach or default persists or is repeated, and no express waiver shall affect a breach or default other than as specified in said waiver. The consent or approval by Owner to or of any act by Broker shall not be deemed to be the consent or approval by Owner to or of any subsequent similar acts by Broker.

(i)      Construction.  Each party has reviewed and revised this Agreement and any rule of construction that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement.

(j)      Entire Agreement.  This Agreement is the entire Agreement between the parties with respect to the subject matter hereof, and neither party has relied upon any other communication whatsoever in entering into this Agreement. Any agreements, understandings, promises or representations not expressly contained herein shall in no way bind either party.

Signatures on following page

E-5

The parties have executed this Agreement as of the Effective Date.

“Owner”	“Broker”
TNHC NEWPORT LLC,	TNHC REALTY AND CONSTRUCTION, INC.,
a Delaware limited liability company	a Delaware corporation
By:
	By:
Title: Managing Member
	Name:
By:
	Title:
Name:
Title:	By:
	Name:
By:
	Title:
Name:
Title:	Address:
	95 Enterprise, Suite 325
	Aliso Viejo, CA  92656
	Fax:  (949) 382-7801
Address:
95 Enterprise, Suite 325
Aliso Viejo, CA  92656
Fax:  (949) 382-7801

E-6

EXHIBIT F

INITIAL ANNUAL BUDGET

(to be attached)

TNHC Newport LLC

Proforma

2/19/13

		Original Budget Feb 2013			Approved Adj		PRIOR BUDGET		Proposed Adj		PROPOSED BUDGET						Activity Summary
																	Actuals thru 2/19/13		Remaining
REVENUE	du													per du	%
Ph 1 Base	26		48,030,700			-		48,030,700		-		48,030,700		1,847,335	23.9	%		-		48,030,700
Ph 2 Base	53		102,590,300			-		102,590,300		-		102,590,300		1,935,666	51.1	%		-		102,590,300
Subtotal	79		150,621,000			-		150,621,000		-		150,621,000		1,906,595	75.1	%		-		150,621,000
Lot Premiums			43,951,800			-		43,951,800		-		43,951,800		556,352	21.9	%		-		43,951,800
Upgrade Revenue			5,946,500			-		5,946,500		-		5,946,500		75,272	3.0	%		-		5,946,500
Model Recovery			163,600			-		163,600		-		163,600		2,071	0.1	%		-		163,600
TOTAL REVENUE			200,682,900			-		200,682,900		-		200,682,900		2,540,290	100	%		-		200,682,900
PROJECT COSTS
Land			24,750,000			-		24,750,000		-		24,750,000		313,291	12.3	%		4,000,000		20,750,000
Pre-acq Costs			1,096,500			-		1,096,500		-		1,096,500		13,880	0.5	%		475,671		620,829
Site Consultants			1,087,600			-		1,087,600		-		1,087,600		13,767	0.5	%		590,425		497,175
Site Fees			6,011,600			-		6,011,600		-		6,011,600		76,096	3.0	%		9,755		6,001,845
Site Improvements			7,306,800			-		7,306,800		-		7,306,800		92,491	3.6	%		-		7,306,800
Podium			11,502,200			-		11,502,200		-		11,502,200		145,597	5.7	%		-		11,502,200
Common Area			2,190,300			-		2,190,300		-		2,190,300		27,725	1.1	%		-		2,190,300
Other Site Costs			-			-		-		-		-		-				-		-
Development Costs			29,195,000			-		29,195,000		-		29,195,000		369,557	14.5	%		1,075,851		28,119,149
Directs - Ph 1			20,465,500			-		20,465,500		-		20,465,500		259,057	10.2	%		-		20,465,500
Directs - Ph 2			39,493,500			-		39,493,500		-		39,493,500		499,918	19.7	%		-		39,493,500
Upgrade Costs			4,162,500			-		4,162,500		-		4,162,500		52,690	2.1	%		-		4,162,500
Bldg Permits & Fees			11,594,000			-		11,594,000		-		11,594,000		146,759	5.8	%		35,157		11,558,843
House Consultants			3,488,600			-		3,488,600		-		3,488,600		44,159	1.7	%		1,934,373		1,554,227
Indirects			2,438,900			-		2,438,900		-		2,438,900		30,872	1.2	%		31,822		2,407,078
Warranty			2,006,800			-		2,006,800		-		2,006,800		25,403	1.0	%		-		2,006,800
Model/Sales Ofc Startup			780,500			-		780,500		-		780,500		9,880	0.4	%		146,357		634,143
Prop Tax / HOA / Other			2,612,900			-		2,612,900		-		2,612,900		33,075	1.3	%		1,192		2,611,708
Insurance			2,232,500			-		2,232,500		-		2,232,500		28,259	1.1	%		-		2,232,500
Interest / Fees			6,781,800			-		6,781,800		-		6,781,800		85,846	3.4	%		19,056		6,762,744
House Costs			96,057,500			-		96,057,500		-		96,057,500		1,215,918	47.9	%		2,167,957		93,889,543
GROSS PROFIT			50,680,400			-		50,680,400		-		50,680,400		641,524	25.3	%
OTHER COSTS
Mgmt Fee - HW			2,006,800			-		2,006,800		-		2,006,800		25,403	1.0	%		-		2,006,800
Mgmt Fee - TNHC			6,020,500			-		6,020,500		-		6,020,500		76,209	3.0	%		-		6,020,500
Commissions			2,618,900			-		2,618,900		-		2,618,900		33,151	1.3	%		-		2,618,900
Closing Costs			602,000			-		602,000		-		602,000		7,620	0.3	%		-		602,000
Mktg & Advertising			850,500			-		850,500		-		850,500		10,766	0.4	%		-		850,500
Sales Personnel			617,500			-		617,500		-		617,500		7,816	0.3	%		-		617,500
Model / Sales Ofc Ops			126,700			-		126,700		-		126,700		1,604	0.1	%		-		126,700
			12,842,900			-		12,842,900		-		12,842,900		162,568	6.4	%		-		12,842,900
Other (Income) Expense			-			-		-		-		-		-				-		-
TOTAL COSTS			162,845,400			-		162,845,400		-		162,845,400		2,061,334	81.1	%		7,243,808		155,601,592
NET INCOME			37,837,500			-		37,837,500		-		37,837,500		478,956	18.9	%
		ok									ok
INVESTMENT SUMMARY
Hillwood Contrib			(32,327,815	)		-		-		-		(32,327,815	)					-		(32,327,815	)
Hillwood Distrib			53,185,415			-		-		-		53,185,415						-		53,185,415
Hillwood Return			20,857,600			-		-		-		20,857,600						-		20,857,600
												28.4% IRR ; 1.8x
TNHC Contrib			(17,407,285	)		-		-		-		(17,407,285	)					-		(17,407,285	)
TNHC Distrib			34,387,185			-		-		-		34,387,185						-		34,387,185
TNHC Return			16,979,900			-		-		-		16,979,900						-		16,979,900
												39.7% IRR ; 2.1x
Total Contributions			(49,735,100	)		-		-		-		(49,735,100	)					-		(49,735,100	)
Total Distributions			87,572,600			-		-		-		87,572,600						-		87,572,600
Total Return			37,837,500			-		-		-		37,837,500						-		37,837,500
												32.5% IRR ; 1.9x

TNHC Newport LLC

Projected Cash Flow

	Proposed Budget 2/15/13
			Total Cash Flow		Est Feb-13			Est Mar-13			Est Apr-13			Rem May-13			Rem Jun-13			Rem Jul-13			Rem Aug-13			Rem Sep-13			Rem Oct-13			Rem Nov-13			Rem Dec-13			Rem Jan-14
REVENUE
Phase 1		48,030,700		48,030,700
Phase 2		102,590,300		102,590,300
Subtotal		150,621,000		150,621,000		-			-			-			-			-			-			-			-			-			-			-			-
Lot Premiums		43,951,800		43,951,800
Upgrade Revenue		5,946,500		5,946,500
Model Recovery		163,600		163,600
TOTAL REVENUE		200,682,900		200,682,900		-			-			-			-			-			-			-			-			-			-			-			-
PROJECT COSTS
Land		24,750,000		24,750,000		4,000,000			20,750,000			-			-
Pre-acq Costs		1,096,500		1,096,500		500,000			596,500			-			-			-			-			-			-			-			-			-			-
Site Consultants		1,087,600		1,087,600		610,000			100,000			100,000			100,000			90,000			87,600			-			-			-			-			-			-
Site Fees		6,011,600		6,011,600		50,000			100,000			100,000			1,705,600			100,000			100,000			-			-			-			-			-			-
Site Improvements		7,306,800		7,306,800		-			-			-			3,653,400			3,653,400			-			-			-			-			-			-			-
Podium		11,502,200		11,502,200		-			-			-			-			-			3,290,700			3,290,700			3,290,700			1,630,100			-			-			-
Common Area		2,190,300		2,190,300		-			-			-			125,000			125,000			471,500			482,500			365,200			365,200			18,600			18,600			18,600
Development Costs		29,195,000		29,195,000		1,160,000			796,500			200,000			5,584,000			3,968,400			3,949,800			3,773,200			3,655,900			1,995,300			18,600			18,600			18,600
Directs - Ph 1		20,465,500		20,465,500		-			-			-			-			-			-			-			-			4,093,100			4,093,100			4,093,100			3,069,900
Directs - Ph 2		39,493,500		39,493,500		-			-			-			-			-			-			-			-			-			-			-			-
Upgrade Costs		4,162,500		4,162,500		-			-			-			-			-			-			-			-			-			-			-			-
Bldg Permits & Fees		11,594,000		11,594,000		40,000			-			-			-			-			-			-			-			2,183,000			-			-			-
House Consultants		3,488,600		3,488,600		2,100,000			180,000			160,000			140,000			120,000			100,000			100,000			100,000			80,000			80,000			80,000			80,000
General Conditions		2,438,900		2,438,900		40,000			10,000			13,900			30,000			60,000			85,000			85,000			85,000			85,000			85,000			85,000			85,000
Warranty		2,006,800		2,006,800		-			-			-			-			-			-			-			-			-			-			-			-
Model / SO Startup		780,500		780,500		150,000			5,000			5,000			5,000			-			-			-			-			-			5,000			5,000			5,000
Prop Tax / HOA / Other Legal		2,612,900		2,612,900		10,000			200,000			180,000			40,000			40,000			40,000			40,000			40,000			33,900			376,000			30,000			30,000
Insurance		2,232,500		2,232,500		-			25,000			-			-			-			-			-			-			-			-			-			-
Interest / Fees		6,781,800		6,781,800		-			450,000			-			-			-			-			-			30,580			56,560			118,140			147,130			183,810
House Costs		96,057,500		96,057,500		2,340,000			870,000			358,900			215,000			220,000			225,000			225,000			255,580			6,531,560			4,757,240			4,440,230			3,453,710
OTHER COSTS
Mgmt Fee - Hillwood		2,006,800		2,006,800		-			33,450			33,450			33,450			33,450			33,450			33,450			33,450			33,450			33,450			33,450			33,450
Mgmt Fee - TNHC		6,020,500		6,020,500		-			100,350			100,350			100,350			100,350			100,350			100,350			100,350			100,350			100,350			100,350			100,350
Commissions		2,618,900		2,618,900		-			-			-			-			-			-			-			-			-			-			-			-
Closing Costs		602,000		602,000		-			-			-			-			-			-			-			-			-			-			-			-
Mktg & Advertising		850,500		850,500		-			-			-			-			-			-			-			-			5,000			10,000			20,000			30,000
Sales Personnel		617,500		617,500		-			-			-			-			-			-			-			-			-			-			-			-
Model / SO Ops		126,700		126,700		-			-			-			-			-			-			-			-			-			-			-			-
		12,842,900		12,842,900		-			133,800			133,800			133,800			133,800			133,800			133,800			133,800			138,800			143,800			153,800			163,800
Other (Inc) Exp		-		-		-			-			-			-			-			-			-			-			-			-			-			-
TOTAL COSTS		162,845,400		162,845,400		7,500,000			22,550,300			692,700			5,932,800			4,322,200			4,308,600			4,132,000			4,045,280			8,665,660			4,919,640			4,612,630			3,636,110
PROJECT CASH FLOW		37,837,500		37,837,500		(7,500,000	)		(22,550,300	)		(692,700	)		(5,932,800	)		(4,322,200	)		(4,308,600	)		(4,132,000	)		(4,045,280	)		(8,665,660	)		(4,919,640	)		(4,612,630	)		(3,636,110	)

2 of 22

TNHC Newport LLC

Projected Cash Flow

	Rem			Rem			Rem			Rem		Rem		Rem		Rem			Rem			Rem			Rem			Rem			Rem			Rem			Rem
	Feb-14			Mar-14			Apr-14			May-14		Jun-14		Jul-14		Aug-14			Sep-14			Oct-14			Nov-14			Dec-14			Jan-15			Feb-15			Mar-15
REVENUE
Phase 1											19,963,800		18,648,900		7,459,500
Phase 2
Subtotal		-			-			-			19,963,800		18,648,900		7,459,500		-			-			-			-			-			-			-			-
Lot Premiums											8,331,500		3,482,600		1,393,000
Upgrade Revenue											798,600		745,900		298,400
Model Recovery
TOTAL REVENUE		-			-			-			29,093,900		22,877,400		9,150,900		-			-			-			-			-			-			-			-
PROJECT COSTS
Land
Pre-acq Costs		-			-			-			-		-		-		-			-			-			-			-			-			-			-
Site Consultants		-			-			-			-		-		-		-			-			-			-			-			-			-			-
Site Fees		-			-			-			-		-		-		3,856,000			-			-			-			-			-			-			-
Site Improvements		-			-			-			-		-		-		-			-			-			-			-			-			-			-
Podium		-			-			-			-		-		-		-			-			-			-			-			-			-			-
Common Area		18,600			18,600			18,600			18,600		18,600		18,600		11,100			11,100			11,100			11,100			11,100			11,000			11,000			11,000
Development Costs		18,600			18,600			18,600			18,600		18,600		18,600		3,867,100			11,100			11,100			11,100			11,100			11,000			11,000			11,000
Directs - Ph 1		3,069,900			1,023,200			1,023,200			-		-		-		-			-			-			-			-			-			-			-
Directs - Ph 2		-			-			-			-		-		-		3,949,400			5,924,100			7,898,600			3,949,400			3,949,400			3,949,400			3,949,400			1,974,600
Upgrade Costs		-			-			-			559,000		522,200		208,900		-			-			-			-			-			-			-			-
Bldg Permits & Fees		-			-			-			696,000		633,000		253,000		6,626,000			-			-			-			-			-			-			-
House Consultants		50,000			30,000			5,000			5,000		5,000		5,000		5,000			5,000			5,000			5,000			5,000			5,000			5,000			5,000
General Conditions		85,000			85,000			85,000			85,000		85,000		85,000		85,000			85,000			85,000			85,000			85,000			85,000			85,000			85,000
Warranty		-			-			-			290,900		228,800		91,500		-			-			-			-			-			-			-			-
Model / SO Startup		150,500			150,000			150,000			150,000		-		-		-			-			-			-			-			-			-			-
Prop Tax / HOA / Other Legal		30,000			30,000			462,000			10,000		10,000		10,000		10,000			10,000			10,000			390,000			10,000			10,000			10,000			10,000
Insurance		-			1,103,800			-			-		-		-		-			-			-			-			-			-			-			1,103,700
Interest / Fees		208,860			212,330			254,940			262,010		91,660		675,000		630,000			79,280			118,760			180,040			206,310			243,900			274,880			276,440
House Costs		3,594,260			2,634,330			1,980,140			2,057,910		1,575,660		1,328,400		11,305,400			6,103,380			8,117,360			4,609,440			4,255,710			4,293,300			4,324,280			3,454,740
OTHER COSTS
Mgmt Fee - Hillwood		33,450			33,450			33,450			178,920		147,840		79,200		33,450			33,450			33,450			33,450			33,450			33,450			33,450			33,450
Mgmt Fee - TNHC		100,350			100,350			100,350			536,760		443,510		237,610		100,350			100,350			100,350			100,350			100,350			100,350			100,350			100,350
Commissions		-			-			-			377,900		300,500		120,100		-			-			-			-			-			-			-			-
Closing Costs		-			-			-			87,300		68,600		27,500		-			-			-			-			-			-			-			-
Mktg & Advertising		60,000			90,000			120,000			90,000		90,000		28,000		28,000			28,000			28,000			28,000			28,000			28,000			28,000			28,000
Sales Personnel		-			5,500			34,000			34,000		34,000		34,000		34,000			34,000			34,000			34,000			34,000			34,000			34,000			34,000
Model / SO Ops		-			700			7,000			7,000		7,000		7,000		7,000			7,000			7,000			7,000			7,000			7,000			7,000			7,000
		193,800			230,000			294,800			1,311,880		1,091,450		533,410		202,800			202,800			202,800			202,800			202,800			202,800			202,800			202,800
Other (Inc) Exp		-			-			-			-		-		-		-			-			-			-			-			-			-			-
TOTAL COSTS		3,806,660			2,882,930			2,293,540			3,388,390		2,685,710		1,880,410		15,375,300			6,317,280			8,331,260			4,823,340			4,469,610			4,507,100			4,538,080			3,668,540
PROJECT CASH FLOW		(3,806,660	)		(2,882,930	)		(2,293,540	)		25,705,510		20,191,690		7,270,490		(15,375,300	)		(6,317,280	)		(8,331,260	)		(4,823,340	)		(4,469,610	)		(4,507,100	)		(4,538,080	)		(3,668,540	)

3 of 22

TNHC Newport LLC

Projected Cash Flow

	Rem			Rem			Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
	Apr-15			May-15			Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
REVENUE
Phase 1														1,958,500								48,030,700
Phase 2								50,278,500		34,840,300		11,647,600		5,823,900								102,590,300
Subtotal		-			-			50,278,500		34,840,300		11,647,600		7,782,400		-		-		-		150,621,000
Lot Premiums								13,878,900		10,407,800		3,800,400		2,657,600								43,951,800
Upgrade Revenue								2,011,100		1,393,600		465,900		233,000								5,946,500
Model Recovery														163,600								163,600
TOTAL REVENUE		-			-			66,168,500		46,641,700		15,913,900		10,836,600		-		-		-		200,682,900
PROJECT COSTS
Land																						24,750,000
Pre-acq Costs		-			-			-		-		-		-		-		-		-		1,096,500
Site Consultants		-			-			-		-		-		-		-		-		-		1,087,600
Site Fees		-			-			-		-		-		-		-		-		-		6,011,600
Site Improvements		-			-			-		-		-		-		-		-		-		7,306,800
Podium		-			-			-		-		-		-		-		-		-		11,502,200
Common Area		-			-			-		-		-		-		-		-		-		2,190,300
Development Costs		-			-			-		-		-		-		-		-		-		29,195,000
Directs - Ph 1		-			-			-		-		-		-		-		-		-		20,465,500
Directs - Ph 2		1,974,600			1,974,600			-		-		-		-		-		-		-		39,493,500
Upgrade Costs		-			-			1,407,800		975,500		326,100		163,000		-		-		-		4,162,500
Bldg Permits & Fees		-			-			630,000		500,000		-		33,000		-		-		-		11,594,000
House Consultants		5,000			5,000			5,000		5,000		5,000		3,600		-		-		-		3,488,600
General Conditions		85,000			85,000			85,000		85,000		85,000		75,000				-		-		2,438,900
Warranty		-			-			661,700		466,400		159,100		108,400		-		-		-		2,006,800
Model / SO Startup		-			-			-		-		-		-		-		-		-		780,500
Prop Tax / HOA / Other Legal		500,000			10,000			10,000		10,000		10,000		1,000		-		-		-		2,612,900
Insurance		-			-			-		-		-		-		-		-		-		2,232,500
Interest / Fees		331,260			341,230			370,640		93,040		-		945,000		-		-		-		6,781,800
House Costs		2,895,860			2,415,830			3,170,140		2,134,940		585,200		1,329,000		-		-		-		96,057,500
OTHER COSTS
Mgmt Fee - Hillwood		33,450			33,450			364,290		266,660		113,020		54,070		-		-		-		2,006,800
Mgmt Fee - TNHC		100,350			100,350			1,092,880		799,980		339,060		162,300		-		-		-		6,020,500
Commissions		-			-			864,900		609,000		207,500		139,000		-		-		-		2,618,900
Closing Costs		-			-			198,500		139,900		47,700		32,500		-		-		-		602,000
Mktg & Advertising		28,000			28,000			27,500		-		-		-		-		-		-		850,500
Sales Personnel		34,000			34,000			34,000		34,000		34,000		34,000		-		-		-		617,500
Model / SO Ops		7,000			7,000			7,000		7,000		7,000		7,000		-		-		-		126,700
		202,800			202,800			2,589,070		1,856,540		748,280		428,870		-		-		-		12,842,900
Other (Inc) Exp		-			-			-		-		-		-		-		-		-		-
TOTAL COSTS		3,098,660			2,618,630			5,759,210		3,991,480		1,333,480		1,757,870		-		-		-		162,845,400
PROJECT CASH FLOW		(3,098,660	)		(2,618,630	)		60,409,290		42,650,220		14,580,420		9,078,730		-		-		-		37,837,500

4 of 22

TNHC Newport LLC

Projected Cash Flow

		Proposed Budget 2/15/13		Total Cash Flow
						Est		Est		Est		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem
						Feb-13		Mar-13		Apr-13		May-13		Jun-13		Jul-13		Aug-13		Sep-13		Oct-13		Nov-13		Dec-13		Jan-14
CASH FLOW SUMMARY
Project Cash Flow			37,837,500		37,837,500		(7,500,000)		(22,550,300)		(692,700)		(5,932,800)		(4,322,200)		(4,308,600)		(4,132,000)		(4,045,280)		(8,665,660)		(4,919,640)		(4,612,630)		(3,636,110)
Other Loan					-		-		-		-		-		-		-		-		-		-		-		-		-
Ph 1 Loan			-		-		-		-		-		-		-		-		4,438,600		4,045,280		8,665,660		4,919,640		4,612,630		3,636,110
Ph 2 Loan			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Contrib (Distrib) - Hillwood			(20,857,600)		(20,857,600)		4,875,000		14,852,695		450,255		3,856,320		2,809,430		2,670,590		60,710		-		-		-		-		-
Contrib (Distrib) - TNHC			(16,979,900)		(16,979,900)		2,625,000		7,997,605		242,445		2,076,480		1,512,770		1,438,010		32,690		-		-		-		-		-
Accts Rec					-		-		-		-		-		-		-		-		-		-		-		-		-
A/P					-		-		-		-		-		-		-		-		-		-		-		-		-
Accrued Liab					-		-		-		-		-		-		-		-		-		-		-		-		-
Ending Cash Balance			-		-		-		300,000		300,000		300,000		300,000		100,000		500,000		500,000		500,000		500,000		500,000		500,000
INPUT: Cash Target					13,600,000		-		300,000		300,000		300,000		300,000		100,000		500,000		500,000		500,000		500,000		500,000		500,000
INPUT: Cash Contrib Req					49,735,100		7,500,000		22,850,300		692,700		5,932,800		4,322,200		4,108,600		93,400		-		-		-		-		-
INPUT: Cash Avail for Distrib					(87,572,600)		-		-		-		-		-		-		-		-		-		-		-		-
Net Investment CF			-		37,837,500		(7,500,000)		(22,850,300)		(692,700)		(5,932,800)		(4,322,200)		(4,108,600)		(93,400)		-		-		-		-		-
			IRR		32.5%
			Multiple		1.91x
HILLWOOD INVESTMENT SUMMARY							65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%
Capital Contrib					(32,327,815)		(4,875,000)		(14,852,695)		(450,255)		(3,856,320)		(2,809,430)		(2,670,590)		(60,710)		-		-		-		-		-
Capital Distrib			-		32,327,815		-		-		-		-		-		-		-		-		-		-		-		-
HW Net Capital			-		-		(4,875,000)		(14,852,695)		(450,255)		(3,856,320)		(2,809,430)		(2,670,590)		(60,710)		-		-		-		-		-
Investment Bal			-		-		(4,875,000)		(19,727,695)		(20,177,950)		(24,034,270)		(26,843,700)		(29,514,290)		(29,575,000)		(29,575,000)		(29,575,000)		(29,575,000)		(29,575,000)		(29,575,000)
Pref Distrib			-		8,401,690		-		-		-		-		-		-		-		-		-		-		-		-
Profit Distrib			-		12,455,910		-		-		-		-		-		-		-		-		-		-		-		-
Total Hillwood CF			-		20,857,600		(4,875,000)		(14,852,695)		(450,255)		(3,856,320)		(2,809,430)		(2,670,590)		(60,710)		-		-		-		-		-
Cumulative CF			-		41,715,200		(4,875,000)		(19,727,695)		(20,177,950)		(24,034,270)		(26,843,700)		(29,514,290)		(29,575,000)		(29,575,000)		(29,575,000)		(29,575,000)		(29,575,000)		(29,575,000)
Peak	29,763,890		HW IRR		28.4%
			Multiple		1.79x
TNHC JV INVESTMENT SUMMARY							35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%
Contributions					(17,407,285)		(2,625,000)		(7,997,605)		(242,445)		(2,076,480)		(1,512,770)		(1,438,010)		(32,690)		-		-		-		-		-
Distributions			-		17,407,285		-		-		-		-		-		-		-		-		-		-		-		-
TNHC Net Capital			-		-		(2,625,000)		(7,997,605)		(242,445)		(2,076,480)		(1,512,770)		(1,438,010)		(32,690)		-		-		-		-		-
Investment Bal			-		-		(2,625,000)		(10,622,605)		(10,865,050)		(12,941,530)		(14,454,300)		(15,892,310)		(15,925,000)		(15,925,000)		(15,925,000)		(15,925,000)		(15,925,000)		(15,925,000)
Pref Distrib			-		4,523,990		-		-		-		-		-		-		-		-		-		-		-		-
Profit Distrib			-		12,455,910		-		-		-		-		-		-		-		-		-		-		-		-
Total TNHC CF			-		16,979,900		(2,625,000)		(7,997,605)		(242,445)		(2,076,480)		(1,512,770)		(1,438,010)		(32,690)		-		-		-		-		-
Cumulative CF			-		33,959,800		(2,625,000)		(10,622,605)		(10,865,050)		(12,941,530)		(14,454,300)		(15,892,310)		(15,925,000)		(15,925,000)		(15,925,000)		(15,925,000)		(15,925,000)		(15,925,000)
Peak	16,026,710		TNHC IRR		39.7%
			Multiple		2.15x
													35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%
			NOTES:

5 of 22

TNHC Newport LLC

Projected Cash Flow

			Rem Feb-14		Rem Mar-14		Rem Apr-14		Rem May-14		Rem Jun-14		Rem Jul-14		Rem Aug-14		Rem Sep-14		Rem Oct-14		Rem Nov-14		Rem Dec-14		Rem Jan-15		Rem Feb-15		Rem Mar-15
CASH FLOW SUMMARY
	Project Cash Flow			(3,806,660)		(2,882,930)		(2,293,540)		25,705,510		20,191,690		7,270,490		(15,375,300)		(6,317,280)		(8,331,260)		(4,823,340)		(4,469,610)		(4,507,100)		(4,538,080)		(3,668,540)
	Other Loan			-		-		-		-		-		-		-		-		-		-		-		-		-		-
	Ph 1 Loan			3,806,660		2,882,930		2,293,540		(25,996,110)		(13,304,940)		-		-		-		-		-		-		-		-		-
	Ph 2 Loan			-		-		-		-		-		-		11,508,200		6,306,180		8,320,160		4,812,240		4,458,510		4,496,100		4,527,080		3,657,540
	Contrib (Distrib) - Hillwood			-		-		-		188,890		(4,476,416)		(4,725,756)		2,513,615		7,215		7,215		7,215		7,215		7,150		7,150		7,150
	Contrib (Distrib) - TNHC			-		-		-		101,710		(2,410,384)		(2,544,644)		1,353,485		3,885		3,885		3,885		3,885		3,850		3,850		3,850
	Accts Rec			-		-		-		-		-		-		-		-		-		-		-		-		-		-
	A/P			-		-		-		-		-		-		-		-		-		-		-		-		-		-
	Accrued Liab			-		-		-		-		-		-		-		-		-		-		-		-		-		-
	Ending Cash Balance			500,000		500,000		500,000		500,000		499,950		500,040		500,040		500,040		500,040		500,040		500,040		500,040		500,040		500,040
INPUT: Cash Target				500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000		500,000
INPUT: Cash Contrib Req				-		-		-		290,600		-		-		3,867,100		11,100		11,100		11,100		11,100		11,000		11,000		11,000
INPUT: Cash Avail for Distrib				-		-		-		-		(6,886,800)		(7,270,400)		-		-		-		-		-		-		-		-
Net Investment CF				-		-		-		(290,600)		6,886,800		7,270,400		(3,867,100)		(11,100)		(11,100)		(11,100)		(11,100)		(11,000)		(11,000)		(11,000)
HILLWOOD INVESTMENT SUMMA				65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%
Capital Contrib				-		-		-		(188,890)		-		-		(2,513,615)		(7,215)		(7,215)		(7,215)		(7,215)		(7,150)		(7,150)		(7,150)
Capital Distrib				-		-		-		-		-		4,328,792		-		-		-		-		-		-		-		-
HW Net Capital				-		-		-		(188,890)		-		4,328,792		(2,513,615)		(7,215)		(7,215)		(7,215)		(7,215)		(7,150)		(7,150)		(7,150)
Investment Bal				(29,575,000)		(29,575,000)		(29,575,000)		(29,763,890)		(29,763,890)		(25,435,098)		(27,948,713)		(27,955,928)		(27,963,143)		(27,970,358)		(27,977,573)		(27,984,723)		(27,991,873)		(27,999,023)
Pref Distrib				-		-		-		-		4,476,416		396,964		-		-		-		-		-		-		-		-
Profit Distrib				-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total Hillwood CF				-		-		-		(188,890)		4,476,416		4,725,756		(2,513,615)		(7,215)		(7,215)		(7,215)		(7,215)		(7,150)		(7,150)		(7,150)
Cumulative CF				(29,575,000)		(29,575,000)		(29,575,000)		(29,763,890)		(25,287,474)		(20,561,718)		(23,075,333)		(23,082,548)		(23,089,763)		(23,096,978)		(23,104,193)		(23,111,343)		(23,118,493)		(23,125,643)
Peak		29,763,890
TNHC JV INVESTMENT SUMMAR				35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%
Contributions				-		-		-		(101,710)		-		-		(1,353,485)		(3,885)		(3,885)		(3,885)		(3,885)		(3,850)		(3,850)		(3,850)
Distributions				-		-		-		-		-		2,330,888		-		-		-		-		-		-		-		-
TNHC Net Capital				-		-		-		(101,710)		-		2,330,888		(1,353,485)		(3,885)		(3,885)		(3,885)		(3,885)		(3,850)		(3,850)		(3,850)
Investment Bal				(15,925,000)		(15,925,000)		(15,925,000)		(16,026,710)		(16,026,710)		(13,695,822)		(15,049,307)		(15,053,192)		(15,057,077)		(15,060,962)		(15,064,847)		(15,068,697)		(15,072,547)		(15,076,397)
Pref Distrib				-		-		-		-		2,410,384		213,756		-		-		-		-		-		-		-		-
Profit Distrib				-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total TNHC CF				-		-		-		(101,710)		2,410,384		2,544,644		(1,353,485)		(3,885)		(3,885)		(3,885)		(3,885)		(3,850)		(3,850)		(3,850)
Cumulative CF				(15,925,000)		(15,925,000)		(15,925,000)		(16,026,710)		(13,616,326)		(11,071,682)		(12,425,167)		(12,429,052)		(12,432,937)		(12,436,822)		(12,440,707)		(12,444,557)		(12,448,407)		(12,452,257)
Peak		16,026,710
				35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%		35.0%

6 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
		Apr-15		May-15		Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
CASH FLOW SUMMARY
Project Cash Flow			(3,098,660)		(2,618,630)		60,409,290		42,650,220		14,580,420		9,078,730		-		-		-		37,837,500
Other Loan			-		-		-		-		-		-		-		-		-		-
Ph 1 Loan			-		-		-		-		-		-		-		-		-		-
Ph 2 Loan			3,098,660		2,618,630		(53,803,300)		-		-		-		-		-		-		-
Contrib (Distrib) - Hillwood			-		-		(4,293,906)		(27,547,562)		(7,452,425)		(4,689,350)		-		-		-		(20,857,600)
Contrib (Distrib) - TNHC			-		-		(2,312,094)		(15,102,738)		(7,327,975)		(4,689,350)		-		-		-		(16,979,900)
Accts Rec			-		-		-		-		-		-		-		-		-		-
A/P			-		-		-		-		-		-		-		-		-		-
Accrued Liab			-		-		-		-		-		-		-		-		-		-
Ending Cash Balance			500,040		500,040		500,030		499,950		299,970		-		-		-		-		-
INPUT: Cash Target			500,000		500,000		500,000		500,000		300,000		-
INPUT: Cash Contrib Req			-		-		-		-		-		-		-		-		-		49,735,100
INPUT: Cash Avail for Distrib			-		-		(6,606,000)		(42,650,300)		(14,780,400)		(9,378,700)		-		-		-		(87,572,600)
Net Investment CF			-		-		6,606,000		42,650,300		14,780,400		9,378,700		-		-		-		37,837,500
HILLWOOD INVESTMENT SUMMARY			65%		65%		65%		65%		65%		65%		65%		65%		65%
Capital Contrib			-		-		-		-		-		-		-		-		-		(32,327,815)
Capital Distrib			-		-		1,035,236		26,963,787		-		-		-		-		-		32,327,815
HW Net Capital			-		-		1,035,236		26,963,787		-		-		-		-		-		-
Investment Bal			(27,999,023)		(27,999,023)		(26,963,787)		-		-		-		-		-		-
Pref Distrib			-		-		3,258,670		-		269,640		-		-		-		-		8,401,690
Profit Distrib			-		-		-		583,775		7,182,785		4,689,350		-		-		-		12,455,910
Total Hillwood CF			-		-		4,293,906		27,547,562		7,452,425		4,689,350		-		-		-		20,857,600
Cumulative CF			(23,125,643)		(23,125,643)		(18,831,737)		8,715,825		16,168,250		20,857,600		20,857,600		20,857,600		20,857,600
Peak	29,763,890
TNHC JV INVESTMENT SUMMARY			35%		35%		35%		35%		35%		35%		35%		35%		35%
Contributions			-		-		-		-		-		-		-		-		-		(17,407,285)
Distributions			-		-		557,434		14,518,963		-		-		-		-		-		17,407,285
TNHC Net Capital			-		-		557,434		14,518,963		-		-		-		-		-		-
Investment Bal			(15,076,397)		(15,076,397)		(14,518,963)		-		-		-		-		-		-
Pref Distrib			-		-		1,754,660		-		145,190		-		-		-		-		4,523,990
Profit Distrib			-		-		-		583,775		7,182,785		4,689,350		-		-		-		12,455,910
Total TNHC CF			-		-		2,312,094		15,102,738		7,327,975		4,689,350		-		-		-		16,979,900
Cumulative CF			(12,452,257)		(12,452,257)		(10,140,163)		4,962,575		12,290,550		16,979,900		16,979,900		16,979,900		16,979,900
Peak	16,026,710
			35.0%		35.0%		35.0%		36.3%		43.2%		44.9%		44.9%		44.9%		44.9%

7 of 22

TNHC Newport LLC

Projected Cash Flow

		Proposed Budget 2/15/13		Total Cash Flow
						Est		Est		Est		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem
						Feb-13		Mar-13		Apr-13		May-13		Jun-13		Jul-13		Aug-13		Sep-13		Oct-13		Nov-13		Dec-13		Jan-14
UNIT FLOW
SALES
Phase 1			26		26		-		-		-		-		-		-		-		-		-		-		-		-
Phase 2			53		53		-		-		-		-		-		-		-		-		-		-		-		-
Total Sales			79		79		-		-		-		-		-		-		-		-		-		-		-		-
STARTS
Phase 1			26		26		-		-		-		-		-		-		-		-		26		-		-		-
Phase 2			53		53		-		-		-		-		-		-		-		-		-		-		-		-
Total Starts			79		79		-		-		-		-		-		-		-		-		26		-		-		-
CLOSINGS
Phase 1			26		26		-		-		-		-		-		-		-		-		-		-		-		-
Phase 2			53		53		-		-		-		-		-		-		-		-		-		-		-		-
Total Closings			79		79		-		-		-		-		-		-		-		-		-		-		-		-
Backlog
Phase 1			26				-		-		-		-		-		-		-		-		-		-		-		-
Phase 2			53				-		-		-		-		-		-		-		-		-		-		-		-
Total Backlog							-		-		-		-		-		-		-		-		-		-		-		-
Inventory
Phase 1			26				-		-		-		-		-		-		-		-		26		26		26		26
Phase 2			53				-		-		-		-		-		-		-		-		-		-		-		-
Total Inventory							-		-		-		-		-		-		-		-		26		26		26		26
COST FORECAST
Warranty	1.00%		1.00%		2,006,800		-		-		-		-		-		-		-		-		-		-		-		-
Total Warranty			2,006,800		2,006,800		-		-		-		-		-		-		-		-		-		-		-		-
Closing Costs	0.30%		0.15%		602,000		-		-		-		-		-		-		-		-		-		-		-		-
Total Closing Costs			602,000		602,000		-		-		-		-		-		-		-		-		-		-		-		-
Broker Co-op	1.00%		200,682,900		2,006,800		-		-		-		-		-		-		-		-		-		-		-		-
Comm - House	0.22%		194,736,400		433,700		-		-		-		-		-		-		-		-		-		-		-		-
Comm - Design	3.00%		5,946,500		178,400		-		-		-		-		-		-		-		-		-		-		-		-
Total Commissions			2,618,900		2,618,900		-		-		-		-		-		-		-		-		-		-		-		-

8 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem
		Feb-14		Mar-14		Apr-14		May-14		Jun-14		Jul-14		Aug-14		Sep-14		Oct-14		Nov-14		Dec-14		Jan-15		Feb-15		Mar-15
UNIT FLOW
SALES
Phase 1			-		8		8		5		4		-		-		-		-		-		-		-		-		-
Phase 2			-		-		-		-		-		4		4		4		4		2		4		4		4		3
Total Sales			-		8		8		5		4		4		4		4		4		2		4		4		4		3
STARTS
Phase 1			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Phase 2			-		-		-		-		-		-		53		-		-		-		-		-		-		-
Total Starts			-		-		-		-		-		-		53		-		-		-		-		-		-		-
CLOSINGS
Phase 1			-		-		-		11		10		4		-				-		-		-		-		-		-
Phase 2			-		-		-		-		-		-		-				-		-		-		-		-		-
Total Closings			-		-		-		11		10		4		-		-		-		-		-		-		-		-
Backlog
Phase 1			-		8		16		10		4		-		-		-		-		-		-		-		-		-
Phase 2			-		-		-		-		-		4		8		12		16		18		22		26		30		33
Total Backlog			-		8		16		10		4		4		8		12		16		18		22		26		30		33
Inventory
Phase 1			26		26		26		15		5		1		1		1		1		1		1		1		1		1
Phase 2			-		-		-		-		-		-		53		53		53		53		53		53		53		53
Total Inventory			26		26		26		15		5		1		54		54		54		54		54		54		54		54
COST FORECAST
Warranty	1.00%		-		-		-		290,900		228,800		91,500		-		-		-		-		-		-		-		-
Total Warranty			-		-		-		290,900		228,800		91,500		-		-		-		-		-		-		-		-
Closing Costs	0.30%		-		-		-		87,300		68,600		27,500		-		-		-		-		-		-		-		-
Total Closing Costs			-		-		-		87,300		68,600		27,500		-		-		-		-		-		-		-		-
Broker Co-op	1.00%		-		-		-		290,900		228,800		91,500		-		-		-		-		-		-		-		-
Comm - House	0.22%		-		-		-		63,000		49,300		19,700		-		-		-		-		-		-		-		-
Comm - Design	3.00%		-		-		-		24,000		22,400		8,900		-		-		-		-		-		-		-		-
Total Commissions			-		-		-		377,900		300,500		120,100		-		-		-		-		-		-		-		-

9 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
		Apr-15		May-15		Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
UNIT FLOW
SALES
Phase 1			-		-		-		-		1		-		-		-		-		26
Phase 2			5		4		4		4		3		-		-		-		-		53
Total Sales			5		4		4		4		4		-		-		-		-		79
STARTS
Phase 1			-		-		-		-		-		-		-		-		-		26
Phase 2			-		-		-		-		-		-		-		-		-		53
Total Starts			-		-		-		-		-		-		-		-		-		79
CLOSINGS
Phase 1			-		-		-		-		-		1		-		-		-		26
Phase 2			-		-		26		18		6		3		-		-		-		53
Total Closings			-		-		26		18		6		4		-		-		-		79
Backlog
Phase 1			-		-		-		-		1		-		-		-		-
Phase 2			38		42		20		6		3		-		-		-		-
Total Backlog			38		42		20		6		4		-		-		-		-
Inventory
Phase 1			1		1		1		1		1		-		-		-		-
Phase 2			53		53		27		9		3		-		-		-		-
Total Inventory			54		54		28		10		4		-		-		-		-
COST FORECAST
Warranty	1.00%		-		-		661,700		466,400		159,100		108,400		-		-		-		2,006,800
Total Warranty			-		-		661,700		466,400		159,100		108,400		-		-		-		2,006,800
Closing Costs	0.30%		-		-		198,500		139,900		47,700		32,500		-		-		-		602,000
Total Closing Costs			-		-		198,500		139,900		47,700		32,500		-		-		-		602,000
Broker Co-op	1.00%		-		-		661,700		466,400		159,100		108,400		-		-		-		2,006,800
Comm - House	0.22%		-		-		142,900		100,800		34,400		23,600		-		-		-		433,700
Comm - Design	3.00%		-		-		60,300		41,800		14,000		7,000		-		-		-		178,400
Total Commissions			-		-		864,900		609,000		207,500		139,000		-		-		-		2,618,900

10 of 22

TNHC Newport LLC

Projected Cash Flow

			Proposed	Total Cash Flow
		Budget 2/15/13				Est Feb-13		Est Mar-13		Est Apr-13		Rem May-13		Rem Jun-13		Rem Jul-13		Rem Aug-13		Rem Sep-13		Rem Oct-13		Rem Nov-13		Rem Dec-13		Rem Jan-14
Ph 1 LOAN SUMMARY
Interest Rate	8.00%						8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%	8.00%
Interest Accrued				1,566,020			n/a		-		-		-		-		-		-		30,580		56,560		118,140		147,130	183,810
Loan Fee	1.00%			450,000					450,000
Exit Fee	1.50%			675,000
Balance Outstanding							-		-		-		-		-		-		4,438,600		8,483,880		17,149,540		22,069,180		26,681,810	30,317,920
Interest Funded				1,566,020			-		-		-		-		-		-		-		30,580		56,560		118,140		147,130	183,810
Loan Fee Funded				-			-		-		-		-		-		-		-		-		-		-		-	-
Ph 1 Draws				43,421,440			-		-		-		-		-		-		4,438,600		4,014,700		8,609,100		4,801,500		4,465,500	3,452,300
Paydowns				(44,987,460	)		-		-		-		-		-		-		-		-		-		-		-	-
Cash From (To) Ph 1 Loan				-			-		-		-		-		-		-		4,438,600		4,045,280		8,665,660		4,919,640		4,612,630	3,636,110
Ph 1 Loan Draws	Draw
Land	1.00		-	-			-		-		-		-		-		-		-		-		-		-		-	-
Dev’t Costs	1.00		-	10,257,200			-		-		-		-		-		-		4,438,600		3,655,900		1,995,300		18,600		18,600	18,600
Directs - Ph 1	1.00		-	20,465,500			-		-		-		-		-		-		-		-		4,093,100		4,093,100		4,093,100	3,069,900
Upgrades	1.00		-	1,290,100			-		-		-		-		-		-		-		-		-		-		-	-
Bldg Permits	1.00		-	3,765,000			-		-		-		-		-		-		-		-		2,183,000		-		-	-
House Consult	1.00		-	520,000			-		-		-		-		-		-		-		100,000		80,000		80,000		80,000	80,000
General Cond	1.00		-	935,000			-		-		-		-		-		-		-		85,000		85,000		85,000		85,000	85,000
Model/SO Startup	1.00		-	615,500			-		-		-		-		-		-		-		-		-		5,000		5,000	5,000
Prop Tax/Legal/Ins	1.00		-	2,165,700			-		-		-		-		-		-		-		40,000		33,900		376,000		30,000	30,000
Mgmt Fees	1.00		-	2,694,240			-		-		-		-		-		-		-		133,800		133,800		133,800		133,800	133,800
Sales & Mktg Period	1.00		-	713,200			-		-		-		-		-		-		-		-		5,000		10,000		20,000	30,000
Ph1 Draws				43,421,440			-		-		-		-		-		-		4,438,600		4,014,700		8,609,100		4,801,500		4,465,500	3,452,300
Cumulative Costs				3,535,058,300			7,500,000		30,050,300		30,743,000		36,675,800		40,998,000		45,306,600		49,438,600		53,483,880		62,149,540		67,069,180		71,681,810	75,317,920
Cumulative Ph 1 Draws				1,115,302,840			-		-		-		-		-		-		4,438,600		8,483,880		17,149,540		22,069,180		26,681,810	30,317,920
Cumulative Equity				2,419,755,460			7,500,000		30,050,300		30,743,000		36,675,800		40,998,000		45,306,600		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000	45,000,000
Ph 1 Payoffs
Revenues				200,682,900			-		-		-		-		-		-		-		-		-		-		-	-
Comm/Closing	1.60%			(3,210,900	)		-		-		-		-		-		-		-		-		-		-		-	-
Net Proceeds				197,472,000			-		-		-		-		-		-		-		-		-		-		-	-
Release %	100%						100%		100%		100%		100%		100%		100%		100%		100%		100%		100%		100%	100%
Ph 1 Paydowns				197,472,000			-		-		-		-		-		-		-		-		-		-		-	-
Cumulative Paydowns				1,162,365,600			-		-		-		-		-		-		-		-		-		-		-	-
Remaining Commitment - Ph 1			45,000,000	692,576,170			45,000,000		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000		45,000,000	45,000,000

11 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem			Rem			Rem			Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem
		Feb-14		Mar-14		Apr-14		May-14			Jun-14			Jul-14			Aug-14		Sep-14		Oct-14		Nov-14		Dec-14		Jan-15		Feb-15		Mar-15
Ph 1 LOAN SUMMARY
Interest Rate	8.00%		8.00%		8.00%		8.00%		8.00%			8.00%			8.00%			8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%	8.00%
Interest Accrued			208,860		212,330		254,940		262,010			91,660			-			-		-		-		-		-		-		-	-
Loan Fee	1.00%
Exit Fee	1.50%														675,000
Balance Outstanding			34,124,580		37,007,510		39,301,050		13,304,940			-			-			-		-		-		-		-		-		-	-
Interest Funded			208,860		212,330		254,940		262,010			91,660			-			-		-		-		-		-		-		-	-
Loan Fee Funded			-		-		-		-			-			-			-		-		-		-		-		-		-	-
Ph 1 Draws			3,597,800		2,670,600		2,038,600		2,370,280			1,996,150			966,310			-		-		-		-		-		-		-	-
Paydowns			-		-		-		(28,628,400	)		(15,392,750	)		(966,310	)		-		-		-		-		-		-		-	-
Cash From (To) Ph 1 Loan			3,806,660		2,882,930		2,293,540		(25,996,110	)		(13,304,940	)		-			-		-		-		-		-		-		-	-
Ph 1 Loan Draws	Draw
Land	1.00		-		-		-		-			-			-			-		-		-		-		-		-		-	-
Dev’t Costs	1.00		18,600		18,600		18,600		18,600			18,600			18,600			-		-		-		-		-		-		-	-
Directs - Ph 1	1.00		3,069,900		1,023,200		1,023,200		-			-			-			-		-		-		-		-		-		-	-
Upgrades	1.00		-		-		-		559,000			522,200			208,900			-		-		-		-		-		-		-	-
Bldg Permits	1.00		-		-		-		696,000			633,000			253,000			-		-		-		-		-		-		-	-
House Consult	1.00		50,000		30,000		5,000		5,000			5,000			5,000			-		-		-		-		-		-		-	-
General Cond	1.00		85,000		85,000		85,000		85,000			85,000			85,000			-		-		-		-		-		-		-	-
Model/SO Startup	1.00		150,500		150,000		150,000		150,000			-			-			-		-		-		-		-		-		-	-
Prop Tax/Legal/Ins	1.00		30,000		1,133,800		462,000		10,000			10,000			10,000			-		-		-		-		-		-		-	-
Mgmt Fees	1.00		133,800		133,800		133,800		715,680			591,350			316,810			-		-		-		-		-		-		-	-
Sales & Mktg Period	1.00		60,000		96,200		161,000		131,000			131,000			69,000			-		-		-		-		-		-		-	-
Ph1 Draws			3,597,800		2,670,600		2,038,600		2,370,280			1,996,150			966,310			-		-		-		-		-		-		-	-
Cumulative Costs			79,124,580		82,007,510		84,301,050		87,689,440			90,375,150			92,255,560			107,630,860		113,948,140		122,279,400		127,102,740		131,572,350		136,079,450		140,617,530	144,286,070
Cumulative Ph 1 Draws			34,124,580		37,007,510		39,301,050		41,933,340			44,021,150			44,987,460			44,987,460		44,987,460		44,987,460		44,987,460		44,987,460		44,987,460		44,987,460	44,987,460
Cumulative Equity			45,000,000		45,000,000		45,000,000		45,756,100			46,354,000			47,268,100			62,643,400		68,960,680		77,291,940		82,115,280		86,584,890		91,091,990		95,630,070	99,298,610
Ph 1 Payoffs
Revenues			-		-		-		29,093,900			22,877,400			9,150,900			-		-		-		-		-		-		-	-
Comm/Closing	1.60%		-		-		-		(465,500	)		(366,000	)		(146,400	)		-		-		-		-		-		-		-	-
Net Proceeds			-		-		-		28,628,400			22,511,400			9,004,500			-		-		-		-		-		-		-	-
Release %	100%		100%		100%		100%		100%			100%			100%
Ph 1 Paydowns			-		-		-		28,628,400			22,511,400			9,004,500			-		-		-		-		-		-		-	-
Cumulative Paydowns			-		-		-		28,628,400			51,139,800			60,144,300			60,144,300		60,144,300		60,144,300		60,144,300		60,144,300		60,144,300		60,144,300	60,144,300
Remaining Commitment - Ph 1			45,000,000		45,000,000		45,000,000		16,371,600			978,850			12,540			12,540		12,540		12,540		12,540		12,540		12,540		12,540	12,540

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TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
		Apr-15		May-15		Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
Ph 1 LOAN SUMMARY
Interest Rate	8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%
Interest Accrued			-		-		-		-		-		-		-		-		-		1,566,020
Loan Fee	1.00%																				450,000
Exit Fee	1.50%																				675,000
Balance Outstanding			-		-		-		-		-		-		-		-		-
Interest Funded			-		-		-		-		-		-		-		-		-		1,566,020
Loan Fee Funded			-		-		-		-		-		-		-		-		-		-
Ph 1 Draws			-		-		-		-		-		-		-		-		-		43,421,440
Paydowns			-		-		-		-		-		-		-		-		-		(44,987,460)
Cash From (To) Ph 1 Loan			-		-		-		-		-		-		-		-		-		-
Ph 1 Loan Draws	Draw
Land	1.00		-		-		-		-		-		-		-		-		-		-
Dev’t Costs	1.00		-		-		-		-		-		-		-		-		-		10,257,200
Directs - Ph 1	1.00		-		-		-		-		-		-		-		-		-		20,465,500
Upgrades	1.00		-		-		-		-		-		-		-		-		-		1,290,100
Bldg Permits	1.00		-		-		-		-		-		-		-		-		-		3,765,000
House Consult	1.00		-		-		-		-		-		-		-		-		-		520,000
General Cond	1.00		-		-		-		-		-		-		-		-		-		935,000
Model/SO Startup	1.00		-		-		-		-		-		-		-		-		-		615,500
Prop Tax/Legal/Ins	1.00		-		-		-		-		-		-		-		-		-		2,165,700
Mgmt Fees	1.00		-		-		-		-		-		-		-		-		-		2,694,240
Sales & Mktg Period	1.00		-		-		-		-		-		-		-		-		-		713,200
Ph1 Draws			-		-		-		-		-		-		-		-		-		43,421,440
Cumulative Costs			147,384,730		150,003,360		155,762,570		159,754,050		161,087,530		162,845,400		162,845,400		162,845,400		162,845,400
Cumulative Ph 1 Draws			44,987,460		44,987,460		44,987,460		44,987,460		44,987,460		44,987,460		44,987,460		44,987,460		44,987,460
Cumulative Equity			102,397,270		105,015,900		110,775,110		114,766,590		116,100,070		117,857,940		117,857,940		117,857,940		117,857,940
Ph 1 Payoffs
Revenues			-		-		66,168,500		46,641,700		15,913,900		10,836,600		-		-		-		200,682,900
Comm/Closing	1.60%		-		-		(1,058,700)		(746,300)		(254,600)		(173,400)		-		-		-		(3,210,900)
Net Proceeds			-		-		65,109,800		45,895,400		15,659,300		10,663,200		-		-		-		197,472,000
Release %	100%																				18
Ph 1 Paydowns			-		-		-		-		-		-		-		-		-		60,144,300
Cumulative Paydowns			60,144,300		60,144,300		60,144,300		60,144,300		60,144,300		60,144,300		60,144,300		60,144,300		60,144,300
Remaining Commitment - Ph 1			12,540		12,540		12,540		12,540		12,540		12,540		12,540		12,540		12,540

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TNHC Newport LLC

Projected Cash Flow

		Proposed Budget 2/15/13	Total Cash Flow
				Est		Est		Est		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem
				Feb-13		Mar-13		Apr-13		May-13		Jun-13		Jul-13		Aug-13		Sep-13		Oct-13		Nov-13		Dec-13		Jan-14
Ph 2 LOAN SUMMARY
Interest Rate	8.00%				8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%
Interest Accrued			2,422,740		n/a		-		-		-		-		-		-		-		-		-		-		-
Loan Fee	1.00%		630,000
Exit Fee	1.50%		945,000
Balance Outstanding					-		-		-		-		-		-		-		-		-		-		-		-
Interest Funded			2,422,740		n/a		-		-		-		-		-		-		-		-		-		-		-
Loan Fee Funded			630,000		-		-		-		-		-		-		-		-		-		-		-		-
Ph 2 Draws			58,919,960		-		-		-		-		-		-		-		-		-		-		-		-
Paydowns			(61,972,700)		-		-		-		-		-		-		-		-		-		-		-		-
Cash From (To) Ph 1 Loan			-		-		-		-		-		-		-		-		-		-		-		-		-
Ph 2 Loan Draws	Draw
Land	-	-	-		-		-		-		-		-		-		-		-		-		-		-		-
Dev’t Costs	-	-	-		-		-		-		-		-		-		-		-		-		-		-		-
Directs - Ph 2	1.00	-	39,493,500		-		-		-		-		-		-		-		-		-		-		-		-
Upgrades	1.00	-	2,872,400		-		-		-		-		-		-		-		-		-		-		-		-
Bldg Permits	1.00	-	7,789,000		-		-		-		-		-		-		-		-		-		-		-		-
House Consult	1.00	-	68,600		-		-		-		-		-		-		-		-		-		-		-		-
General Cond	1.00	-	1,180,000		-		-		-		-		-		-		-		-		-		-		-		-
Model/SO Startup	1.00	-	-		-		-		-		-		-		-		-		-		-		-		-		-
Prop Tax/Legal/Ins	1.00	-	2,104,700		-		-		-		-		-		-		-		-		-		-		-		-
Mgmt Fees	1.00	-	4,530,260		-		-		-		-		-		-		-		-		-		-		-		-
Sales & Mktg Period	1.00	-	881,500		-		-		-		-		-		-		-		-		-		-		-		-
Ph 2 Draws			58,919,960		-		-		-		-		-		-		-		-		-		-		-		-
Ph 2 Payoffs
Revenues			139,560,700
Comm/Closing	1.60%		(2,233,000)		-		-		-		-		-		-		-		-		-		-		-		-
Net Proceeds			137,327,700		-		-		-		-		-		-		-		-		-		-		-		-
Release %	100%
Ph 2 Paydowns			137,327,700		-		-		-		-		-		-		-		-		-		-		-		-
Cumulative Paydowns			852,090,300		-		-		-		-		-		-		-		-		-		-		-		-
Remaining Commitment - Ph 2		63,000,000	630,000,000
INTEREST SUMMARY
Phase 1 Loan			1,566,020				-		-		-		-		-		-		30,580		56,560		118,140		147,130		183,810
Phase 2 Loan			2,422,740		n/a		-		-		-		-		-		-		-		-		-		-		-
Fees / Other			2,793,040		-		450,000		-		-		-		-		-		-		-		-		-		-
Total Interest/Fees		6,781,800	6,781,800		-		450,000		-		-		-		-		-		30,580		56,560		118,140		147,130		183,810

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TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem
		Feb-14		Mar-14		Apr-14		May-14		Jun-14		Jul-14		Aug-14		Sep-14		Oct-14		Nov-14		Dec-14		Jan-15		Feb-15		Mar-15
Ph 2 LOAN SUMMARY
Interest Rate	8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%
Interest Accrued			-		-		-		-		-		-		-		79,280		118,760		180,040		206,310		243,900		274,880		276,440
Loan Fee	1.00%														630,000
Exit Fee	1.50%
Balance Outstanding			-		-		-		-		-		-		11,508,200		17,814,380		26,134,540		30,946,780		35,405,290		39,901,390		44,428,470		48,086,010
Interest Funded			-		-		-		-		-		-		-		79,280		118,760		180,040		206,310		243,900		274,880		276,440
Loan Fee Funded			-		-		-		-		-		-		630,000		-		-		-		-		-		-		-
Ph 2 Draws			-		-		-		-		-		-		10,878,200		6,226,900		8,201,400		4,632,200		4,252,200		4,252,200		4,252,200		3,381,100
Paydowns			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Cash From (To) Ph 1 Loan			-		-		-		-		-		-		11,508,200		6,306,180		8,320,160		4,812,240		4,458,510		4,496,100		4,527,080		3,657,540
Ph 2 Loan Draws	Draw
Land	-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Dev’t Costs	-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Directs - Ph 2	1.00		-		-		-		-		-		-		3,949,400		5,924,100		7,898,600		3,949,400		3,949,400		3,949,400		3,949,400		1,974,600
Upgrades	1.00		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Bldg Permits	1.00		-		-		-		-		-		-		6,626,000		-		-		-		-		-		-		-
House Consult	1.00		-		-		-		-		-		-		5,000		5,000		5,000		5,000		5,000		5,000		5,000		5,000
General Cond	1.00		-		-		-		-		-		-		85,000		85,000		85,000		85,000		85,000		85,000		85,000		85,000
Model/SO Startup	1.00		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Prop Tax/Legal/Ins	1.00		-		-		-		-		-		-		10,000		10,000		10,000		390,000		10,000		10,000		10,000		1,113,700
Mgmt Fees	1.00		-		-		-		-		-		-		133,800		133,800		133,800		133,800		133,800		133,800		133,800		133,800
Sales & Mktg Period	1.00		-		-		-		-		-		-		69,000		69,000		69,000		69,000		69,000		69,000		69,000		69,000
Ph 2 Draws			-		-		-		-		-		-		10,878,200		6,226,900		8,201,400		4,632,200		4,252,200		4,252,200		4,252,200		3,381,100
Ph 2 Payoffs
Revenues															-		-		-		-		-		-		-		-
Comm/Closing	1.60%		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Net Proceeds			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Release %	100%														100%		100%		100%		100%		100%		100%		100%		100%
Ph 2 Paydowns			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Cumulative Paydowns			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Remaining Commitment - Ph 2															63,000,000		63,000,000		63,000,000		63,000,000		63,000,000		63,000,000		63,000,000		63,000,000
INTEREST SUMMARY
Phase 1 Loan			208,860		212,330		254,940		262,010		91,660		-		-		-		-		-		-		-		-		-
Phase 2 Loan			-		-		-		-		-		-		-		79,280		118,760		180,040		206,310		243,900		274,880		276,440
Fees / Other			-		-		-		-		-		675,000		630,000		-		-		-		-		-		-		-
Total Interest/Fees			208,860		212,330		254,940		262,010		91,660		675,000		630,000		79,280		118,760		180,040		206,310		243,900		274,880		276,440

15 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
		Apr-15		May-15		Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
Ph 2 LOAN SUMMARY
Interest Rate	8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%
Interest Accrued			331,260		341,230		370,640		-		-		-		-		-		-		2,422,740
Loan Fee	1.00%																				630,000
Exit Fee	1.50%												945,000								945,000
Balance Outstanding			51,184,670		53,803,300		-		-		-		-		-		-		-
Interest Funded			331,260		341,230		370,640		-		-		-		-		-		-		2,422,740
Loan Fee Funded			-		-		-		-		-		-		-		-		-		630,000
Ph 2 Draws			2,767,400		2,277,400		3,663,470		2,683,140		919,180		532,970		-		-		-		58,919,960
Paydowns			-		-		(57,837,410)		(2,683,140)		(919,180)		(532,970)		-		-		-		(61,972,700)
Cash From (To) Ph 1 Loan			3,098,660		2,618,630		(53,803,300)		-		-		-		-		-		-		-
Ph 2 Loan Draws	Draw
Land	-		-		-		-		-		-		-		-		-		-		-
Dev’t Costs	-		-		-		-		-		-		-		-		-		-		-
Directs - Ph 2	1.00		1,974,600		1,974,600		-		-		-		-		-		-		-		39,493,500
Upgrades	1.00		-		-		1,407,800		975,500		326,100		163,000		-		-		-		2,872,400
Bldg Permits	1.00		-		-		630,000		500,000		-		33,000		-		-		-		7,789,000
House Consult	1.00		5,000		5,000		5,000		5,000		5,000		3,600		-		-		-		68,600
General Cond	1.00		85,000		85,000		85,000		85,000		85,000		75,000		-		-		-		1,180,000
Model/SO Startup	1.00		-		-		-		-		-		-		-		-		-		-
Prop Tax/Legal/Ins	1.00		500,000		10,000		10,000		10,000		10,000		1,000		-		-		-		2,104,700
Mgmt Fees	1.00		133,800		133,800		1,457,170		1,066,640		452,080		216,370		-		-		-		4,530,260
Sales & Mktg Period	1.00		69,000		69,000		68,500		41,000		41,000		41,000		-		-		-		881,500
Ph 2 Draws			2,767,400		2,277,400		3,663,470		2,683,140		919,180		532,970		-		-		-		58,919,960
Ph 2 Payoffs
Revenues			-		-		66,168,500		46,641,700		15,913,900		10,836,600		-		-		-		139,560,700
Comm/Closing	1.60%		-		-		(1,058,700)		(746,300)		(254,600)		(173,400)		-		-		-		(2,233,000)
Net Proceeds			-		-		65,109,800		45,895,400		15,659,300		10,663,200		-		-		-		137,327,700
Release %	100%		100%		100%		100%		100%		100%		100%
Ph 2 Paydowns			-		-		65,109,800		45,895,400		15,659,300		10,663,200		-		-		-		137,327,700
Cumulative Paydowns			-		-		65,109,800		111,005,200		126,664,500		137,327,700		137,327,700		137,327,700		137,327,700
Remaining Commitment - Ph 2			63,000,000		63,000,000		-		-		-		-		-		-		-
INTEREST SUMMARY
Phase 1 Loan			-		-		-		-		-		-		-		-		-		1,566,020
Phase 2 Loan			331,260		341,230		370,640		-		-		-		-		-		-		2,422,740
Fees / Other			-		-		-		93,040		-		945,000		-		-		-		2,793,040
Total Interest/Fees			331,260		341,230		370,640		93,040		-		945,000		-		-		-		6,781,800

16 of 22

TNHC Newport LLC

Projected Cash Flow

		Proposed Budget 2/15/13	Total Cash Flow
					Est Feb-13		Est Mar-13		Est Apr-13		Rem May-13		Rem Jun-13		Rem Jul-13		Rem Aug-13		Rem Sep-13		Rem Oct-13		Rem Nov-13		Rem Dec-13		Rem Jan-14
HW DISTRIB RECAP
HW L1 Distrib (Pref)				(8,401,690)		-		-		-		-		-		-		-		-		-		-		-		-
HW L2 Distrib (Capital)				(32,327,815)		-		-		-		-		-		-		-		-		-		-		-		-
HW L3 Distrib (Profit)				(12,455,910)		-		-		-		-		-		-		-		-		-		-		-		-
Total WB Distributions				(53,185,415)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC DISTRIB RECAP
TNHC L1 Distrib (Pref)				(4,523,990)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC L2 Distrib (Capital)				(17,407,285)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC L3 Distrib (Profit)				(12,455,910)		-		-		-		-		-		-		-		-		-		-		-		-
Total TNHC Distributions				(34,387,185)		-		-		-		-		-		-		-		-		-		-		-		-
HILLWOOD PREF CALC
6.1(c) Pref Rate	12.00%					12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%
Pref Accrued				8,401,690		n/a		45,500		204,320		204,280		253,050		275,510		315,140		319,020		311,920		325,540		318,290		332,190
Balance Outstanding						4,875,000		19,773,195		20,427,770		24,488,370		27,550,850		30,496,950		30,872,800		31,191,820		31,503,740		31,829,280		32,147,570		32,479,760
Pref Funded				8,401,690		n/a		45,500		204,320		204,280		253,050		275,510		315,140		319,020		311,920		325,540		318,290		332,190
Contributions				32,327,815		4,875,000		14,852,695		450,255		3,856,320		2,809,430		2,670,590		60,710		-		-		-		-		-
Distributions				(53,185,415)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC PREF CALC
6.1(c) Pref Rate	12.00%					12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%
Pref Accrued				4,523,990		n/a		24,500		110,020		110,000		136,260		148,350		169,690		171,780		167,960		175,290		171,390		178,870
Balance Outstanding						2,625,000		10,647,105		10,999,570		13,186,050		14,835,080		16,421,440		16,623,820		16,795,600		16,963,560		17,138,850		17,310,240		17,489,110
Pref Funded				4,523,990		n/a		24,500		110,020		110,000		136,260		148,350		169,690		171,780		167,960		175,290		171,390		178,870
Contributions				17,407,285		2,625,000		7,997,605		242,445		2,076,480		1,512,770		1,438,010		32,690		-		-		-		-		-
Distributions				(34,387,185)		-		-		-		-		-		-		-		-		-		-		-		-

17 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem Feb-14		Rem Mar-14		Rem Apr-14		Rem May-14		Rem Jun-14		Rem Jul-14		Rem Aug-14		Rem Sep-14		Rem Oct-14		Rem Nov-14		Rem Dec-14		Rem Jan-15		Rem Feb-15		Rem Mar-15
HW DISTRIB RECAP
HW L1 Distrib (Pref)			-		-		-		-		(4,476,416)		(396,964)		-		-		-		-		-		-		-		-
HW L2 Distrib (Capital)			-		-		-		-		-		(4,328,792)		-		-		-		-		-		-		-		-
HW L3 Distrib (Profit)			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total WB Distributions			-		-		-		-		(4,476,416)		(4,725,756)		-		-		-		-		-		-		-		-
TNHC DISTRIB RECAP
TNHC L1 Distrib (Pref)			-		-		-		-		(2,410,384)		(213,756)		-		-		-		-		-		-		-		-
TNHC L2 Distrib (Capital)			-		-		-		-		-		(2,330,888)		-		-		-		-		-		-		-		-
TNHC L3 Distrib (Profit)			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total TNHC Distributions			-		-		-		-		(2,410,384)		(2,544,644)		-		-		-		-		-		-		-		-
HILLWOOD PREF CALC
6.1(c) Pref Rate	12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%
Pref Accrued			335,620		306,280		342,260		334,640		351,200		298,620		262,830		291,520		285,100		297,630		291,070		303,860		307,070		280,290
Balance Outstanding			32,815,380		33,121,660		33,463,920		33,987,450		29,862,234		25,435,098		28,211,543		28,510,278		28,802,593		29,107,438		29,405,723		29,716,733		30,030,953		30,318,393
Pref Funded			335,620		306,280		342,260		334,640		351,200		298,620		262,830		291,520		285,100		297,630		291,070		303,860		307,070		280,290
Contributions			-		-		-		188,890		-		-		2,513,615		7,215		7,215		7,215		7,215		7,150		7,150		7,150
Distributions			-		-		-		-		(4,476,416)		(4,725,756)		-		-		-		-		-		-		-		-
TNHC PREF CALC
6.1(c) Pref Rate	12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%
Pref Accrued			180,720		164,920		184,290		180,190		189,110		160,800		141,520		156,970		153,520		160,260		156,730		163,620		165,350		150,920
Balance Outstanding			17,669,830		17,834,750		18,019,040		18,300,940		16,079,666		13,695,822		15,190,827		15,351,682		15,509,087		15,673,232		15,833,847		16,001,317		16,170,517		16,325,287
Pref Funded			180,720		164,920		184,290		180,190		189,110		160,800		141,520		156,970		153,520		160,260		156,730		163,620		165,350		150,920
Contributions			-		-		-		101,710		-		-		1,353,485		3,885		3,885		3,885		3,885		3,850		3,850		3,850
Distributions			-		-		-		-		(2,410,384)		(2,544,644)		-		-		-		-		-		-		-		-

18 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
		Apr-15		May-15		Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
HW DISTRIB RECAP
HW L1 Distrib (Pref)			-		-		(3,258,670)		-		(269,640)		-		-		-		-		(8,401,690)
HW L2 Distrib (Capital)			-		-		(1,035,236)		(26,963,787)		-		-		-		-		-		(32,327,815)
HW L3 Distrib (Profit)			-		-		-		(583,775)		(7,182,785)		(4,689,350)		-		-		-		(12,455,910)
Total WB Distributions			-		-		(4,293,906)		(27,547,562)		(7,452,425)		(4,689,350)		-		-		-		(53,185,415)
TNHC DISTRIB RECAP
TNHC L1 Distrib (Pref)			-		-		(1,754,660)		-		(145,190)		-		-		-		-		(4,523,990)
TNHC L2 Distrib (Capital)			-		-		(557,434)		(14,518,963)		-		-		-		-		-		(17,407,285)
TNHC L3 Distrib (Profit)			-		-		-		(583,775)		(7,182,785)		(4,689,350)		-		-		-		(12,455,910)
Total TNHC Distributions			-		-		(2,312,094)		(15,102,738)		(7,327,975)		(4,689,350)		-		-		-		(34,387,185)
HILLWOOD PREF CALC
6.1(c) Pref Rate	12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%
Pref Accrued			313,290		306,320		319,690		269,640		-		-		-		-		-		8,401,690
Balance Outstanding			30,631,683		30,938,003		26,963,787		(314,135)		(7,766,560)		(12,455,910)		(12,455,910)		(12,455,910)		(12,455,910)
Pref Funded			313,290		306,320		319,690		269,640		-		-		-		-		-		8,401,690
Contributions			-		-		-		-		-		-		-		-		-		32,327,815
Distributions			-		-		(4,293,906)		(27,547,562)		(7,452,425)		(4,689,350)		-		-		-		(53,185,415)
TNHC PREF CALC
6.1(c) Pref Rate	12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%		12.00%
Pref Accrued			168,690		164,940		172,140		145,190		-		-		-		-		-		4,523,990
Balance Outstanding			16,493,977		16,658,917		14,518,963		(438,585)		(7,766,560)		(12,455,910)		(12,455,910)		(12,455,910)		(12,455,910)
Pref Funded			168,690		164,940		172,140		145,190		-		-		-		-		-		4,523,990
Contributions			-		-		-		-		-		-		-		-		-		17,407,285
Distributions			-		-		(2,312,094)		(15,102,738)		(7,327,975)		(4,689,350)		-		-		-		(34,387,185)

19 of 22

TNHC Newport LLC

Projected Cash Flow

		Proposed Budget 2/15/13		Total Cash Flow
						Est Feb-13		Est Mar-13		Est Apr-13		Rem May-13		Rem Jun-13		Rem Jul-13		Rem Aug-13		Rem Sep-13		Rem Oct-13		Rem Nov-13		Rem Dec-13		Rem Jan-14
DISTRIB WATERFALL
Cash Avail for Layer 1					87,572,600		-		-		-		-		-		-		-		-		-		-		-		-
HW L1 Dist %															65%		65%		65%		65%		65%		65%		65%		65%
HW Pref Accrued					8,401,690		n/a		45,500		204,320		204,280		253,050		275,510		315,140		319,020		311,920		325,540		318,290		332,190
HW Pref Paid					(8,401,690)		-		-		-		-		-		-		-		-		-		-		-		-
HW Pref Balance							-		45,500		249,820		454,100		707,150		982,660		1,297,800		1,616,820		1,928,740		2,254,280		2,572,570		2,904,760
TNHC L1 Dist %															35%		35%		35%		35%		35%		35%		35%		35%
TNHC Pref Accrued					4,523,990		n/a		24,500		110,020		110,000		136,260		148,350		169,690		171,780		167,960		175,290		171,390		178,870
TNHC Pref Paid					(4,523,990)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC Pref Balance							-		24,500		134,520		244,520		380,780		529,130		698,820		870,600		1,038,560		1,213,850		1,385,240		1,564,110
Total Layer 1 Distrib					(12,925,680)		-		-		-		-		-		-		-		-		-		-		-		-
Cash Avail for Layer 2					74,646,920		-		-		-		-		-		-		-		-		-		-		-		-
HW L2 Dist %															65%		65%		65%		65%		65%		65%		65%		65%
HW Capital Contrib					32,327,815		4,875,000		14,852,695		450,255		3,856,320		2,809,430		2,670,590		60,710		-		-		-		-		-
HW Capital Distrib			Peak		(32,327,815)		-		-		-		-		-		-		-		-		-		-		-		-
HW Capital Balance			29,763,890				4,875,000		19,727,695		20,177,950		24,034,270		26,843,700		29,514,290		29,575,000		29,575,000		29,575,000		29,575,000		29,575,000		29,575,000
TNHC L2 Dist %															35%		35%		35%		35%		35%		35%		35%		35%
TNHC Capital Contrib					17,407,285		2,625,000		7,997,605		242,445		2,076,480		1,512,770		1,438,010		32,690		-		-		-		-		-
TNHC Capital Distrib			Peak		(17,407,285)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC Capital Balance			16,026,710				2,625,000		10,622,605		10,865,050		12,941,530		14,454,300		15,892,310		15,925,000		15,925,000		15,925,000		15,925,000		15,925,000		15,925,000
Total Layer 2 Distrib					(49,735,100)		-		-		-		-		-		-		-		-		-		-		-		-
Cash Avail for Layer 3					24,911,820		-		-		-		-		-		-		-		-		-		-		-		-
HW % Interest	50%						50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%
HW Profit Distrib					(12,455,910)		-		-		-		-		-		-		-		-		-		-		-		-
TNHC % Interest	50%						50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%
TNHC Profit Distrib					(12,455,910)		-		-		-		-		-		-		-		-		-		-		-		-
Total Layer 3 Distrib					(24,911,820)		-		-		-		-		-		-		-		-		-		-		-		-
Remainder					-		-		-		-		-		-		-		-		-		-		-		-		-

20 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem Feb-14		Rem Mar-14		Rem Apr-14		Rem May-14		Rem Jun-14		Rem Jul-14		Rem Aug-14		Rem Sep-14		Rem Oct-14		Rem Nov-14		Rem Dec-14		Rem Jan-15		Rem Feb-15		Rem Mar-15
DISTRIB WATERFALL
Cash Avail for Layer 1			-		-		-		-		6,886,800		7,270,400		-		-		-		-		-		-		-		-
HW L1 Dist %			65%		65%		65%		65%		65%		65%				65%		65%		65%		65%		65%		65%		65%
HW Pref Accrued			335,620		306,280		342,260		334,640		351,200		298,620		262,830		291,520		285,100		297,630		291,070		303,860		307,070		280,290
HW Pref Paid			-		-		-		-		(4,476,416)		(396,964)		-		-		-		-		-		-		-		-
HW Pref Balance			3,240,380		3,546,660		3,888,920		4,223,560		98,344		-		262,830		554,350		839,450		1,137,080		1,428,150		1,732,010		2,039,080		2,319,370
TNHC L1 Dist %			35%		35%		35%		35%		35%		35%				35%		35%		35%		35%		35%		35%		35%
TNHC Pref Accrued			180,720		164,920		184,290		180,190		189,110		160,800		141,520		156,970		153,520		160,260		156,730		163,620		165,350		150,920
TNHC Pref Paid			-		-		-		-		(2,410,384)		(213,756)		-		-		-		-		-		-		-		-
TNHC Pref Balance			1,744,830		1,909,750		2,094,040		2,274,230		52,956		-		141,520		298,490		452,010		612,270		769,000		932,620		1,097,970		1,248,890
Total Layer 1 Distrib			-		-		-		-		(6,886,800)		(610,720)		-		-		-		-		-		-		-		-
Cash Avail for Layer 2			-		-		-		-		-		6,659,680		-		-		-		-		-		-		-		-
HW L2 Dist %			65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%		65%
HW Capital Contrib			-		-		-		188,890		-		-		2,513,615		7,215		7,215		7,215		7,215		7,150		7,150		7,150
HW Capital Distrib			-		-		-		-		-		(4,328,792)		-		-		-		-		-		-		-		-
HW Capital Balance			29,575,000		29,575,000		29,575,000		29,763,890		29,763,890		25,435,098		27,948,713		27,955,928		27,963,143		27,970,358		27,977,573		27,984,723		27,991,873		27,999,023
TNHC L2 Dist %			35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%		35%
TNHC Capital Contrib			-		-		-		101,710		-		-		1,353,485		3,885		3,885		3,885		3,885		3,850		3,850		3,850
TNHC Capital Distrib			-		-		-		-		-		(2,330,888)		-		-		-		-		-		-		-		-
TNHC Capital Balance			15,925,000		15,925,000		15,925,000		16,026,710		16,026,710		13,695,822		15,049,307		15,053,192		15,057,077		15,060,962		15,064,847		15,068,697		15,072,547		15,076,397
Total Layer 2 Distrib			-		-		-		-		-		(6,659,680)		-		-		-		-		-		-		-		-
Cash Avail for Layer 3			-		-		-		-		-		-		-		-		-		-		-		-		-		-
HW % Interest	50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%
HW Profit Distrib			-		-		-		-		-		-		-		-		-		-		-		-		-		-
TNHC % Interest	50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%		50%
TNHC Profit Distrib			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total Layer 3 Distrib			-		-		-		-		-		-		-		-		-		-		-		-		-		-
Remainder			-		-		-		-		-		-		-		-		-		-		-		-		-		-

21 of 22

TNHC Newport LLC

Projected Cash Flow

		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		Rem		TOTAL
		Apr-15		May-15		Jun-15		Jul-15		Aug-15		Sep-15		Oct-15		Nov-15		Dec-15
DISTRIB WATERFALL
Cash Avail for Layer 1			-		-		6,606,000		42,650,300		14,780,400		9,378,700		-		-		-		87,572,600
HW L1 Dist %			65%		65%		65%				65%
HW Pref Accrued			313,290		306,320		319,690		269,640		-		-		-		-		-		8,401,690
HW Pref Paid			-		-		(3,258,670)		-		(269,640)		-		-		-		-		(8,401,690)
HW Pref Balance			2,632,660		2,938,980		-		269,640		-		-		-		-		-		-
TNHC L1 Dist %			35%		35%		35%				35%
TNHC Pref Accrued			168,690		164,940		172,140		145,190		-		-		-		-		-		4,523,990
TNHC Pref Paid			-		-		(1,754,660)		-		(145,190)		-		-		-		-		(4,523,990)
TNHC Pref Balance			1,417,580		1,582,520		-		145,190		-		-		-		-		-		-
Total Layer 1 Distrib			-		-		(5,013,330)		-		(414,830)		-		-		-		-		(12,925,680)
Cash Avail for Layer 2			-		-		1,592,670		42,650,300		14,365,570		9,378,700		-		-		-		74,646,920
HW L2 Dist %			65%		65%		65%		65%
HW Capital Contrib			-		-		-		-		-		-		-		-		-		32,327,815
HW Capital Distrib			-		-		(1,035,236)		(26,963,787)		-		-		-		-		-		(32,327,815)
HW Capital Balance			27,999,023		27,999,023		26,963,787		-		-		-		-		-		-		-
TNHC L2 Dist %			35%		35%		35%		35%
TNHC Capital Contrib			-		-		-		-		-		-		-		-		-		17,407,285
TNHC Capital Distrib			-		-		(557,434)		(14,518,963)		-		-		-		-		-		(17,407,285)
TNHC Capital Balance			15,076,397		15,076,397		14,518,963		-		-		-		-		-		-		-
Total Layer 2 Distrib			-		-		(1,592,670)		(41,482,750)		-		-		-		-		-		(49,735,100)
Cash Avail for Layer 3			-		-		-		1,167,550		14,365,570		9,378,700		-		-		-		24,911,820
HW % Interest	50%		50%		50%		50%		50%		50%		50%		50%		50%		50%
HW Profit Distrib			-		-		-		(583,775)		(7,182,785)		(4,689,350)		-		-		-		(12,455,910)
TNHC % Interest	50%		50%		50%		50%		50%		50%		50%		50%		50%		50%
TNHC Profit Distrib			-		-		-		(583,775)		(7,182,785)		(4,689,350)		-		-		-		(12,455,910)
Total Layer 3 Distrib			-		-		-		(1,167,550)		(14,365,570)		(9,378,700)		-		-		-		(24,911,820)
Remainder			-		-		-		-		-		-		-		-		-		-

22 of 22

EXHIBIT G

INSURANCE REQUIREMENTS

Final form of Exhibit G to be agreed upon by the Members of the Company per Section 7.9 of the Agreement.

[Remainder of page intentionally left blank.]

EXHIBIT H

PEPI LOAN DISCUSSION LETTER

PEPI Capital, L.P.

2300 W. Plano Parkway

Plano, Texas 75075

February 13, 2013

TNHC Newport LLC

Gentlemen:

PEPI Capital L.P. (“Lender”) is pleased to submit this Discussion Letter (which incorporates the attachment entitled “Newport Beach Residences - Non-Binding Discussion Outline”) for your consideration relative to a proposed loan to a partnership between The New Home Company and Hillwood (the “Borrower”). This Discussion Letter is presented for discussion purposes only and is non-binding. Any loan or binding agreement is subject to Lender’s satisfactory completion of due diligence as determined by Lender in its sole discretion. Any commitment on the part of Lenders to provide financing is subject to the negotiation and execution of definitive legal documentation. Such definitive legal documentation will contain various representations, warranties, closing conditions, security agreements, legal opinions and other documents that are usual and customary for this type of transaction.

We are looking forward to working with you on this transaction and we are excited about the tremendous opportunities for the project. If the Borrower agrees in principal with the terms outlined in this Discussion Letter, please so indicate by signing in the appropriate spaces provided below and returning a copy to me via fax at (972) 535-1991 or via PDF at hays.lindsley@perot.com by 5: p.m. on February 28, 2013.

PEPI Capital, L.P.		TNHC Newport LLC
By:	David Radunsky	By:	Tom Redwitz
		By:
		By:

1

Newport Beach Residences

Non-Binding Discussion Outline

2/13/13

Borrower:	A partnership between The New Home Company and Hillwood.
Lender:	PEPI Capital, LP
Loan Commitment:	Lender will make a single loan consisting of two phases up to the aggregate amount of $116 million on the terms set forth in this outline. Upon completion of due diligence and the negotiation and execution of definitive legal documents, Lender will be committed to fund an amount not to exceed the Phase 1 Cap on the terms set forth in this outline. If the project is On-Schedule and On-Budget at the Trigger Point, then Lender will be obligated to fund an additional amount not to exceed the Phase 2 Cap. If the project is either behind schedule or behind budget (or both) at the Trigger Point, Lender will have the option, but not the obligation, to fund the Phase 2 portion of the loan.
Phase 1 Cap:	$45 million
Phase 2 Cap:	$71 million
On-Schedule and On-Budget:	The project is On-Schedule and On-Budget if all of the following are true: (1) the aggregate inception-to-date costs are equal to or less than that shown in the Budget; (2) inception-to-date unit sales and sales prices are equal to or greater than Budget; (3) the construction has advanced to at least the point contemplated in the Schedule; and (4) there have not been any adverse developments or events affecting the project that lead Lender to reasonably believe that the project will not be completed in accordance with the Budget and Schedule. The Budget and Schedule will be agreed before Closing.
Trigger Point:	21 days after the closing and funding of 50% of the units (13 units) in Phase 1.
Disbursement Controls:	The Loan Agreement will include Disbursement Controls that will, among other things, assure that cost overruns incurred at any stage in the project will be funded by savings in other budget line items, (subject to Lender’s approval) or by Borrower as they are incurred.

2

Phase 1 Funding:	Phase 1 will include the cost of the land, the cost of the pedestals for five buildings and the completion of the first two buildings containing 26 units in accordance with the Budget and Schedule. Borrower will fund the first $45M of Phase 1 project costs. Thereafter, Lender will advance 100% of Phase 1 project costs up to an amount not to exceed the lesser of the amount which would cause: (1) aggregate advances to exceed the Phase 1 Cap, (2) the Loan-to-Cost Ratio to exceed 50% or (3) the loan to be “Out of Balance” (project costs exceed undisbursed loan funds plus sums to be provided by Borrower plus the balance in the borrowers funds account). Borrower will fund all amounts not funded by the Lender.
Phase 2 Funding:	Phase 2 will include the cost of completing the three remaining buildings containing 53 units in accordance with the Budget and Schedule. Lender will advance 100% of the Phase 2 costs as the costs are incurred up to an amount not to exceed the lesser of the amount which would cause: (1) the Loan-to-Cost Ratio to exceed 60%, (2) the aggregate advances to exceed the Phase 2 Cap or (3) the loan to be “Out of Balance” (project costs exceed undisbursed loan funds plus sums to be provided by Borrower plus the balance in the borrowers funds account). Borrower will fund all amounts not funded by the Lender.
Loan-to-Cost Ratio:	A fraction determined from time-to-time the numerator of which is equal to the outstanding Loan balance from time-to- time and the denominator is equal to all costs incurred since the inception of the project reduced by the cost of all units closed since the inception of the project. The method for allocating cost amongst the units will be agreed before Closing.
Repayment:	100% of sales proceeds (net of closing costs and commissions) will be used to repay the Loan prior to the Trigger Point. During this period, there shall be a minimum release price for the units of 90% of the budgeted sales price for those units. After the Trigger Point, 100% of net sales proceeds will be used to repay the Loan unless the Loan-to-Cost Ratio is less than 40%. When the Loan-to-Cost ratio remains below 40%, as each unit is sold, a portion of the net sales proceeds equal to 80% of the cost of such unit will be used to repay the Loan. During this period, there shall be a minimum release price for the units of 80% of the budgeted cost per unit.

3

	If at any time during Phases 1 or 2, consistent with the repayment terms above and the “Skin-in-the-Game” covenant below, there exist excess sales proceeds after the then- outstanding loan balance has been paid down to $0, such excess sales proceeds shall be distributed to Borrower.
Interest Rate:	The loan will bear interest at an annualized rate of 8% based on a 360-day year. Interest will accrue daily and will compound monthly. Interest will be funded in accordance with Phase 1 Funding or Phase 2 Funding, as appropriate, and, to the extent not paid from equity contributions (during Phase 1), paid out of net sales proceeds in accordance with the Repayment paragraph.
Origination Fee:	An Origination Fee equal to 1.0% of the Phase 1 Cap will be paid to Lender at Closing. An additional Origination Fee equal to 0.5% of the Phase 2 Cap will be paid to the Lender on the date of the Trigger Point if Lender is obligated to fund Phase 2. If the Lender is not obligated to fund Phase 2 but nevertheless exercises its option to fund Phase 2, then the Origination Fee will equal to 1.0% of the Phase 2 Cap. The Origination Fee will be funded in accordance with Phase 1 Funding or Phase 2 Funding paragraphs.
Exit Fee:	If Lender only funds Phase 1, an Exit Fee equal to 1.5% of the Phase 1 Cap will be paid when the Phase 1 loan is fully repaid. If the Lender is obligated to fund both phases, an Exit Fee equal to the sum of 1.5% of the Phase 1 Cap and 1.0% of the Phase 2 Cap will be paid when the loan is fully repaid. If the Lender is not obligated to fund Phase 2 but nevertheless exercises its option and funds both Phases, an Exit Fee equal to the sum of 1.5% of the Phase 1 Cap and 1.5% of the Phase 2 Cap will be paid when the loan is fully repaid.
Maturity:	The Loan shall mature 30 months after initial proceeds are advanced for the Phase 2 portion of the Loan if Phase 2 is funded. Otherwise, the Loan shall mature 30 months after Closing.
Extension:	Borrower may extend Maturity for 12 months provided (1) the Lender funds Phase 2, (2) the interest rate during the extension period is increased to 10%, (2) principal is paid down to 50% of the peak inception-to-date loan balance before

4

	the beginning of the extension period and (3) Borrower pays Lender an Extension Fee equal to 0.5% of the sum of the Phase 1 Cap and the Phase 2 Cap.
Financial Covenants:	1.  Phase 1 LTC.  Maximum Phase 1 Loan-to-Cost Ratio shall be 50%. Equity shall fund any and all costs that would otherwise trigger a Phase 1 LTC covenant default if funded by the Lender. 2.  Phase 2 LTC.  Maximum Phase 2 Loan-to-Cost Ratio shall be 60%. Equity shall fund any and all costs that would otherwise trigger a Phase 2 LTC covenant default if funded by the Lender. 3.    “Skin in the Game.”    The New Home Company will contribute at least $5 million (at least 11% of aggregate inception-to-date equity capital calls) of its own capital as equity into the Project, in accordance with the current Budget. The New Home Company will leave its risk capital invested in the project until it is recovered in accordance with the Repayment paragraph. If excess sales proceeds are distributed to Borrower at the end of Phase 1 as contemplated in the Repayments paragraph, The New Home Company will receive no more than its pro rata share of such distributions such that it maintains its pro rata share of equity in the project. 5. Completion Guaranty. Such additional covenants as Lender determines to be necessary or desirable for the enforcement of the Completion Guaranty.
Default:	In the event of any Default, penalty interest equal to an additional 2% shall be charged from the date of the Default until the date the Default is cured. In the event of a Payment Default, Lender does not need to provide Borrower notice; however, Borrower shall have two business days to cure such Payment Default. In the event of a Covenant Default, Lender must provide a 30-day notice and cure period before Lender can pursue any and all remedies.
Collateral:	The loan will be collateralized by a perfected first lien on all the tangible and intangible assets of Borrower, including a mortgage on the land and improvements.
Nonrecourse:	The loan will be recourse to the Borrower but nonrecourse to its owners except for (1) customary “bad boy” carveouts, and (2) the Completion Guaranty, as outlined below.
Conditions to Closing:	1. Completion of due diligence as determined appropriate by Lender in its sole discretion, including, but not limited to, (1)

5

	fire sale market for condo units, (2) fire sale land value, (3) rental market for condo units, and (4) entitlements and approvals in-place and to-be-acquired on the Project. 2.    Borrower must demonstrate to the satisfaction of the Lender the ability to fund the entire equity commitment contemplated in the agreed budget prior to Closing. 3.  Unless otherwise approved by Lender prior to Closing, all entitlements and approvals will be in place at Closing to allow for the Project site work to begin, and no in-place entitlements or regulations currently exist that impact the Borrower’s ability to obtain building permits for all Project units. Borrower and Lender will work together in good faith prior to Closing to clarify to Lender the process by which approvals are obtained to sell units, and Lender maintains the right to refuse the Loan if Lender, in Lender’s reasonable judgment, determines the risk related to such sales approvals is too high. 4.  The parties have negotiated and executed definitive legally binding documentation. Lender to provide indication of approval or disapproval of conditions 1, 2 and 3 above within fourteen (14) days of execution of this Discussion Outline.
Completion Guaranty:	The New Home Company, LLC (“Guarantor”) must provide a completion guaranty (“Guaranty”) satisfactory to Lender and Guarantor prior to Closing. The Guaranty will be in a form comparable to other completion guarantee documents shared by Guarantor with Lender prior to the date of this outline. The credit of the Guarantor must be acceptable to Lender.
Expenses:	Borrower agrees to pay all of Lender’s out-of-pocket expenses, including, but not limited to legal costs, due diligence expenses, and the cost of any post-close consultants or inspectors. When Borrower accepts the Loan Commitment, Borrower will fund a $25,000 expense deposit to be used by Lender to fund its out- of-pocket expenses. Borrower will make additional expense deposits to cover the cost of due diligence, documentation and post-close administration as needed. In the event the Loan is not consummated, Lender will refund the expense deposit, net of Lender’s out-of-pocket expenses.
Closing & Funding:	No later than April 28, 2013
Loan Document Execution:	April 14, 2013, subject to five business day extension

6

Non-Binding: This Discussion Outline is for discussion purposes only. Neither party will have any legal obligations to the other until Lender has conducted due diligence to his satisfaction and the Conditions to Closing have been met as determined by Lender.

7

EX-10

Exhibit 10.13

LIMITED LIABILITY COMPANY AGREEMENT

OF

LR8 INVESTORS, LLC

Dated as of September 22, 2010

TABLE OF CONTENTS

	Page
ARTICLE I.            DEFINED TERMS		1
1.01      Defined Terms		1
1.02      Other Defined Terms		10
ARTICLE II.           ORGANIZATION		10
2.01      Continuation		10
2.02      Name and Principal Place of Business		10
2.03      Term		11
2.04      Registered Agent and Registered Office		11
2.05      Purpose		11
2.06      Modification to Structure		12
ARTICLE III.         MEMBERS		14
3.01      Members		14
3.02      Limitation on Liability		14
ARTICLE IV.         CAPITAL		15
4.01      Initial Capital Contributions		15
4.02      Additional Capital Contributions		16
4.03      Capital Accounts		19
4.04      No Further Capital Contributions		19
4.05      Loans		19
ARTICLE V.          INTERESTS IN THE COMPANY		20
5.01      Return of Capital		20
5.02      Ownership		20
5.03      Waiver of Partition; Nature of Interests in the Company		20
5.04      Percentage Interests		21
ARTICLE VI.        ALLOCATIONS AND DISTRIBUTIONS		21
6.01      Allocations		21
6.02      Allocations and Compliance with Section 704(b)		22
6.03      Distributions		23
6.04      Distributions in Liquidation		24
6.05      Tax Matters		24
6.06      Tax Matters Partner		24
6.07      Section 704(c)		25
6.08      Withholding		25
ARTICLE VII.       MANAGEMENT		25
7.01      Management		25
7.02      Members of the Executive Committee		31
7.03      Administrative Member		34
7.04      Services and Fees		38
7.05      Duties and Conflicts		39
7.06      Company Expenses		40
ARTICLE VIII.      BOOKS AND RECORDS		40
8.01      Books and Records		40
8.02      Accounting and Fiscal Year		41
8.03      Reports		41
8.04      The Company Accountant		43

i

TABLE OF CONTENTS

(continued)

	Page
8.05      Reserves		43
8.06      The Budget and Operating Plan		43
8.07      Accounts		44
ARTICLE IX.        TRANSFER OF INTERESTS		44
9.01      No Transfer		44
9.02      Permitted Transfers		45
9.03      Transferees		45
9.04      Section 754 Election		46
9.05      Drag Along Rights		46
9.06      Right of Sale		48
ARTICLE X.         EXCULPATION AND INDEMNIFICATION		49
10.01    Exculpation		49
10.02    Indemnification		50
ARTICLE XI.        DISSOLUTION AND TERMINATION		51
11.01    Dissolution		51
11.02    Termination		52
11.03    Liquidating Member		53
11.04    Claims of the Members		53
ARTICLE XII.       DEFAULT BY MEMBER		53
12.01    Events of Default		53
12.02    Effect of Event of Default		53
ARTICLE XIII.      MISCELLANEOUS		53
13.01    Representations and Warranties of the Members		53
13.02    Further Assurances		56
13.03    Notices		56
13.04    Governing Law		58
13.05    Attorney Fees		58
13.06    Captions		58
13.07    Pronouns		58
13.08    Successors and Assigns		58
13.09    Extension Not a Waiver		58
13.10    Creditors Not Benefited		58
13.11    Recalculation of Interest		58
13.12    Severability		59
13.13    Entire Agreement		59
13.14    Publicity		59
13.15    Time is of the Essence		59
13.16    Counterparts		59
13.17    Confidentiality		59
13.18    Venue		60
13.19    Waiver of Jury Trial		61
13.20    Limitation of Liability		61
13.21    Cooperation		61

ii

TABLE OF CONTENTS

(continued)

	Page
EXHIBIT A		A
EXHIBIT B		B-1
EXHIBIT C		C-1

iii

LIMITED LIABILITY COMPANY AGREEMENT

OF

LR8 INVESTORS, LLC

This LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) of LR8 INVESTORS, LLC is made and entered into as of September 22, 2010 (the “Effective Date”), MFCI8 LR, LLC, a Delaware limited liability company (“Westbrook”), and The New Home Company Southern California LLC, a Delaware limited liability company (“Sponsor”).

WHEREAS, the Company (as hereinafter defined) was formed pursuant to a Certificate of Formation (the “Certificate of Formation”), dated as of September 20, 2010, and filed with the Secretary of State of Delaware on September 20, 2010.

NOW, THEREFORE, the parties hereto hereby agree as follows:

ARTICLE I.

DEFINED TERMS

1.01     Defined Terms.     As used in this Agreement, the following terms have the meanings set forth below:

“AAA” has the meaning set forth in Section 2.06(b).

“Acquisition Vehicle” has the meaning set forth in Section 2.05(b).

“Additional Capital Contribution” has the meaning set forth in Section 4.02(a).

“Adjusted Capital Account Deficit” means, with respect to any Member for any taxable year or other period, the deficit balance, if any, in such Member’s Capital Account as of the end of such year or other period, after giving effect to the following adjustments:

(a)        Credit to such Capital Account any amounts that such Member is obligated to restore or is deemed obligated to restore as described in the penultimate sentence of Treasury Regulation Section 1.704-2(g)(1) and in Treasury Regulation Section 1.704-2(i); and

(b)        Debit to such Capital Account the items described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

“Administrative Member” has the meaning set forth in Section 7.03(a).

“Adverse Change” has the meaning set forth in Section 2.06(a).

“Affiliated” or “Affiliate” means, with respect to any Person, (a) any other Person directly or indirectly controlling, controlled by, or under common control with such Person, or (b) any other Person owning or controlling 10% or more of the outstanding voting interests of such Person, or (c) any officer, director, general partner or managing member of such Person, or (d) any other Person which is an officer, director, general partner, managing member or holder of

1

10% or more of the voting interests of any other Person described in clauses (a) through (c) of this definition. The term “control” as used herein (including the terms “controlling”, “controlled by” and “under common control with”) means the possession, direct or indirect, of the power (i) to vote 10% or more of the outstanding voting securities of such person or entity; or (ii) to otherwise direct management policies of such person or entity by contract or otherwise.

“Agreement” has the meaning set forth in the introductory paragraph hereof.

“Basic Terms” has the meaning set forth in Section 9.06(c).

“Book Basis” means, with respect to any asset of the Company, the adjusted basis of such asset for federal income tax purposes; provided, however, that (a) if any asset is contributed to the Company, the initial Book Basis of such asset shall equal its fair market value on the date of contribution, and (b) the Book Basis of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Executive Committee, as of the following times: (i) the acquisition of an additional Interest by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of property as consideration for an Interest; and (iii) in connection with the liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (i) and (ii) above shall be made only if the Executive Committee determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. The Book Basis of all assets of the Company shall be adjusted thereafter by depreciation as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(g) and any other adjustment to the basis of such assets other than depreciation or amortization.

“Budget” means the budget covering the Company’s anticipated operations prepared by the Administrative Member and approved by the Executive Committee and in effect from time to time pursuant to Section 8.06.

“Business Day” means any day other than Saturday, Sunday, any day that is a legal holiday in the State of New York, or any other day on which banking institutions in New York are authorized to close.

“Capital Account” means the separate account maintained for each Member under Section 4.03.

“Capital Contribution” means, with respect to any Member, all Initial Capital Contributions, Additional Capital Contributions and Substitute Contributions made by such Member to the Company pursuant to this Agreement.

“Cell Site Relocation Agreement” has the meaning set forth in the Purchase Agreement.

“Certificate of Formation” has the meaning set forth in the recital paragraphs to this Agreement.

“Closing Date” means the day of the “Closing” under the Purchase Agreement.

2

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” means the limited liability company continued and governed by the terms of this Agreement.

“Company Accountant” has the meaning set forth in Section 8.04.

“Company Management Services” means (a) the services performed by the Administrative Member pursuant to and as provided in this Agreement including all actions in the day-to-day management of the Company as contemplated under the Budget and Operating Plan and (b) all other services reasonably requested from time to time by the Executive Committee, and reasonably agreed to by the Administrative Member, consistent with other services customarily provided by administrative members or managers as part of their ordinary compensation in comparable circumstances.

“Company Minimum Gain” means “partnership minimum gain” as defined in Treasury Regulation Section 1.704-2(d).

“Company Property” means any asset or other property (real, personal or mixed) directly or indirectly owned by or leased to the Company, which shall consist of (i) the Initial Company Property, (ii) the Real Property and (iii) any other property directly or indirectly relating thereto acquired by the Company pursuant to the terms hereof.

“Confidential Information” has the meaning set forth in Section 13.17(a).

“Construction Contract” means the Construction Contract to be entered into by LR8 Owner and General Contractor in a form approved by the Executive Committee and General Contractor.

“Contract and Due Diligence Costs” has the meaning set forth in Section 4.01(b).

“Contractor’s Fee” has the meaning set forth in Section 7.04(a).

“Contributing Member” has the meaning set forth in Section 4.02(b).

“Contribution Election Notice” has the meaning set forth in Section 4.02(b).

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise.

“Delaware Act” means the Delaware Limited Liability Company Act, as amended from time to time.

“Development Management Agreement” means the Development Management Agreement to be entered into by and among LR8 Owner, Administrative Member and the General Contractor substantially in the form attached hereto as Exhibit “A”, with such

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modifications as may be approved by the Executive Committee, Administrative Member and the General Contractor.

“Dilution Denominator” has the meaning set forth in Section 4.02(c)(ii)(A).

“Dilution Numerator” has the meaning set forth in Section 4.02(c)(ii)(A).

“Dilution Option” has the meaning set forth in Section 4.02(b).

“Drag Along Notice” has the meaning set forth in Section 9.05.

“Drag Along Purchase Price” has the meaning set forth in Section 9.05.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Event of Default” has the meaning set forth in Section 12.01.

“Exchanging Member” has the meaning set forth in Section 13.20.

“Executive Committee” has the meaning set forth in Section 7.01(a).

“Expenses” means, for any period, the total gross expenditures of the Company reasonably relating to the operations of the Company, ownership, maintenance, management, operations, construction costs, sale, financing or refinancing of the Company Property during such period contemplated by the then applicable Budget or otherwise permitted pursuant to the terms of this Agreement approved (either prospectively or retroactively) by the Executive Committee, including without limitation (a) all cash operating expenses (including without limitation real estate taxes and assessments, personal property taxes, sales taxes, and all fees, commissions, expenses and allowances paid or reimbursed to any Member or any of its Affiliates pursuant to any asset management agreement, property management agreement or otherwise as permitted hereunder), (b) all deposits of Revenues to the Company’s reserve accounts to the extent contemplated by the Budget or otherwise reasonably approved by the Executive Committee, (c) all debt service payments including debt service on loans made to the Company by the Members or any of their Affiliates, (d) all expenditures which are treated as capital expenditures (as distinguished from expense deductions included in (a) under generally accepted accounting principles, and (e) all expenditures related to any acquisition, sale, disposition, financing, refinancing or securitization of any Company Property; provided, however, that Expenses shall not include any payment or expenditure to the extent (A) the sources of funds used for such payment or expenditure are not included in Revenues or (B) such payment or expenditure is paid out of any Company reserves.

“For Cause” shall mean (A) any material breach of this Agreement, the Development Management Agreement or Construction Contract by the Administrative Member or General Contractor, respectively (but excluding any breach of Section 4.02), or any action or omission on the part of the Administrative Member or General Contractor which, in each of the above cases, has a material adverse effect on the business, properties, financial condition or profitability of the Company or LR8 Owner, and which is not cured within a Reasonable Period after notice thereof

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has been given, (B) any actions or omissions on the part of the Administrative Member or Sponsor or any of their respective representatives which amounts to fraud, bad faith, gross negligence or willful misconduct, (C) if at any time during the term of the Development Management Agreement or while Sponsor is a Member of the Company, either Sponsor or General Contractor or an Affiliate of any of these shall knowingly hire any employee of WREF, Westbrook or an Affiliate of such entity without the prior written consent of WREF, or (D) the failure to make any required Additional Capital Contribution pursuant to Section 4.02.

“GAAP” means United States generally accepted accounting principles consistently applied.

“General Contractor” means TNHC Realty and Construction, Inc., a Delaware corporation, an Affiliate of Sponsor who has a valid general contractor’s license issued by the State of California or any other Person who is engaged to provide general contracting and construction management services with regard to the Initial Company Property and/or the Project and approved by the Executive Committee, whose services will be those specified in the Development Management Agreement and Construction Contract

“Impositions” has the meaning set forth in Section 2.06(a).

“Indemnitees” has the meaning set forth in Section 10.02.

“Initial Budget and Operating Plan” has the meaning set forth in Section 8.06.

“Initial Capital Contribution” means, with respect to any Member, any capital contribution made by such Member pursuant to Section 4.01 hereof.

“Initial Company Property” means 100% of the limited liability company interest of LR8 Owner, which shall acquire the Real Property pursuant to the Purchase Agreement.

“Initial Sale Notice” has the meaning set forth in Section 9.06(b).

“Interest” means, with respect to any Member at any time, the interest of such Member in the Company at such time, including the right of such Member to any and all of the benefits to which such Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement.

“Internal Rate of Return” or “IRR” means the annual percentage rate calculated using Microsoft Excel software, compounded monthly, which, when utilized to calculate the present value of the distributions of Net Cash Flow to a Member, causes such present value of distributions to equal the present value of such Member’s Capital Contributions. The present value of a Member’s Initial Capital Contribution is the nominal amount of such capital, and the present value of any Additional Capital Contribution is the nominal amount of such Additional Capital Contribution discounted back to the date the Initial Capital Contribution was contributed utilizing said annual percentage rate.

“Lender” has the meaning set forth in Section 4.05.

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“Liquidating Member” means the Member designated as such by the Executive Committee; provided, however, that any Member that is then in default hereunder or that causes the dissolution of the Company under Section 11.01(e) shall not serve as the Liquidating Member (in which event the Liquidating Member shall be the non-defaulting Member).

“Loan” has the meaning set forth in Section 4.05.

“Loss” means, for each taxable year or other period, an amount equal to the Company’s items of taxable deduction and loss for such year or other period, determined in accordance with Section 703(a) of the Code (including all items of loss or deduction required to be stated separately under Section 703(a)(1) of the Code), with the following adjustments:

(a)        Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures under Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Loss, will be considered an item of Loss;

(b)        Loss resulting from any disposition of Company Property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Book Basis of such property, notwithstanding that the adjusted tax basis of such property may differ from its Book Basis;

(c)        In lieu of depreciation, amortization and other cost recovery deductions taken into account in computing taxable income or loss, there will be taken into account depreciation for the taxable year or other period as determined in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g);

(d)        Any items of deduction and loss specially allocated pursuant to Section 6.07 shall not be considered in determining Loss; and

(e)        Any decrease to the Book Basis of Company assets pursuant to Treasury Regulation Section 1.704-1(b)(2) (iv)(e) or (f) shall constitute an item of Loss.

“LR8 Owner” means LR8 Owner, LLC, a Delaware limited liability company.

“Major Decision” has the meaning set forth in Section 7.01(a).

“Managing Member” means Westbrook.

“Mandatory Capital” has the meaning set forth in Section 4.02(a).

“Member” means one or more of Westbrook and/or Sponsor or any other Person who is admitted as a member of the Company in accordance with this Agreement and applicable law.

“Member Group” means, with respect to any Member, such Member and any Affiliate of such Member that is a member of the Company.

“Member Loan” has the meaning set forth in Section 4.02(b).

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“Member Minimum Gain” means the Company’s “partner nonrecourse debt minimum gain” as defined in Treasury Regulation Section 1.704-2(i)(2).

“Member Negotiation Expenses” has the meaning set forth in Section 4.01(b).

“Member Nonrecourse Debt” means “partner nonrecourse debt” as defined in Treasury Regulation Section 1.704-2(b)(4).

“Member Nonrecourse Deductions” means “partner nonrecourse deductions” as defined in Treasury Regulation Section 1.704-2(i)(2).

“Necessary Expense” has the meaning set forth in Section 7.03(b)(ii).

“Net Cash Flow” means, for any period, the excess of (a) Revenues for such period over (b) Expenses for such period and amounts set aside for creation of reserves as determined by the Executive Committee.

“Net Loss” means, for any period, the excess of Losses over Profits, if applicable, for such period determined without regard to any Profits or Losses allocated pursuant to Section 6.02.

“Net Profit” means, for any period, the excess of Profits over Losses, if applicable, for such period determined without regard to any Profits or Losses allocated pursuant to Section 6.02.

“Non-Contributing Member” has the meaning set forth in Section 4.02(b).

“Nonrecourse Deductions” has the meaning set forth in Treasury Regulation Section 1.704-2(b)(1).

“Notices” has the meaning set forth in Section 13.03.

“Offer Price” has the meaning set forth in Section 9.06(c).

“Operating Plan” means the strategic and comprehensive operating plan covering the Company’s anticipated operations of Company Property prepared by the Administrative Member and approved by the Executive Committee and in effect from time to time pursuant to Section 8.06.

“Option Notice” has the meaning set forth in Section 7.05(c).

“Option Property” has the meaning set forth in Section 7.05(c).

“Organizational Documents” has the meaning set forth in Section 13.01(b)(i).

“Other Members” has the meaning set forth in Section 9.05.

“Percentage Interest” means ninety-five percent (95%) for Westbrook and five percent (5%) for Sponsor, subject to adjustment pursuant to Section 4.02(c)(ii) of this Agreement.

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“Person” means any individual, partnership, corporation, limited liability company, limited partnership, trust or other entity.

“Plan Asset Rules” has the meaning set forth in Section 2.06(a).

“Profit” means, for each taxable year or other period, an amount equal to the Company’s items of taxable income and gain for such year or other period, determined in accordance with Section 703(a) of the Code (including all items of income and gain required to be stated separately under Section 703(a)(1) of the Code), with the following adjustments:

(a)        Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profit will be added to Profit;

(b)        Gain resulting from any disposition of Company Property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Book Basis of such property, notwithstanding that the adjusted tax basis of such property may differ from its Book Basis;

(c)        Any items specially allocated pursuant to Section 6.07 shall not be considered in determining Profit; and

(d)        Any increase to the Book Basis of Company assets pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f) shall constitute an item of Profit.

“Project” means the acquisition of the Real Property and the design, entitlement, construction, marketing, management and sale of approximately one hundred sixty-nine (169) single family homes on the Real Property.

“Project Coordination Agreement” means the project coordination agreement to be entered into by and between the Company and SunBrook prior to or following the execution of this Agreement.

“Project Coordination Fee” has the meaning set forth in Section 7.04(b).

“Project Coordinator” means SunBrook or any other Person who is engaged to provide project coordination services with regard to the Project and approved by the Executive Committee, whose services will be those specified in the Project Coordination Agreement.

“Project Sell-Out” has the meaning set forth in Section 7.04(b).

“Public Vehicle” has the meaning set forth in Section 9.05.

“Purchase Agreement” means that certain Real Property Purchase Agreement dated August 25, 2010, entered into between The New Home Company, LLC, a Delaware limited liability company, as purchaser, and 11851 Lambert LLC, a California limited liability company, Barbara Lambert Tucker, as Trustee of the Barbara Tucker Revocable Inter-Vivos Trust U/D/T dated December 18, 2001, and Lucille Lambert, as Trustee of the Lucille Lambert Revocable Inter-Vivos Trust U/D/T dated December 18, 2001, collectively as seller, providing for the

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purchase of the Real Property for a total purchase price in an amount specified therein (subject to prorations and credits), and as the same may be modified, assigned or extended with the approval of the Executive Committee. The interests of The New Home Company, LLC, as purchaser under the Purchase Agreement shall be assigned to LR8 Owner concurrently with the execution hereof, or as soon as reasonably practicable, pursuant to an assignment agreement in form and substance acceptable to Westbrook.

“Purchase Notice” has the meaning set forth in Section 9.06(c).

“Real Property” means that certain real property located in Orange County, California as more particularly described in the Purchase Agreement, together with (1) all improvements located thereon, (2) all rights, benefits, privileges, easements, tenements, hereditaments, rights-of-way and other appurtenances thereon or in any way appertaining thereto, including all mineral rights, development rights, air and water rights, (3) all strips and gores and any land lying in the bed of any street, road or alley, open or proposed, adjoining such real property, (4) any plans and specifications and other architectural and engineering drawings for such real property, and (5) any governmental permits, approvals, entitlements and licenses (including any pending applications) relating thereto.

“Reasonable Period” means, with respect to any defaulting Member, a period of thirty (30) calendar days after such defaulting Member receives written notice of its default from a non-defaulting Member; provided, however, that if such breach can be cured but cannot reasonably be cured within such 30-day period, the period shall continue, if such defaulting Member commences to cure the breach within such 30-day period, for so long as such defaulting Member diligently prosecutes the cure to completion up to a maximum of 90 calendar days.

“Related Parties” has the meaning set forth in Section 7.01(a)(xii).

“Revenues” means, for any period, the total gross revenues received by the Company during such period, including without limitation all receipts of the Company from (a) rent, cost, expense and other recoveries and all additional rent paid to the Company (including for parking facilities), (b) concessions to the Company which are in the nature of revenues, (c) rent or business interruption insurance, and casualty and liability insurance, if any, (d) funds made available to the extent such funds are withdrawn from the Company’s reserve accounts and deposited into the Company’s operating accounts, (e) proceeds from the sale or other disposition of any Company Property, including proceeds from the sale of residential Units by LR8 Owner, (f) unused and unallocated proceeds from the financing, refinancing or securitization of any Company Property, and (g) other revenues and receipts realized by the Company, including without limitation cash available from unused and unallocated Capital Contributions that were called by the Executive Committee or such other Mandatory Capital as the Executive Committee may determine.

“Seller” has the meaning set forth in the Purchase Agreement.

“Sponsor” has the meaning set forth in the introductory paragraph hereof.

“Sponsor Persons” shall mean H. Lawrence Webb, Tom Redwitz, Joseph Davis or Wayne Stelmar.

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“Substitute Contribution” has the meaning set forth in Section 4.02(b).

“Substitute Contribution Election” has the meaning set forth in Section 4.02(b).

“SunBrook” shall mean SunBrook Partners, LLC, a Delaware limited liability company, an Affiliate of Westbrook.

“Transfer” has the meaning set forth in Section 9.01.

“Treasury Regulation” or “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.

“UBTI” means “unrelated business taxable income” as defined in Code Sections 512 through 514.

“Valuation Agent” has the meaning set forth in Section 2.06(b).

“Westbrook” has the meaning set forth in the introductory paragraph hereof.

“Westbrook Interest Purchase Price” has the meaning set forth in Section 9.05.

“WREF” means Westbrook Real Estate Fund VIII, L.P., a Delaware limited partnership and the sole member of Westbrook, together with its successors and assigns in such capacity.

1.02     Other Defined Terms.  As used in this Agreement, unless otherwise specified, (a) all references to Sections, Articles or Exhibits are to Sections, Articles or Exhibits of this Agreement, and (b) each accounting term has the meaning assigned to it in accordance with GAAP.

ARTICLE II.

ORGANIZATION

2.01     Continuation.  The Company was formed as a limited liability company under the Delaware Act by the filing of the Certificate of Formation. The Members hereby agree to continue the Company as a limited liability company under the Delaware Act, upon the terms and subject to the conditions set forth in this Agreement. The Managing Member is hereby authorized to file and record any amendments to the Certificate of Formation and such other documents as may be reasonably required or appropriate under the Delaware Act or the laws of any other jurisdiction in which the Company may conduct business or own property.

2.02     Name and Principal Place of Business.

(a)        The name of the Company is set forth on the cover page to this Agreement. Subject to Section 7.01(f), the Members may change the name of the Company or adopt such trade or fictitious names for use by the Company as the Members may from time to time determine. All business of the Company shall be conducted under such name, and title to all Company Property shall be held in such name.

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(b)        The principal place of business and office of the Company shall be located at the offices of the Administrative Member at 95 Enterprise, Suite 325, Aliso Viejo, California 92656, or at such other place or places as the Managing Member may from time to time designate.

2.03     Term.  The term of the Company commenced on September 20, 2010, the date of the filing of the Certificate of Formation pursuant to the Delaware Act, and shall continue in full force and effect until December 31, 2060, unless sooner terminated pursuant to the provisions of this Agreement.

2.04     Registered Agent and Registered Office.  The name of the Company’s registered agent for service of process shall be National Registered Agents, Inc., 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 160 Greentree Drive, Suite 101, Dover, Delaware 19904. Such agent and such office may be changed from time to time by the Executive Committee with written notice to all Members.

2.05     Purpose.

(a)        The sole purpose of the Company shall be:

(i)       To acquire the Initial Company Property;

(ii)      To cause LR8 Owner to perform its obligations and exercise its rights under the Purchase Agreement and any other agreements or contracts contemplated by the foregoing, and to carry out the terms of and engage in the transactions contemplated by such agreement;

(iii)     To acquire, own, develop, manage, operate, lease, improve, finance, refinance, market, sell and otherwise deal with and dispose of the Company Property, including construction, marketing and sale of approximately one hundred-sixty nine (169) single family homes; and

(iv)     To conduct all activities reasonably necessary or desirable to accomplish the foregoing purposes.

The Project shall be known as a New Home Company community and shall be marketed under such trade name as shall be recommended by the Administrative Member, subject to Westbrook’s approval, which approval shall not be unreasonably withheld.

(b)        Notwithstanding anything to the contrary contained in this Agreement, upon the election of the Executive Committee (an “Acquisition Vehicle Election”), the Members shall cause the formation of an entity or entities directly or indirectly wholly owned and Controlled by either the Company or the Members (in the same proportion as their respective interests in the Company and on the same terms as contained in this Agreement) to acquire or lease all or any portion of the Company Property (an “Acquisition Vehicle”). It is expressly understood that the Company may own all or any portion of the Company Property, and conduct all or any portion of

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its business directly or indirectly through one or more Acquisition Vehicles, including construction, marketing and sale of approximately one hundred sixty-nine (169) single family homes; provided that it is the intent of the Members that the organizational documents relating to the formation of any Acquisition Vehicle shall be interpreted together with and be consistent with the provisions of this Agreement. The Administrative Member shall perform, with no additional compensation, the same or substantially identical services for each Acquisition Vehicle as the Administrative Member performs for the Company, subject to the terms, conditions, limitations and restrictions set forth in this Agreement. The Administrative Member agrees to perform such duties, and in such circumstances and with regard to such duties, the Administrative Member shall be subject to the same standards of conduct and shall have the same rights and obligations with regard to such duties performed or to be performed on behalf of any Acquisition Vehicle as are set forth in this Agreement with regard to the same or substantially identical services to be performed for or on behalf of the Company. The Sponsor shall have no materially greater obligations or materially reduced rights as a result of this Section 2.05(b). Each Acquisition Vehicle, as applicable, will enter into (i) a project coordination agreement on the same terms as the Project Coordination Agreement provided that the aggregate fee paid to the Project Coordinator shall not exceed the Project Coordination Fee and (ii) a construction contract on the same terms as the Construction Management Agreement provided that the aggregate fee paid to the General Contractor shall not exceed or be less than the fees provided in the Construction Management Agreement. Notwithstanding the foregoing, the Members hereby acknowledge and agree that any Acquisition Vehicle formed or proposed to be formed to eliminate or otherwise mitigate any Plan Asset Rule and/or Imposition issues shall be subject to the provisions of Section 2.06. Notwithstanding anything to the contrary in the foregoing, the modifications made pursuant to this Section 2.05(b) shall not require Sponsor or its Affiliates to take increased risks, to incur materially increased obligations, to have their rights materially reduced, or to incur any material cost or expense, in accordance with performing its obligations hereunder.

2.06     Modification to Structure.   (a) In order to qualify and/or preserve the status of Westbrook, WREF, the Company, or any entity in which the Members and/or the Company owns an interest and which owns any portion of the Company Property as an “operating company” under the plan asset rules of ERISA at 29 C.F.R. 2510.3-101 (the “Plan Asset Rules”) to avoid the imposition of a corporate tax on any income of the Company, or to minimize the effects of any UBTI on Westbrook and its partners, members and shareholders (collectively, the “Impositions”), Sponsor agrees to consent to modifications reasonably proposed by Westbrook to the structure of the Company and/or the Company’s investments in and ownership of the Company Property and/or to the terms of this Agreement including, without limitation, the capital contribution and allocation and distribution provisions set forth in Article IV and VI, if in any such case the modifications will not do any of the following (each of which, individually an “Adverse Change”) (i) render any Member and/or their successors in interest unable to fulfill its financial obligations hereunder, (ii) subject Sponsor and/or its Affiliates to greater liability or exposure for Capital Contributions or the claims of or any indebtedness owing to third parties or to Westbrook, or (iii) materially adversely affect the aggregate amount or timing of or exposure for Capital Contributions, payment of fees, distributions of Net Cash Flow and liquidation proceeds or the aggregate allocations of Profits and Losses to Sponsor; provided, however, that if the modifications do adversely affect the aggregate amount or timing of Capital Contributions, fees payable or distributions of Net Cash Flow and liquidation proceeds or the aggregate

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allocations of Profits and Losses, the provisions of Section 2.06(b) shall apply and Sponsor shall not withhold its consent to any such modifications notwithstanding any such Adverse Change as long as Westbrook pays Sponsor the value of any such Adverse Change pursuant to Section 2.06(b) below. Subject to and specifically limited by the foregoing, any such modification may include, without limitation, the formation by the Members of other limited liability companies, partnerships, corporations or other entities (including without limitation, corporations and trusts that qualify as real estate investment trusts under Section 856 of the Code) to be owned by the Members or their Affiliates and which will own a portion of the Company Property. In any such event, the Company and such other entities shall be treated as a single partnership, but for federal income tax purposes only, and the fees, expenses or other compensation or remuneration payable, the amounts distributable, the Profits and Losses allocable, the Capital Contributions required to be contributed, and the maintenance of Capital Accounts pursuant to this Agreement and the organic documents governing such other entities shall be calculated, determined and applied on an aggregate basis as if the entire Company Property were owned by the Company pursuant to this Agreement as in effect on the date hereof, unless Westbrook reasonably determines that such provisions must be calculated, determined and applied on an entity by entity basis and not on an aggregate basis to qualify or preserve the status of Westbrook, WREF, the Company or any entity in which the Members and/or the Company owns an interest and which owns any portion of the Company Property as an operating company under the Plan Asset Rules. If Westbrook reasonably determines that such provisions must be calculated, determined and applied on an entity by entity basis and not an aggregate basis, the Members agree to negotiate in good faith modifications to the terms of this Agreement and to the organizational documents governing such other entities so as to preserve as nearly as possible without any Adverse Change to Sponsor the same overall economic benefits and burdens relating to the entire Company Property as exist under this Agreement as in effect on the date hereof; provided, however, that if the modifications do cause an Adverse Change, the provisions of Section 2.06(b) shall apply. Sponsor agrees to cooperate with Westbrook and to execute, acknowledge, deliver, file, record and publish all such documents, agreements and instruments and to do all such other acts and things as Westbrook reasonably determines are necessary to implement the foregoing, subject to the limitations set forth in the first sentence of this Section. Westbrook shall bear all costs and expenses incurred in connection with any transfers of the Company Property and the formation of any additional entities to own any portion of the Company Property and the modification of any organizational documents of the Company in connection with any of the foregoing, including without limitation attorneys’ fees, accounting fees and consultants fees incurred in connection with any of the foregoing. Notwithstanding anything to the contrary in the foregoing, the modifications made pursuant to this Section (a) shall not require Sponsor nor its Affiliates, to take increased risks, or to incur materially increased obligations, or to have their rights materially reduced, or incur any material cost or expense, in accordance with performing its obligations hereunder.

(b)        In the event of an Adverse Change, Sponsor shall notify Westbrook thereof in writing including an estimate of the economic value of the Adverse Change incurred by Sponsor. If the Members are unable to mutually agree upon the amount thereof within thirty (30) days after such notice by Sponsor, the value of such Adverse Change shall be determined by the following valuation procedure. Westbrook and Sponsor shall, within ten (10) days after the expiration of the foregoing thirty (30) day period, mutually agree on an independent third party (the “Valuation Agent”) to determine the economic value or effect to Sponsor arising

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from the Adverse Change resulting from a modification described in Section 2.06(a). If the parties are unable to agree on a Valuation Agent within such ten (10) day period, the Valuation Agent shall be appointed by a retired judge selected by the Members from a panel presented by the Delaware office of the American Arbitration Association (“AAA”). If the Members are unable to agree, AAA will provide a list of three (3) available retired judges, and each of Sponsor and Westbrook may strike one (1) of the available retired judges. The remaining retired judge shall select the Valuation Agent. If Westbrook and Sponsor strike the same retired judge and two (2) remain, failing agreement of the parties within three business days thereafter as to which retired judge shall select the Valuation Agent, Westbrook shall flip a coin to determine which of the two remaining retired judges shall select the Valuation Agent. In making its determination of the economic value of the Adverse Change, the Valuation Agent shall only consider the impact of the modifications to the amounts and timing of Capital Contributions, fees, expenses or other compensation or remuneration due and payable and distributions of Net Cash Flow and liquidation proceeds and the allocations of Profits and Losses to Sponsor and such other matters as the Valuation Agent shall reasonably determine to be material to the economic value of the Adverse Change. Any Valuation Agent selected shall be independent and shall not have performed or been engaged to perform any appraisal or valuation services for the Company, Westbrook or Sponsor, or of their Affiliates, at any time during the two (2)-year period prior to its selection. Within sixty (60) days of the Members’ selection of the Valuation Agent, the Valuation Agent shall deliver to the Members a written report of the foregoing valuation, and the determination of the Valuation Agent thereon shall be conclusive and binding upon the Members. Within thirty (30) days of the receipt of such report, Westbrook shall pay to Sponsor the amount of the economic value of the Adverse Change determined by the Valuation Agent. If the Valuation Agent is employed pursuant to the terms of this Section 2.06(b), Westbrook shall bear the costs thereof.

(c)        In the event of any conflict or inconsistency between the terms of this Section 2.06 and any other provision of this Agreement, the terms of this Section 2.06 shall control.

ARTICLE III.

MEMBERS

3.01     Members.

(a)        Effective as of the date of this Agreement, the Members of the Company shall be Westbrook and Sponsor. Except as expressly permitted by this Agreement, no other Person shall be admitted as a Member of the Company and no additional Interest shall be issued.

(b)        Subject to the terms of this Agreement, Westbrook shall constitute the sole Managing Member of the Company. The Members, and the members of the Executive Committee, in exercise of their duties hereunder as Members, shall have no fiduciary duties towards each other.

3.02     Limitation on Liability.  Except as otherwise expressly provided in the Delaware Act, 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

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shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a member of the Company. Except as otherwise expressly provided in the Delaware Act, the liability of each Member shall be limited to the amount of Capital Contributions required to be made by such Member in accordance with the provisions of this Agreement, but only when and to the extent the same shall become due pursuant to the provisions of this Agreement.

ARTICLE IV.

CAPITAL

4.01     Initial Capital Contributions.

(a)        Deposits Under the Purchase Agreement. Prior to or concurrently with the execution of this Agreement and the assignment of the Purchase Agreement to LR8 Owner, Sponsor and Westbrook shall have funded together Four Million Eight Hundred Thousand Dollars ($4,800,000) as a deposit under the Purchase Agreement, each in an amount respective of their Percentage Interest as of the date of this Agreement. It is agreed that, on the Closing Date, such deposit shall constitute a portion of each such Member’s Initial Capital Contribution hereunder.

(b)        Due Diligence Costs. The Members and their respective Affiliates have heretofore incurred, and may hereafter incur prior to the Closing Date, third party out-of-pocket costs and expenses in connection with the acquisition of the Real Property, negotiation of the Purchase Agreement and their respective due diligence analyses and other evaluations of the Real Property and the Project, including, without limitation, engineering and feasibility costs and expenses and costs and expenses related to or associated with analyzing, the Real Property and the Project (collectively, the “Contract and Due Diligence Costs”; such costs shall include, without limitation, costs (including without limitation, attorneys’ fees) incurred by Westbrook in reviewing and analyzing work conducted by Sponsor or its agents) and third party costs and expenses incurred by the Members in good faith and associated with or related to the negotiation and execution of this Agreement and the Project Coordination Agreement (collectively, “Member Negotiation Expenses”). The Contract and Due Diligence Costs and the Member Negotiation Expenses incurred through the Effective Date (including without limitation deposits made by Sponsor or Sponsor’s Affiliates pursuant to the Purchase Agreement) are listed on the attached Exhibit “C” and are hereby approved by the Members. All expenses listed on Exhibit “C” shall be reimbursed by the Company. Sponsor and Westbrook shall provide the Executive Committee with a written estimate of the Contract and Due Diligence Costs until acquisition of the Real Property for Executive Committee approval. The Company shall pay or reimburse each Member for all Contract and Due Diligence Costs and Member Negotiation Expenses, incurred by such Member in good faith pursuant to the terms hereof and approved by the Executive Committee and included within the Initial Budget that is approved by the Executive Committee, or shall credit such approved amounts against such Member’s Initial Capital Contribution to the extent and as hereinafter provided, so that each Member’s share of such costs shall be in proportion to their respective Percentage Interests.

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(c)        Closing Contributions. If the Executive Committee decides to close the purchase of the Real Property pursuant to the Purchase Agreement, then on or before the date upon which the purchase price is required to be deposited into escrow pursuant to the Purchase Agreement, the Members shall contribute in cash to the capital of the Company their pro rata share (based upon their respective Percentage Interests including, without limitation, any amounts previously contributed by a Member to the Company pursuant to this Agreement) of the sum of (i) the amount reasonably necessary to close the acquisition of the Company Property (other than amounts to be financed, as determined by the Executive Committee), including, without limitation, the Company’s equity, closing costs, approved Contract and Due Diligence Costs, and approved Member Negotiation Expenses, and (ii) a reasonable amount of initial working capital of, and reserves for, the Company, as determined by the Executive Committee (all such amounts shall be credited as provided in Section 4.01(b)). The Members’ respective estimated required Initial Capital Contributions, which are to be funded prior to the acquisition of the Real Property, as well as the sources and uses for the closing, are described on Schedule A attached hereto. If, either before or after the acquisition of the Real Property, the Executive Committee determines that the Initial Capital Contributions described on Schedule A do not accurately reflect the matters specified in the first sentence of this paragraph, then the Executive Committee may readjust the Initial Capital Contributions required of each Member, subject to the limitations of this Section 4.01(c). In any event, upon closing pursuant to the Purchase Agreement, the aggregate Capital Contributions made by the Members shall be in proportion to their respective Percentage Interests and the Company shall return such portions of Capital Contributions made by any Member as may be necessary to achieve such result.

4.02     Additional Capital Contributions.

(a)        If at any time or from time to time after all of the Initial Capital Contributions have been contributed, the Executive Committee determines that additional funds (“Mandatory Capital”) are reasonably required (i) for costs contemplated by the Initial Budget and Operating Plan, including but not limited to costs associated with due diligence, costs of acquiring, owning, leasing, selling, financing or refinancing the Real Property or Project, or design, construction, entitlement, development and market or sale of the Real Property, startup costs or working capital, but only to the extent not included in the Initial Capital Contributions, as adjusted, made pursuant to Section 4.01, (ii) to meet the ongoing obligations, liabilities, Expenses or reasonable business needs of the Company in accordance with the then applicable Budget or Operating Plan, or comparable or other costs that are not provided for in the Budget and Operating Plan, but that are agreed to by the Executive Committee, or (iii) for any other purpose, the Executive Committee may (but shall not be obligated to) require that the Members make further capital contributions (“Additional Capital Contributions”) in the amount of such Mandatory Capital. If so requested by the Executive Committee, each Member shall, within thirty (30) days thereafter (or by any earlier date to prevent an adverse impact on the Project or the date required to make any deposit of borrower’s funds required by any Loan documents that have been approved by the Executive Committee and entered into by LR8 Owner pursuant to Section 4.05 of this Agreement), contribute its pro rata share (based upon the Percentage Interests of the Members at the time of such request) of the amount of the applicable Mandatory Capital. The Members agree that the Executive Committee may approve Mandatory Capital calls to fund hard and soft costs for the Project that will need to be funded in periodic

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Additional Capital Contributions as development, entitlement, construction and marketing of the Project progresses in accordance with a Budget and Operating Plan approved by the Executive Committee. The Initial Capital Contributions and the Additional Capital Contributions shall be made by wire transfer of funds to a Company account (or other escrow account) designated by the Executive Committee. The initial determination of the amount of Mandatory Capital required to fund Additional Capital Contributions shall be based upon the Initial Budget and Operating Plan that is approved by the Executive Committee.

(b)        Notwithstanding anything to the contrary contained herein, a failure by any Member to make any Additional Capital Contribution to the extent required or requested hereunder shall not constitute an Event of Default by such Member but shall constitute For Cause. If any Member (the “Non-Contributing Member”) fails to make an Additional Capital Contribution in the time required pursuant to Section 4.02(a) above, then one or more of the other Members that is not an Affiliate of the Non-Contributing Member (individually, each a “Contributing Member” and collectively the “Contributing Member” ) may make such Additional Capital Contribution (the Non-Contributing Member’s share of such Additional Capital Contribution so made by a Contributing Member, a “Substitute Contribution”). Within thirty (30) days after making a Substitute Contribution, a Contributing Member shall elect (the “Substitute Contribution Election”), by written notice (the “Contribution Election Notice”) to the Non-Contributing Member, to either (i) treat the entire amount of such Substitute Contribution as a loan (a “Member Loan”) to the Non-Contributing Member by such Contributing Member in accordance with the provisions of Section 4.02(c)(i) below, or (ii) dilute the Percentage Interest of the Non-Contributing Member in accordance with Section 4.02(c)(ii) below (the “Dilution Option”). If no election is made by such deadline, the Contributing Member shall be deemed to have elected to treat the Substitute Contribution as a Member Loan.

(c)        Terms of Substitute Contribution Election.

(i)        Member Loans.  If a Contributing Member makes, or is deemed to have made, an election to treat its Substitute Contribution as a Member Loan, then such Member Loan shall be deemed to constitute a loan made by the Contributing Member to the Non-Contributing Member in accordance with the terms hereof, immediately followed by a Capital Contribution by such Non-Contributing Member to the Company in the amount of such Member Loan and such Member Loan shall be due and payable in full on the date that is the earlier of (i) demand by the Contributing Member and (ii) the date that is three (3) years after the date of the applicable Substitute Contribution. Any Member Loan shall be senior in priority of payment to any Net Cash Flow otherwise distributable to the Non-Contributing Member and shall bear interest at the rate of twenty five percent (25%) per annum. To the extent of unpaid principal and interest thereon, any Member Loan shall be recourse only to the Non-Contributing Member’s Interest and shall be repaid directly by the Company on behalf of the Non-Contributing Member from Net Cash Flow, the proceeds of liquidation or any other amounts that would otherwise be distributable or payable to the Non-Contributing Member, prior to any distribution or payment thereof pursuant to this Agreement. Any Net Cash Flow, proceeds of liquidation or other amounts used to repay such Member Loan shall be applied first to interest and then to principal. Payments on account of any such Member Loans shall be made in the order in which such Member Loans were made. At any time, a Non-Contributing Member

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may tender full payment of a Member Loan (and accrued interest) to the applicable Contributing Member. At the request of the Contributing Member, the Non-Contributing Member shall execute a note providing for the terms set forth herein. Member Loans shall be treated as equity for federal income tax purposes.

(ii)        Dilution.

(A)       If a Contributing Member makes a Substitute Contribution, elects the Dilution Option with respect to such Substitute Contribution, then (X) the Percentage Interest of the Contributing Member shall be increased by the number of percentage points = determined by dividing the Dilution Numerator applicable to such Member by the Dilution Denominator applicable to such Member, and (Y) the Percentage Interest of the Non-Contributing Member shall be decreased by the number of percentage points by which the Contributing Member’s Percentage is increased pursuant to subclause (X) hereof. For purposes of this Agreement, (1) “Dilution Numerator” means two hundred percent (200%) of the amount of the Substitute Contribution and (2) “Dilution Denominator” means one hundred percent (100%) of the aggregate Capital Contributions then or theretofore made by all of the Members to the Company (including any Substitute Contributions). Attached as Schedule 4.02(c)(ii)(A) is a sample calculation of the Dilution Option. In no event shall a Member’s Percentage Interest be reduced below zero.

(B)       For purposes of this Section 4.02(c)(ii), each Member, together with the members of their respective Member Groups (if any), shall be considered to be one Member, and after performing such calculation, each Member shall allocate the Percentage Interest of such Member among the members of its Member Group (if any) in an equitable manner, provided that no such allocation shall affect the Capital Account of any other Member outside such Member Group.

(d)        Each Member hereby grants to the Company as collateral agent for the Contributing Member, as secured party, a security interest in such Member’s Interest to secure its obligation to repay Member Loans to the Contributing Member under this Article IV, and pay the outstanding principal and interest on each Member Loan on the maturity date for such Member Loan, and the Company shall have all rights available to a secured party under the Delaware Uniform Commercial Code and the laws of the state of organization of such Member. Failure by any Member to make its Capital Contribution when such contribution is due shall be a For Cause event hereunder, and the Company, or the other Members on behalf of the Company, may also exercise the rights and remedies specifically provided in this Section 4.02. Each Member does hereby irrevocably constitute and appoint the Company and the authorized agents and officers thereof, its true and lawful attorneys-in-fact, coupled with an interest, with full power to prepare and execute any documents, instruments and agreements, and such financing, continuation statements, and other instruments and documents as may be appropriate to perfect, continue and enforce such security interest in favor of the Company.

(e)        Each Member acknowledges and agrees that the other Members would not be entering into this Agreement were it not for (i) the Members agreeing to make the Capital Contributions provided for in this Section 4.02, and (ii) the remedy provisions set forth above in this Section 4.02. Each Member acknowledges and agrees that in the event any Member fails to

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make its Capital Contributions pursuant to this Agreement, the other Members will suffer substantial damages and the remedy provisions set forth above are fair, just and equitable in all respects. For the purposes of this Section 4.02, each Member, together with the members of its Member Group (if any), shall be considered to be one Member.

4.03     Capital Accounts.     A separate Capital Account will be maintained for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv). Consistent therewith, the Capital Account of each Member will be determined and adjusted as follows:

(a)        Each Member’s Capital Account will be credited with:

(i)       Any contributions of cash made by such Member to the capital of the Company plus the fair market value of any property contributed by such Member to the capital of the Company (net of any liabilities to which such property is subject or which are assumed by the Company);

(ii)      The Member’s distributive share of items of Profits and Net Profit; and

(iii)     Any other increases required by Treasury Regulation Section 1.704-1(b)(2)(iv).

(b)        Each Member’s Capital Account will be debited with:

(i)       Any distributions of cash made from the Company to such Member plus the fair market value of any property distributed in kind to such Member (net of any liabilities to which such property is subject or which are assumed by such Member);

(ii)      The Member’s distributive share of items of Loss and Net Loss; and

(iii)     Any other decreases required by Treasury Regulation Section 1.704-1(b)(2)(iv).

The provisions of this Section 4.03 and any other provisions of this Agreement relating to the maintenance of Capital Accounts have been included in this Agreement to comply with Section 704(b) of the Code and the Treasury Regulations promulgated thereunder and will be interpreted and applied in a manner consistent with those provisions.

4.04     No Further Capital Contributions.      Except as expressly provided in this Agreement or with the prior written consent of the Executive Committee, no Member shall be required or entitled to contribute any other or further capital to the Company, nor shall any Member be required or entitled to loan any funds to the Company. No Member will have any obligation to restore any negative balance in its Capital Account at any time including upon liquidation or dissolution of the Company.

4.05     Loans.   The Sponsor shall actively solicit financing from potential lenders for a portion of the funds required to develop, construct, or operate the Project. The Executive Committee shall have the sole discretion and authority to select which loan (or loans) and lender

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(or lenders) is in the Company’s best interests. Any such loan or loans shall be at commercially reasonable rates and on market terms and conditions which are acceptable to the Executive Committee (the “Loan”). The Members agree to make such reasonable changes to this Agreement and the operating agreements of LR8 Owner or any Acquisition Vehicle as may be requested by the lender under such Loan (the “Lender”), provided that such changes shall not alter the economic terms, or increase any Member’s obligations or decrease any Member’s rights, set forth herein. If the Lender requires that a recourse guarantee, environmental indemnity or other such collateral be required pursuant to the terms of the loan agreement for such Loan and such terms are approved by all Members, each Member shall execute such guarantee or similar instrument and the Members shall indemnify and hold each other harmless such that any liability under any such instrument shall be borne ultimately by the Members in proportion to their respective Percentage Interests. If the Lender requires a letter of credit in connection with any Loan that is approved by the Executive Committee, any Member may agree, but shall not be obligated to, provide such letter of credit and if the letter of credit is drawn, the Company shall reimburse such Member any such amount and if the Company has insufficient funds to reimburse such Member, the Members shall make Additional Capital Contributions in accordance with their Percentage Interests such that any liability under any such letter of credit shall be borne ultimately by the Members in proportion to their respective Percentage Interests.

ARTICLE V.

INTERESTS IN THE COMPANY

5.01     Return of Capital.    No Member shall be liable for the return of the Capital Contributions (or any portion thereof) of any other Member, it being expressly understood that any such return shall be made solely from the assets of the Company. No Member shall be entitled to withdraw or receive a return of any part of its Capital Contributions or Capital Account, to receive interest on its Capital Contributions or Capital Account or to receive any distributions from the Company, except as expressly provided for in this Agreement or under applicable law. No Member shall have any obligation to restore any negative balance in its Capital Account.

5.02     Ownership.    All Company Property shall be owned by the Company or an Acquisition Vehicle, subject to the terms and provisions of this Agreement. Title to Company assets shall be held by the Company in the Company’s name or in the name of an Acquisition Vehicle.

5.03     Waiver of Partition; Nature of Interests in the Company.    Except as otherwise expressly provided for in this Agreement, each of the Members hereby irrevocably waives any right or power that such Member might have:

(a)        To cause the Company or any of its assets to be partitioned;

(b)        To cause the appointment of a receiver for all or any portion of the assets of the Company;

(c)        To compel any sale of all or any portion of the assets of the Company pursuant to any applicable law; or

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(d)        To file a complaint, or to institute any proceeding at law or in equity, to cause the termination, dissolution or liquidation of the Company.

Each of the Members has been induced to enter into this Agreement in reliance upon the waivers set forth in this Section 5.03, and without such waivers no member would have entered into this Agreement. No Member shall have any interest in any specific Company Property. The interests of all Members in this Company are personal property.

5.04     Percentage Interests.    The Percentage Interests of the Members shall only be adjusted as set forth in this Agreement.

ARTICLE VI.

ALLOCATIONS AND DISTRIBUTIONS

6.01     Allocations.   For each taxable year or portion thereof, Net Profit and Net Loss shall be allocated (after all allocations pursuant to Section 6.02 below have been made) as follows:

(a)        The items of Profit and Loss comprising Net Profit or Net Loss for a taxable year shall be allocated among the Members during such taxable year in a manner that will, as nearly as possible, cause the Capital Account balance of each member at the end of such taxable year to equal the excess (which may be negative) of:

(i)        the hypothetical distribution (if any) that such Member would receive if, on the last day of the taxable year, (x) all Company assets, including cash, were sold for cash equal to their Book Basis, taking into account any adjustments thereto for such taxable year, (y) all Company liabilities were satisfied in cash according to their terms (limited, with respect to each nonrecourse liability, to the Book Basis of the assets securing such liability) and (z) the net proceeds thereof (after satisfaction of such liabilities) were distributed in full pursuant to Section 6.03(a) or (b), as appropriate, over

(ii)       the sum of (x) the amount, if any, which such member is unconditionally obligated to contribute to the capital of the Company, (y) such member’s share of the Company Minimum Gain determined pursuant to Regulation Section 1.704-2(g), and (z) such Member’s share of Member Minimum Gain determined pursuant to Regulations Section 1.704(i)(5), all computed immediately prior to the hypothetical sale described in Section 6.01(a)(i).

(b)        Determination of Items Comprising Allocations.

(i)        In the event that the Company has Net Profit for a taxable year,

(1)               for any Member as to whom the allocation pursuant to Section 6.01(a) is negative, such allocation shall be comprised of a proportionate share of each of the Company’s items of Loss entering into the computation of Net Profits for such taxable year; and

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(2)               the allocation pursuant to Section 6.01(a) in respect of each Member (other than a Member referred to in Section 6.01(b)(i)(1)) shall be comprised of a proportionate share of each Company item of Profit and Loss entering into the computation of Net Profit for such taxable year (other than the portion of each Company item of Loss, if any, that is allocated pursuant to Section 6.01(b)(i)(1).

(ii)       In the event that the Company has a Net Loss for a taxable year,

(1)               for any Member as to whom the allocation pursuant to Section 6.01(a) is positive, such allocation shall be comprised of a proportionate share of the Company’s items of Profit entering into the computation of Net Loss for such taxable year; and

(2)               the allocation pursuant to Section 6.01(a) in respect of each Member (other than the Member referred to in Section 6.01(b)(ii)(1)) shall be comprised of a proportionate share of each Company item of Profit and Loss entering into the computation of Net Loss for such taxable year (other than the portion of each Company item of Profit, if any, that is allocated pursuant to Section 6.01(b)(ii)(1)).

6.02     Allocations and Compliance with Section 704(b).      The following special allocations shall, except as otherwise provided, be made in the following order:

(a)        Notwithstanding anything to the contrary contained in this Article VI, if there is a net decrease in Company Minimum Gain or in any Member Minimum Gain during any taxable year or other period, prior to any other allocation pursuant hereto, such Member shall be specially allocated items of 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). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2.

(b)        Nonrecourse Deductions for any taxable year or other period shall be allocated (as nearly as possible) under Treasury Regulation Section 1.704-2 to the Members, pro rata in proportion to their respective Percentage Interests.

(c)        Any Member Nonrecourse Deductions for any taxable 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).

(d)        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 Profit sufficient to eliminate such increase or negative balance caused thereby, as quickly as possible, to the extent required by such Treasury Regulation.

(e)        No allocation or loss or deduction shall be made to any Member if, as a result of such allocation, such Member would have an Adjusted Capital Account Deficit. Any such disallowed allocation shall be made to the Members entitled to receive such allocation under Treasury Regulation Section 1.704 in proportion to their respective Percentage Interests.

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(f)        For purposes of Section 752 of the Code and the Treasury Regulations thereunder, excess nonrecourse liabilities (within the meaning of Treasury Regulations Section 1.752-3(a)(3)) shall be allocated to the Members pro rata in proportion to their respective Percentage Interests.

6.03     Distributions.  Except as provided in Section 6.04, the Company shall, as soon as reasonably practical (but no less often than monthly, if appropriate), make distributions of Net Cash Flow to the Members in the following manner and order of priority:

(a)        Except as set forth in Sections 6.03(b) and 6.03(c) below, distributions of Net Cash Flow shall be as follows:

(i)        First, to the Members in proportion to their respective Percentage Interests, until each Member has received aggregate distributions pursuant to this Section 6.03(a)(i) in an amount necessary to provide each Member with a 15% IRR with respect to its Capital Contributions;

(ii)       Second, to the Members, in the following proportion: 85% to Westbrook and 15% to Sponsor, until each Member has received aggregate distributions under Sections 6.03(a)(i) and Section 6.03(a)(ii), an amount necessary to provide distributions to each Member equal to the greater of (A) a 20% IRR with respect to its Capital Contribution, and (B) an amount equal to 1.5 multiplied by its Capital Contribution;

(iii)      Third, to the Members, in the following proportion: 80% to Westbrook and 20% to Sponsor, until each Member has received aggregate distributions under Sections 6.03(a)(i) through Section 6.03(a)(ii), an amount necessary to provide distribution to each Member equal to the greater of (A) a 25% IRR with respect to its Capital Contribution, and (B) an amount equal to 1.65 multiplied by its Capital Contribution; and

(iv)      Fourth, to the Members, in the following proportion: 70% to Westbrook and 30% to Sponsor.

(b)        If Sponsor is terminated as Administrative Member For Cause, distributions of Net Cash Flow shall be made to the Members in proportion to their respective Percentage Interests and Sponsor shall have no right to receive any distributions under Section 6.03(a)(ii) through (iv).

(c)        Each of the allocations, distributions and calculations of IRR’s shall be made and computed on a cumulative basis and in the aggregate with respect to, and taking into account, all contributions, allocations and distributions made under all operating or governing agreements so that, without limiting the generality of the foregoing, in determining whether the IRR thresholds set forth in subsection (a) above have been met, the parties shall calculate whether such IRR thresholds have been satisfied with respect to the Members and shall take into account such reserves and future expenditures as the Executive Committee deems appropriate. Notwithstanding anything to the contrary contained herein, if it is subsequently determined that any of the 15% IRR, 20% IRR or 25% IRR thresholds or 1.50 or 1.65 equity

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multiple thresholds have not been maintained at any time prior to Project Sell-Out and liquidation of the Company, Sponsor shall be obligated to refund to the Company at the time of such determination any distributions that it may have received under Subsections 6.03(a)(ii) through (iv) to the extent such distributions exceed the amounts Sponsor is entitled to receive pursuant to such Subsections given the recomputed thresholds.

(d)        Notwithstanding anything to the contrary in this Agreement, to the extent there exist any outstanding Member Loans at the time of a distribution pursuant to this Section 6.03, any amounts that would be distributed to the Non-Contributing Member pursuant to such distribution shall be paid to the Contributing Member until any outstanding Member Loans have been repaid in full including any accrued interest.

6.04     Distributions in Liquidation.     Upon the dissolution and winding-up of the Company, the proceeds of sale and other assets of the Company distributable to the Members under Section 11.02(c)(iii) shall be distributed, not later than the latest time specified for such distributions pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2) to the Members in accordance with Section 6.03(a) or (b), as appropriate. With the approval of the Executive Committee, a pro rata portion of the distributions that would otherwise be made to the Members under the preceding sentence may be distributed to a trust reasonably established, for a reasonable period of time, for the benefit of the Members for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company arising out of or in connection with the Company.

6.05     Tax Matters.  The Members intend for the Company to be treated as a partnership for federal income tax purposes. The Executive Committee shall make all applicable elections, determinations and other decisions under the Code and applicable Treasury Regulations, including, without limitation, 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 by the Executive Committee. The Administrative Member shall use its commercially reasonable efforts to cause all federal, state and local income and other tax returns to be timely filed by the Company (provided that the Administrative Member shall, for so long as it diligently performs its obligations hereunder, not be responsible for the delays of any other Member or reputable accountants or auditors retained by the Administrative Member or at the request of the Executive Committee on behalf of the Company). Westbrook shall, after receiving the Executive Committee’s approval of such returns, execute such tax returns on behalf of the Company.

6.06     Tax Matters Partner.    Westbrook shall be the tax matters partner within the meaning of Section 6231(a)(7) of the Code and, subject to Section 6.05, shall exercise all rights, obligations and duties of a tax matters partner under the Code; provided, however, that Westbrook shall not have any right to settle or compromise any matter raised by the Internal Revenue Service without the approval of the Executive Committee, and the other Members shall be kept informed of, and given an opportunity to participate in a non-binding manner in, all such matters which the tax matters partner deems to be material.

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6.07     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 Book Basis 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 Book Basis of such property. Any elections, accounting conventions or other decisions relating to such allocations shall be made by the Executive Committee in a manner that (A) reasonably reflects the purposes and intention of this Agreement, and (B) complies with Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder. For such allocations, the Executive Committee may select any method permitted in the Treasury Regulations under Code Section 704(c) with respect to such allocations, including the “traditional method”, the “traditional method with curative allocations” and the “remedial allocation method”.

6.08     Withholding.   The Company shall be entitled to withhold from any Member all amounts required to be withheld pursuant to Section 1446 of the Code or any other provision of federal, state, or local tax law and any such withheld amounts shall be treated as amounts actually distributed to the Members for all purposes under this Agreement. If the Executive Committee determines that the Company has insufficient liquid assets to satisfy such withholding obligation, the Member as to which withholding applies shall pay upon demand cash to the Company in an amount sufficient to satisfy such withholding obligation, the amount of which shall bear interest at the rate of fifteen percent (15%) per annum until paid and may be offset by distributions otherwise to be made to such Member.

ARTICLE VII.

MANAGEMENT

7.01     Management.   Except as otherwise expressly provided in this Agreement, the business and affairs of the Company shall be vested in and controlled by the Executive Committee as provided below.

(a)        The Company and the Managing Member shall act by means of and through a committee of persons appointed in writing pursuant to Section 7.02 (the “Executive Committee”). Each person appointed by a Member to the Executive Committee shall act at the exclusive direction of, be the agent of and shall be free to represent the views and positions of such appointing Member. Except as otherwise provided in this Agreement, the Executive Committee shall have responsibility for establishing the policies and operating procedures with respect to the business and affairs of the Company and for making all decisions as to all matters which the Company has authority to perform, as fully as if all the Members were themselves making such decisions in lieu thereof. All decisions made with respect to the management and control of the Company and approved by the Executive Committee (except for such decisions which by the express terms of Section 7.01(f) of this Agreement require the approval of all Members) shall be binding on the Company and all Members. The Members hereby adopt the resolutions attached to this Agreement as Schedule C, authorizing certain officers to act on behalf of the Company, as is more particularly described on Schedule C, and the Members acknowledge that the Executive Committee may elect additional officers of the Company or officers for LR8 Owner and any Acquisition Vehicle to implement the decisions (including

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without limitation executing documents) of the Executive Committee from time to time. Pursuant to such delegation, the Administrative Member shall be responsible for performing, or for causing to be performed, and shall have the authority to perform (subject to the requirement of receiving Westbrook and the Executive Committee’s consent, as applicable, if and when required by the terms hereof), the duties described in Section 7.03. Except as otherwise expressly provided in this Agreement or as otherwise previously approved by the Executive Committee, or provided for in any Budget or Operating Plan, the Executive Committee shall have the sole authority to authorize and approve the following matters (a “Major Decision”):

(i)       The execution and delivery by LR8 Owner or the Company of any agreement or instrument to purchase the Real Property and the taking of any action required or permitted to be taken thereunder (including without limitation, all action necessary to close the purchase of the Real Property and an election as to whether or not to purchase the Real Property) or any waiver under, amendment of or assignment (in whole or in part) of any such agreement and the taking of any action required or permitted to be taken thereunder, or entering into any agreements with any governmental agency, any neighboring or adjacent property owner, any community organizations or any other third parties, or sending any correspondence to or having any other material communications with, any governmental agency which directly binds the Company, LR8 Owner or advocates a position on behalf of the Company or LR8 Owner;

(ii)      Any material financing, refinancing or securitization of any Company Property (including without limitation, the Loan) and the use of any proceeds thereof, including, without limitation, construction or take-out financing, and any other financing or refinancing of the operations of the Company, or LR8 Owner and the execution and delivery of any documents, agreements or instruments evidencing, securing or relating to any such financing; provided, however, that no guarantees, environmental indemnities or credit enhancements can be required from any Member or its Affiliates without such party’s consent to the terms of the financing secured by such documents, not to be unreasonably withheld, conditioned or delayed;

(iii)     The approval of any Budget and Operating Plan, marketing plan, Warranty Program, Scope of the Work (as defined in the Construction Management Agreement), application for a Public Report filed with the California Department of Real Estate, Final Tract Map or Condominium Plans and any material amendments or modifications thereto (which shall only be permitted in accordance with this Agreement);

(iv)     The approval of all covenants, conditions and restrictions encumbering the Real Property, the formation of any bridge and thoroughfare districts, community facilities districts, landscape, lighting and maintenance districts, other assessment districts or any owners’ association to finance the construction, installation or maintenance of traffic or infrastructure, improvements, landscaping or public or common facilities or to manage and/or own common areas of the Project or phases of the Project and all applications for any permits, approvals, zoning, subdivision map or land-use changes or modifications, including without limitation, the strategy of the

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Company or LR8 Owner with regard to submitting and processing such applications and approval of all conditions to any such permits, approvals, zoning, subdivision map or land-use changes or modifications, including any agreements regarding fair share allocations, school and library fees or contributions, affordable housing allocations, fees or contributions and park fees or contributions or any other similar exaction fee, credit, construction or payment in lieu thereof;

(v)      (A) Any sale, assignment, transfer or other disposition of substantially all of the Company Property, (B) any improvement, rehabilitation, alteration, repair, or completion of construction of any Company Property, or taking any action relating thereto which burdens or encumbers the Company Property; provided, however, the Administrative Member shall have the right to cause such improvements to be made to the extent such improvements are contemplated and completed in accordance with the approved plans and specifications for the Project and approved Budget and Operating Plan for the Project, and (C) any activity which would cause cost overruns, use of contingency reserves or reallocation of line items in an approved trade payment breakdown or schedule of values that requires LR8 Owner approval under the Construction Management Agreement or that varies materially from the ranges and guidelines in the Budget or Operating Plan (for purposes of this Section 7.01(a)(iv), such a material variance shall be (I) an amount that is not within the ranges established in the Operating Plan or is in excess of the amount set forth in the Budget for such expenditure or line item by more than 10% of the line item or 5% of the Budget, whichever is less (in addition to individual expenditures and obligations, such test shall be applied to aggregate expenditures and obligations made on a quarterly basis as well), or (II) terms that materially conflict with the other guidelines in the Operating Plan regarding such transactions);

(vi)     Approval of the form of purchase and sale agreement and any and all demands to escrow, escrow instructions regarding disbursement of sales proceeds from escrow, sales prices, continuous area report, and the terms, conditions and standards and any material addenda or material amendments thereto related to the sale of the residential units in the Project or approval of the form of deposit receipt;

(vii)    The making of any recurring operating expenditure or incurring of any recurring operating obligation by or on behalf of the Company that creates a cost overrun that varies materially from the Budget or entering into (or amending or modifying) of any agreement which was not specifically included or contemplated in the Budget or under the Operating Plan, or otherwise approved by the Executive Committee (for purposes of this Section 7.01(a)(iv), such a material variance shall be (A) expenditures or obligations involving an amount that is in excess of the amount set forth on a quarterly basis or on an annual basis in the Budget for such expenditure on a line item basis by more than 10% of the line item or 5% of the Budget, whichever is less, for such period, (B) expenditures or obligations involving the incurrence of an expenditure or obligation for any transaction or any series of related transactions when taken with all prior expenditures or obligations during the particular quarter or fiscal year related thereto exceeds the maximum expenditure amount provided in the Budget or the Operating Plan for such particular transaction

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or series of transactions for such period by the lesser of 10% of such maximum expenditure amount for such particular transaction or series of transactions for such period or 5% of the Budget for such period, (C) in the case of any material service, maintenance or similar agreement proposed to be entered into, such agreement is not terminable (without penalty) by the Company on thirty (30) calendar days or less written notice to the other party, or (D) requires LR8 Owner approval under the Construction Management Agreement or Project Coordination Agreement;

(viii)   Entering into or consummating any transaction or arrangement with any Member or any Affiliate of any Member, or any other transaction involving an actual or potential conflict of interest, all of which shall (with the exception of the transactions described in Section 9.05 hereof which shall not require such approval) require the approval of the non-interested Member(s) notwithstanding anything contained herein to the contrary;

(ix)     The establishment of reasonable reserves, determination of the amount of available Net Cash Flow, and making of distributions to Members (subject to the requirements of Section 6.03);

(x)      The institution of any legal proceedings in the name of the Company, settlement of any legal proceedings against the Company and confession of any judgment against the Company or an Acquisition Vehicle or any property of the Company or an Acquisition Vehicle other than the institution of any eviction, suits for breach of tenant leases or purchase and sale agreements, or similar proceedings contemplated or provided for in the Operating Plan;

(xi)     The possession or pledge of any Company Property (including any equity interest in an Acquisition Vehicle) for other than Company purposes (which shall require the consent of all Members);

(xii)    The entering into any development, asset, property management, sales and marketing, or construction agreement, (except to the extent otherwise permitted in this Agreement), or other third party contract with respect to which funds are not explicitly provided for, or the existence of which is not contemplated, in the Budget and/or Operating Plan, as applicable, with regard to the Company, or LR8 Owner (collectively, the “Related Parties”) or any Company Property;

(xiii)   Approval of the plans and specifications for the construction of the Project and all construction and architectural contracts, including the Construction Management Agreement, and plans, specifications, and drawings prior to the commencement of construction of the Project and any material modifications to such contracts, plans, specifications and drawings except as otherwise expressly delegated in writing pursuant to this Agreement;

(xiv)   The engagement, changing, or removal of any manager, architect, engineer, contractor, or sales or placement agent or broker not expressly permitted hereunder or under the Project Coordination Agreement or the Construction

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Management Agreement for the construction, design, management, leasing, disposition, financing or refinancing of any Company Property, in each case pursuant to the terms of the applicable contracts or agreements;

(xv)    The amalgamation, merger, arrangement or other corporate reorganization which would result in Westbrook no longer controlling or acting as the Managing Member of the Company;

(xvi)   Intentionally omitted;

(xvii)  The appointment, change or removal of the auditors of the Company, LR8 Owner, or any Acquisition Vehicle;

(xviii) The making of capital calls for Additional Capital Contributions or any other subsequent capital calls from the Members;

(xix)   The approval of the form of the Cell Site Relocation Agreement and any memorandum, amendment, modification or extension thereof;

(xx)    Any other material matter pertaining to the Company’s business that is designated by the Executive Committee to be a “Major Decision” hereunder;

(xxi)   The approval, determination or any other action expressly and specifically (rather than generally) reserved to the Executive Committee under this Agreement, including, without limitation, any material modification, amendment, or renewal of any matter previously requiring the approval of the Executive Committee or any other matter that would have a material effect on the Company Property, business or prospects; and

(xxii)  Any action by LR8 Owner or any other subsidiary of the Company which, if taken by the Company, would be a Major Decision under any other provision of this Section 7.01(a).

Notwithstanding anything in this Agreement to the contrary, any action or matter which requires Executive Committee approval and which is provided for in a Budget or Operating Plan approved by the Executive Committee shall require no further approval of the Executive Committee before implementation by the Administrative Member.

(b)        Subject to the terms of this Agreement, the prior approval of the Executive Committee and Westbrook, as applicable, and the limitations imposed by law, the Managing Member (acting through the Executive Committee, and subject to all applicable limitations on the authority of the Executive Committee set forth herein) shall have the full power and authority to:

(i)       Acquire, hold, operate, sell, transfer, assign, convey, exchange, lease, sublease, mortgage or otherwise dispose of or deal with all or any part of the Company Property;

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(ii)      In furtherance of the Company’s purposes and business, borrow money (including without limitation, the Loan), whether on a secured or unsecured basis, refinance, recast, modify, amend, extend, compromise or otherwise deal with any such loan, and in connection therewith, issue evidences of indebtedness and secure the same by mortgages, deeds of trust, security agreements or other similar documents affecting the assets of the Company;

(iii)     Authorize other persons to execute and deliver such documents on behalf of the Company as the Executive Committee may deem necessary or desirable for the Company’s business, including, without limitation, guarantees and indemnities;

(iv)     Perform, or cause to be performed, all of the Company’s obligations under any agreement to which the Company or an Acquisition Vehicle is a party;

(v)      Enter into contracts on behalf of the Company and make expenditures as are required to operate and manage the Company and the Company Property; and

(vi)     Do any act which is necessary or desirable to carry out any of the purposes of the Company.

(c)        The Company may employ, engage or retain any Persons (including any Affiliate of any Member to the extent approved by all non-Affiliate Members) to act as brokers, accountants, attorneys, engineers or in such other capacities as the Executive Committee may determine are necessary or desirable in connection with the Company’s business, and the Managing Member, the members of the Executive Committee, the Administrative Member and Sponsor shall be entitled to rely in good faith upon the recommendations, reports and advice given them by any such Persons in the course of their professional engagement.

(d)        Subject to the terms of this Agreement, the Executive Committee shall have the right or power to make decisions on behalf of and exercise control over the Company business, affairs or operations; provided, however, that the Executive Committee may elect to implement those decisions through any Member it selects in writing, including without limitation through the Administrative Member pursuant to the terms hereof, and/or through one or more officers it elects in writing; and provided further that the Managing Member may not, without the consent of the Executive Committee, take any actions which specifically require the consent of the Executive Committee pursuant to the terms hereof. Subject to the other provisions of this Agreement, so long as Westbrook or an Affiliate thereof remains a Member, WREF shall have the right to periodically consult with and advise the Executive Committee, Administrative Member and Managing Member with respect to the operation and management of the Company. The Company and the Members acknowledge and agree that WREF is an intended third party beneficiary with respect to this Section 7.01 and Article VIII.

(e)        Anything in this Agreement to the contrary notwithstanding, the Managing Member shall have no authority to perform any act in respect of the Company in violation of any (i) applicable laws or regulations or (ii) any agreement between the Company and any lender to the Company.

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(f)        Anything in this Agreement to the contrary notwithstanding, neither the Executive Committee nor the Managing Member shall, without the written consent of all of the Members delivered subsequent to the date of this Agreement, cause or permit the Company or any of the Related Parties to:

(i)       (A) file any voluntary petition in bankruptcy on behalf of any of the Related Parties, (B) consent to the filing of any involuntary petition in bankruptcy against any of the Related Parties, (C) file any petition seeking, or consenting to, the reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency, (D) consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of any of the Related Parties or a substantial part of their property, or (E) make any assignment for the benefit of creditors;

(ii)      amend this Agreement or the limited liability company agreement of LR8 Owner except pursuant to Section 2.06 hereof;

(iii)     acquire any additional real property or interest in real property other than the Real Property;

(iv)     do any act in contravention of this Agreement or which would make it impossible to carry out the business of any of the Related Parties;

(v)      except as otherwise expressly provided in this Agreement (including without limitation pursuant to Sections 2.06, 9.02 or 9.05 hereof), admit any additional Member into any of the Related Parties or otherwise issue any interest in any of the Related Parties;

(vi)     change the nature of the business conducted by any of the Related Parties or their purposes as described in Section 2.05 hereof;

(vii)    extend the term of the Company, LR8 Owner or any Acquisition Vehicle;

(viii)   admit a new member to LR8 Owner, if such admission would reduce the distributions to Sponsor pursuant to Section 6.03; or

(ix)     take any other action requiring approval of Sponsor pursuant to the terms of this Agreement.

7.02     Members of the Executive Committee.

(a)        The Executive Committee shall initially consist of three members. The initial members of the Executive Committee shall be Kashif Z. Sheikh and Marcus L. Scroggins appointed by Westbrook, and H. Lawrence Webb appointed by Sponsor. Notwithstanding any other provision of this Agreement to the contrary, Westbrook will at all times have the right to appoint a majority in number of the members of the Executive Committee, and a majority in number of the members of the Executive Committee shall represent and shall have been

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appointed by Westbrook. Each Member may, by written notice to the others, remove any person appointed by such Member and appoint a substitute therefore; provided, however, that any new person appointed to the Executive Committee by any Member must either (i) be a partner, managing member, officer, director, principal or employee of such Member or of an Affiliate of such Member, or (ii) be approved by the Executive Committee members appointed by the other Members, such approval not to be unreasonably withheld. Any Member may, by written notice delivered to the other Members, delegate any or all of the duties of such Member’s representatives on the Executive Committee to another of its representatives on the Executive Committee or to any employee of Westbrook or any of its respective Affiliates, on the one hand, or Sponsor or any of its Affiliates, on the other hand, as the case may be (and such delegate shall also be an agent of and operate at the sole direction of the appointing Member), and any decisions or actions taken by such delegate shall be fully binding upon the Company and the Members as if taken by such member of the Executive Committee.

(b)        Regular meetings of the Executive Committee shall be held at such times and places as shall be designated from time to time by the Executive Committee.

(c)        Special meetings of the Executive Committee may be called by or at the request of any Member. The person or persons authorized to call the special meeting of the Executive Committee may fix any reasonable place as the place for holding the special meeting of the Executive Committee, or such meeting may occur telephonically with any member of the Executive Committee electing to participate telephonically.

(d)        Notice of any meeting of the Executive Committee shall be given to each Member no fewer than two (2) business days and no more than thirty (30) days prior to the date of the meeting. Notices shall be delivered in the manner set forth in Section 13.03 hereof. The attendance of a member of the Executive Committee at a meeting of the Executive Committee shall constitute a waiver of notice of such meeting, except where a member of the Executive Committee attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not properly called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Executive Committee need be specified in the notice or waiver of notice of such meeting.

(e)        Provided that notice of a meeting has been given to each Member as called for by paragraph (d), above, a majority (in number) of the members of the Executive Committee shall constitute a quorum for transaction of business at any meeting of the Executive Committee, provided that, subject to the proviso set forth in clause (f), below, if less than a majority of such number of members of the Executive Committee are present at said meeting, a majority of the members of the Executive Committee present may adjourn the meeting at any time without further notice, and provided further that a quorum may not be deemed established without the presence of at least one Executive Committee member appointed by Westbrook, and that a quorum shall be deemed established if one or more Executive Committee member appointed by Westbrook is in attendance.

(f)        Provided that notice of a meeting has been given to each Member as called for by paragraph (d), above, the act of a majority (in number) of the members of the Executive Committee present shall be the act of the Executive Committee, unless the act of a greater

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number is required by this Agreement; and no action shall be deemed to have taken place unless a majority of the members of the Executive Committee shall have approved the same; provided, however, that no Major Decision or other Executive Committee matter may be decided, nor may any Executive Committee action be taken, without the attendance at the applicable meeting of, and the vote of, an Executive Committee member appointed by Westbrook; and provided further that, in the event there is a disagreement between the Executive Committee members appointed by Sponsor and the Executive Committee members appointed by Westbrook with respect to any Major Decision or any other matter requiring the vote, consent or approval of the Executive Committee, Westbrook members of the Executive Committee shall have the right to cast the deciding vote and thus the decision made by Westbrook shall be deemed the decision of the Executive Committee, irrespective of the actual number of members of the Executive Committee appointed by Westbrook that are present at such meeting (or taking part in any Executive Committee action by written consent), or of the number of contrary votes cast by the members of the Executive Committee not appointed by Westbrook.

(g)        Any action required to be taken at a meeting of the Executive Committee or any other action which may be taken at a meeting of the Executive Committee may be taken without a meeting if a consent in writing, setting forth the actions so taken, shall be signed by a majority in number of the members of the Executive Committee entitled to vote with respect to the subject matter thereof, provided that each Member shall be provided with at least five (5) Business Days prior notice of such proposed action. Provided that such notice is given to each Member, any such consent signed by a majority in number of the members of the Executive Committee shall have the same effect as an act of a majority (in number) of the members of the Executive Committee at a properly called and constituted meeting of the Executive Committee at which all of the members of the Executive Committee were present and voting. Notwithstanding the foregoing, or anything to the contrary provided elsewhere herein, no Major Decision or other Executive Committee matter may be decided, nor may any Executive Committee action be taken, by written consent or otherwise, without the attendance at the applicable meeting of, and the vote of, an Executive Committee member appointed by Westbrook.

(h)        The members of the Executive Committee may participate in and act at meetings of the Executive Committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meetings shall constitute attendance in person at the meeting of the person or persons so participating.

(i)        Except as otherwise expressly provided in this Agreement, the Construction Management Agreement or the Project Coordination Agreement or as approved as part of the Budget (except that the consent of all disinterested Members shall be required in the case of salaries or remuneration), no Member, Managing Member, member of the Executive Committee, nor officer of the Company or Acquisition Vehicle, nor employee, agent or contractor of any Member or any Affiliate thereof, shall be entitled to receive any salary or any remuneration or expense reimbursement from the Company for his or her services as a member of the Executive Committee or for his or her services to the Company or with respect to the Company Property.

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(j)        The Executive Committee may, by resolution, designate one or more individuals as employees or agents of the Company or LR8 Owner in furtherance of its business and exclusive purposes. No such employee or agent need be a Member of the Company or LR8 Owner. Each employee or agent shall have the authority and shall perform the duties as designated by the Executive Committee. Any employee or agent so appointed by the Executive Committee may be removed by the Executive Committee whenever in their judgment the best interests of the Company would be served.

(k)        The Administrative Member shall prepare a proposed agenda for each regular meeting of the Executive Committee, and will distribute such agenda to each member of the Executive Committee at least three (3) Business Days in advance of any meeting (provided that it has been provided with at least two weeks notice of such meeting). The Executive Committee may amend such agenda as it sees fit. A written record of all meetings of the Executive Committee and all decisions made by it shall be made by the Administrative Member, as Secretary of the Executive Committee, and kept in the records of the Company and shall be initialed or signed by each of the members of the Executive Committee present at such meeting. The approval of any Budget and Operating Plan will be evidenced by the signing or initialing of a copy of the approved version by at least a majority (in number) of the members of the Executive Committee. Minutes and/or resolutions of the Executive Committee when initialed or signed by a majority (in number) of the members of the Executive Committee shall be binding and conclusive evidence of the decisions reflected therein and any authorizations granted thereby.

7.03     Administrative Member.

(a)        The administrative member of the Company (the “Administrative Member”) shall be Sponsor, unless and until Sponsor is removed as Administrative Member pursuant to the terms of this Section 7.03(a), in which event the Administrative Member shall be such other Member of the Company as may be designated by the Executive Committee. The Administrative Member shall, subject to the availability of Company funds from Revenues, Capital Contributions or other sources, (i) conduct the business of the Company on a day-to-day basis, and use diligent efforts to cause such operations to be conducted in accordance with the Budget and the Operating Plan and such other guidelines as shall be adopted by the Executive Committee (provided that the foregoing covenant does not constitute a guaranty by the Administrative Member that (A) the Project will be completed without cost overruns or within any schedule set out in the Budget or the Operating Plan or (B) the Company Property will perform in accordance with the Budget and Operating Plan or such guidelines), (ii) retain Sponsor, or another person or entity approved by the Executive Committee, to perform the Company Management Services for the Company, (iii) perform the duties assigned to it hereunder, and (iv) carry out all decisions and resolutions of the Executive Committee; provided, however, that notwithstanding anything contained in this Agreement to the contrary, the Administrative Member shall only be obligated to perform those services which are (A) required of it pursuant to the express terms of this Agreement or (B) reasonably requested of it by the Executive Committee, and reasonably agreed to by the Administrative Member, to the extent the same are consistent with other services customarily provided by administrative members or managers in comparable circumstances; provided, however, Administrative Member shall not be entitled to any additional compensation for services required by this

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Agreement. Notwithstanding anything contained in this Agreement to the contrary, the initial Administrative Member shall be Sponsor until (1) Sponsor is removed For Cause by action of the Executive Committee or (2) Sponsor or its Affiliate is terminated as the General Contractor by action of the Executive Committee in accordance with the terms of the Construction Management Agreement. Sponsor, as the initial Administrative Member, shall have no authority to retire or resign from its position as the initial Administrative Member. If Sponsor or any other Person should be removed as the Administrative Member, the Executive Committee shall be under no obligation to appoint a replacement thereof. Subject to the limitations set forth in this Agreement and the guidelines reasonably adopted by the Executive Committee, the Administrative Member, on behalf of the Company, shall have the power and authority to enter into contracts and sales agreements on behalf of LR8 Owner, but only to the extent that any such expenditures and amounts required to be paid by the Company under such contracts and other instruments and documents have either been approved by the Executive Committee or are not in excess of the amount requiring LR8 Owner approval under either the Construction Management Agreement or the amount set forth in the then current Budget for such expenditure or line item by more than 10% of the applicable line item or 5% of the Budget, whichever is less, or to the extent such amounts are otherwise authorized by the terms of this Agreement. The Administrative Member may rely on written instructions (including instructions contained in an e-mail) from a representative appointed in writing by Westbrook from time to time that Westbrook has (and that its Executive Committee members have) approved certain actions and agreements. Marcus L. Scroggins is hereby appointed as such initial Westbrook representative. Subject to the Administrative Member’s right to charge certain matters to the Company as provided in Section 8.01 and 8.03, the Administrative Member shall not be entitled to receive any fees or other compensation in respect of its activities as the Administrative Member, and will not receive reimbursement for compensation payable to any of its employees or other direct or indirect overhead which may be attributable to the performance of its duties as the Administrative Member, except as expressly provided for in the Budget, this Agreement and any other Agreement between Administrative Member and the Company or between Administrative Member and LR8 Owner.

(b)        Notwithstanding anything to the contrary contained in Section 7.01(a)(iii), if at the beginning of any calendar year the Budget and Operating Plan or any item or portion thereof shall not have been approved by the Executive Committee, and subject to the availability of Company funds from Revenues, Capital Contributions or other sources, then:

(i)       Any items or portions of the Budget and Operating Plan and amounts of expenses provided therein which have been so approved shall become operative immediately and the Administrative Member shall be entitled to expend funds in accordance with those operative portions; and

(ii)      The Administrative Member shall be entitled to, and shall, expend funds in respect of debt service on the Company’s financing, real estate taxes and assessments, insurance premiums for insurance policies approved by the Executive Committee or other expenditures which the Executive Committee determines are necessary for the continued ordinary operation of the Company Property, regardless of whether the Budget has been approved or whether such expenditures exceed the amounts provided for in the applicable Budget (“Necessary Expenses”), unless the

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Executive Committee expressly advises the Administrative Member not to expend such Necessary Expenses.

(c)        In addition to and without limiting any other duties set forth in this Agreement, the Administrative Member shall, on behalf of the Company and at Company expense, subject to (1) the availability of adequate Company funds therefor in the Budget and from Revenues, Capital Contributions or other sources, and (2) performance by any other third parties with whom the Company may contract pursuant to the terms hereof:

(i)       Oversee, coordinate and process the operations, including without limitation, the management on a day-to-day basis of the design, construction, entitlement and marketing of the Project and any and all of the assets which comprise the Company Property, and prepare all communications with the Seller and other relevant third parties;

(ii)      Subject to the availability of Company funds therefor, use commercially reasonable efforts to cause the Company and all third parties at all times to perform and comply with the provisions (including without limitation, any provisions requiring the expenditure of funds by the Company) of any loan commitment, agreement, mortgage, or other contract, instrument or agreement to which the Company is a party or which affects any Company Property or the operation thereof;

(iii)     Subject to the availability of Company funds therefor, pay in a timely manner all non-disputed construction and development costs of the Company and LR8 Owner in accordance with the terms of the Construction Management Agreement and Budget and the Operating Plan or as otherwise provided herein;

(iv)     To the extent available, and subject to the availability of Company funds therefor, obtain and maintain insurance coverage on Company Property as required by the Executive Committee and naming each Member as an additional insured (and to the extent possible containing customary waiver of subrogation provisions), and pay all non-disputed taxes, assessments, charges, fees and operating expenses payable in connection with the ownership, use and occupancy of the Company Property (provided that if the Executive Committee requires that the Company maintain insurance as part of Westbrook’s blanket policy, the Company’s allocable share of deductibles and premiums under the liability insurance policy shall be equitably determined);

(v)      Deliver to the other Members promptly upon the Administrative Member’s receipt or sending thereof, copies of all material notices, reports and communications between the Company and any purchaser, any contractor, the Seller, governmental agencies, neighboring property owners, community groups, Irvine Company and other relevant third parties, and material notices, reports, and communications from any purchaser under any purchase and sale agreement, tenant under any Cell Site Relocation Agreement, buyer of a portion of the Company Property, or any borrower under any mortgage loan or any holder of a mortgage

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affecting all or any portion of any Company Property, or any of such other parties, which relates to any existing or pending default thereunder or to any financial or operational information required by such Person;

(vi)     Deposit all receipts from operations or sales of the Company Property to a separate account established and maintained by the Administrative Member in the name of the Company, and not commingle those receipts with any other funds or accounts of the Administrative Member;

(vii)    Manage and administer the process of design, entitlement, and obtain one or more final Public Report(s) from the California Department of Real Estate to market and sell the completed residential units in the Project, and obtain all bonds required for the completion, recordation, or procurement of any and all entitlements, subdivision agreements and infrastructure required for the project, including those required with respect to the filing of the final tract map;

(viii)   If the Administrative Member subcontracts with third parties or any of its Affiliates for the performance of any of the services to be performed by the Administrative Member, then the Administrative Member shall supervise and oversee the performance of the services performed by such third parties or Affiliates; and

(ix)     Execute and deliver agreements, certificates and similar documents on behalf of the Company that are necessary to obtain loans, as well as manage any approved financing or refinancing, on terms approved by the Executive Committee and to acquire the Company’s or LR8 Owner’s interest in the Real Property pursuant to the Purchase Agreement.

If bonds are required for the completion, recordation, or procurement of any and all entitlements, subdivision agreements and infrastructure required for the project, including without limitation those required with respect to the filing of the final tract map, the Administrative Member shall arrange for the issuance of such bonds after approval of the terms thereof by the Executive Committee and the cost thereof shall be an Expense. If the surety requires that a recourse guarantee be executed to secure such bonds, each Member shall execute such guarantee and the each Member shall indemnify and hold the other Member harmless such that any liability under any such bond shall be borne ultimately by the Members in proportion to their respective Percentage Interests. If a letter of credit is required to secure such bond and the Executive Committee approves the procurement of such bond, any Member may agree, but shall not be obligated to, provide such letter of credit and if such letter of credit is drawn the Company shall reimburse such Member any such amount and if the Company has insufficient funds to reimburse such Member, the Members shall indemnify and hold each other harmless such that any liability under any such instrument shall be borne ultimately by the Members in proportion to their respective Percentage Interests.

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(d)        So long as Sponsor is the Administrative Member, the Sponsor Persons shall have primary responsibility for managing Sponsor’s performance of its obligations as the Administrative Member, including, without limitation, overseeing the day-to-day operations and activities of the Company as aforesaid, except for obligations of the Project Coordinator under the Project Coordination Agreement. The Sponsor Persons will devote such amount of their annual services as is reasonably necessary to perform those functions for the Company. If any Sponsor Person is no longer dedicating such portion of his annual services as is reasonably necessary for the Administrative Member to perform its functions for the Company, the Sponsor shall replace such Sponsor Person within sixty (60) days of notice from Westbrook that it believes that such replacement is required pursuant to the terms of this Agreement. If at any time two or more Sponsor Persons are no longer dedicating such portion of their annual services as is reasonably necessary for the Administrative Member to perform its functions for the Company, the Sponsor shall within sixty (60) days of notice from Westbrook that it believes that such replacement is required pursuant to the terms of this Agreement replace such Sponsor Persons with other persons reasonably acceptable to Westbrook. Failure to provide any such replacement shall be an Event of Default under this Agreement.

(e)        In the event that Sponsor shall have been removed as the Administrative Member, then Sponsor or its Affiliate shall be terminated as General Contractor within thirty (30) days after such termination and shall thereafter lose its right to receive any payments under the Development Management Agreement, with the sole exception of any accrued but unpaid fees or any reimbursements outstanding as of the effective date of such termination, subject to any offset for damages suffered by the Company (for which Sponsor or its Affiliate is liable pursuant to the terms of this Agreement or the Construction Management Agreement) in the event the termination is the result of a For Cause event.

(f)        Sponsor’s appointment as the Administrative Member shall automatically terminate if Sponsor (or a permitted transferee thereof) no longer owns an interest in the Company.

7.04      Services and Fees.

(a)        LR8 Owner, Administrative Member and General Contractor shall enter into the Development Management Agreement following the execution of this Agreement and acquisition of the Real Property pursuant to the Purchase Agreement. The Development Management Agreement shall provide for fees (the “Developer’s Fees”) payable to Administrative Member and General Contractor pursuant to the Development Management Agreement. The Parties agree that this Agreement and the Development Management Agreement shall be executed concurrently. The General Contractor and LR8 Owner shall enter into the Construction Contract upon acquisition of the Property by LR8 Owner which shall be in a form reasonably acceptable to the Executive Committee and General Contractor.

(b)        The Company and SunBrook shall enter into the Project Coordination Agreement following the execution of this Agreement. The Project Coordination Agreement shall provide for a fee (the “Project Coordination Fee”) in the amount of Ten Thousand Dollars ($10,000.00) to be paid in equally monthly installments commencing thirty (30) days after the Closing under the Purchase Agreement and continuing through the development and

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construction of the Project until the sale of the last residential unit (“Project Sell-Out”). The Project Coordination Agreement shall provide for no other compensation to SunBrook other than the Project Coordination Fee, except as specifically set forth herein and as may be provided for in the applicable Budget. Subject to the business plan and other parameters approved by the Executive Committee, the Project Coordination Agreement shall provide that SunBrook shall be responsible for providing oversight and coordinating the services that are performed by Sponsor or its Affiliates under this Agreement, the Construction Management Agreement for the Project during the development and construction of the Project through Project Sell-Out.

(c)        Except as set forth in this Section 7.04, any agreements with an Affiliate of any Member must be approved by the non-Affiliated Members, and no other fees or compensation will be paid by the Company to any Member or any of its Affiliates. Neither Sponsor nor any of its Affiliates will be entitled to any sales commissions or other fees associated with the development, management and sale of any of the Company Property and will not be entitled to any reimbursement for its employees or other direct or indirect overhead, except as set forth in the Construction Management Agreement or this Agreement, or as otherwise contemplated by the Budget.

7.05      Duties and Conflicts.

(a)        The Members and their respective officers, employees, appointed members of the Executive Committee and Affiliates shall devote such time to the Company business as they deem to be necessary or desirable in connection with their respective duties and responsibilities hereunder. Except as provided hereunder or as otherwise agreed to in writing by both the Executive Committee and all disinterested Members, no Member and no member, partner, shareholder, officer, director, employee, agent or representative of any Member shall receive any salary or other remuneration for its services rendered pursuant to this Agreement.

(b)        Each of the Members recognizes that each of the other Members and its members, managers partners, shareholders, officers, directors, employees, agents, representatives, appointed members of the Executive Committee and Affiliates, have or may have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Company and that each of the other Members and its members, managers, partners, shareholders, officers and directors, employees, agents, representatives, appointed members of the Executive Committee and Affiliates, are entitled to carry on such other business interests, activities and investments. Each of the Members may engage in or possess an interest in any other business or venture of any kind, independently or with others, including, without limitation, owning, financing, acquiring, leasing, promoting, developing, improving, operating, managing and servicing real property and mortgage loans on its own behalf or on behalf of other entities with which any of the Members is affiliated or otherwise, and each of the Members may engage in any such activities, whether or not competitive with the Company, without any obligation to offer any interest in such activities to the Company or to the other Members. Neither the Company nor the other Members shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Company, shall not be deemed wrongful or improper.

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(c)        Intentionally omitted.

(d)        No Member will directly, or indirectly through any its Affiliates, allow LR8 Owner or any Acquisition Vehicle to take any action inconsistent with the actions of the Executive Committee, the Company, or the Administrative Member on behalf of the Company.

7.06      Company Expenses. Except as otherwise provided in this Agreement, the Project Coordination Agreement or the Construction Management Agreement, except for the costs of preparing the reports specifically called for by the terms hereof, which shall be the cost of the Administrative Member, except for costs which are to be borne by the General Contractor pursuant to the terms of the Construction Management Agreement, except for any costs to be borne by any third party under any agreement with the Company, the Company shall be responsible for paying, and shall pay, all direct costs and expenses related to the business of the Company and of acquiring, holding, owning, developing, servicing, collecting upon, selling and operating the Company Property. Subject to the preceding sentence, all fees and expenses payable under Section 7.04, costs and expenses relating to any employees, staff or other personnel approved by the Executive Committee (whether by separate action or by approval of the Budget or Operating Plan) to provide day-to-day operations and financial reporting to oversee the operations of the Company Property, costs of financing, fees and disbursements of attorneys, financial advisors, accountants, appraisers, brokers and engineers, travel expenses, and all other fees, costs and expenses directly attributable to the business and operations of the Company shall be borne by the Company. If any such costs and expenses are or have been paid by any Member, such Member shall be entitled to be reimbursed for such payment so long as such payment is reasonably necessary for Company business or operations and has been approved by the Executive Committee or is expressly authorized in this Agreement or the appropriate Budget or Operating Plan (including any permitted variance hereunder). Notwithstanding the foregoing, and without affecting any contrary terms (if any) in the Project Coordination Agreement, in no event shall the Company have any right or obligation to pay or reimburse any Member for any general overhead expense of such Member.

ARTICLE VIII.

BOOKS AND RECORDS

8.01      Books and Records.   The Administrative Member shall maintain, or cause to be maintained, at the expense of the Company, in a manner customary and consistent with good accounting principles, practices and procedures, a comprehensive system of office records, books and accounts (which records, books and accounts shall be and remain the property of the Company) in which shall be entered fully and accurately each and every financial transaction with respect to the ownership and operation of the Company Property. Bills, receipts and vouchers shall be maintained on file by the Administrative Member. The Administrative Member shall maintain or cause to be maintained said books and accounts in a safe manner and separate from any records not having to do directly with the Company or any Company Property. The Administrative Member shall cause audits to be performed and audited statements and income tax returns to be prepared as required by Section 8.03 (provided that the Administrative Member shall, for so long as it diligently performs its obligations hereunder, not be responsible for the delays of any other non-Affiliated Member or reputable accountants or auditors retained by the Administrative Member or at the request of the Executive Committee on behalf of the

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Company or at the request of the Executive Committee). Such books and records of account shall be prepared and maintained by the Administrative Member at the principal place of business of the Administrative Member or such other place or places as may from time to time be reasonably determined by the Executive Committee. Each Member or its duly authorized representative and, so long as Westbrook is a Member, WREF or its representative shall have the right to inspect, examine and copy such books and records of account at the Company’s office during reasonable business hours.

8.02      Accounting and Fiscal Year.   The books of the Company shall be kept on the accrual basis in accordance with GAAP and on a tax basis and the Company shall report its operations for tax purposes on the accrual method. The fiscal year and tax year of the Company for federal income tax purposes shall be the same and shall end on December 31 of each year, unless a different tax year shall be required by the Code.

8.03      Reports.

(a)        The Administrative Member will prepare, or cause to be prepared and furnish to each Member and, so long as Westbrook is a Member, WREF or its representative (provided that the Administrative Member shall, for so long as it diligently performs its obligations hereunder, not be responsible for the delays of any other non-Affiliated Member or reputable accountants or auditors retained by the Administrative Member or at the request of the Executive Committee on behalf of the Company) (i) within twenty-one (21) calendar days after the end of each fiscal quarter of the Company, unless such fiscal quarter is the last fiscal quarter of any fiscal year of the Company, (A) an unaudited balance sheet of the Company dated as of the end of such fiscal quarter, (B) an unaudited related income statement of the Company for such fiscal quarter, (C) an unaudited statement of each Member’s Capital Account for such fiscal quarter, and (D) an unaudited statement of cash flows of the Company for such fiscal quarter, and (ii) within fifteen (15) calendar days after the end of each calendar month, a market report on sales activity in the vicinity of the Company Property generally, and a status report of the Company’s activities during such calendar month, including summary descriptions of progress of construction, marketing, and sales of Company Property and any material legal issues such as material claims filed or threatened against the Company, the arising of material claims by the Company against other parties and developments in any then pending material legal actions affecting the Company during such fiscal quarter, and a reconciliation of actual Expenses and Revenues during such period compared with the Budget amounts for such items, and a quarterly explanation of the discrepancies, all of which shall be certified by the Administrative Member as being, to the best of its knowledge, true and correct.

(b)        The Administrative Member will prepare, or cause to be prepared, on an accrual basis in accordance with GAAP and on a tax basis, at the expense of the Company, and furnish to each Member no later than fifteen (15) days after the close of each fiscal year of the Company (i) an unaudited balance sheet of the Company dated as of the end of such fiscal year, (ii) an unaudited related income statement of the Company for such fiscal year, (iii) an unaudited statement of each Member’s Capital Account for such fiscal year, (iv) an unaudited statement of cash flows of the Company as of the end of the fiscal year, and (v) such other supporting schedules, reports and backup information as are reasonably requested by Westbrook, all of which shall be certified by the Administrative Member as being, to the best of

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its knowledge, true and correct. In addition, if requested by Westbrook, the Administrative Member will prepare, at the expense of the Company, and furnish to each Member within forty five (45) calendar days after the end of each fiscal year of the Company, (i) the final audited amount of net income of the Company for such fiscal year and, (ii) an audited balance sheet of the Company dated as of the end of such fiscal year, (iii) an audited related income statement of the Company for such fiscal year, (iv) an audited statement of cash flows for such fiscal year, and (v) an audited statement of each Member’s Capital Account for such fiscal year, all of which shall be certified by the Administrative Member as being, to the best of its knowledge, true and correct and all of which shall be certified in the customary manner by the Company Accountant (which firm shall provide such balance sheet, income statement and statement of Capital Account in draft form to the Members for review prior to finalization and certification thereof).

(c)        The Administrative Member will furnish to each Member, at the expense of the Company, copies of all reports required to be furnished to any lender of the Company.

(d)        The Administrative Member will prepare, or cause to be prepared, at the expense of the Company, and furnish to each Member and, so long as Westbrook is a Member, WREF or its representative (i) not later than each March 15 a schedule of estimated taxable income of the Company for the year ending on the following December 31, (ii) not later than each April 30, a schedule of estimated taxable income of the Company for the remainder of the fiscal year, (iii) not later than each July 30 a schedule of estimated taxable income of the Company for the six (6) months ending on the following December 31 and (iv) not later than each October 30 a schedule of estimated taxable income of the Company for the three (3) months ending on the following December 31. In addition, the Administrative Member will prepare, at the expense of the Company, and furnish to each Member (i) not later than each April 21 a schedule of actual taxable income and book income of the Company for the three (3) months ending on the preceding March 31, (ii) not later than each July 21 a schedule of actual taxable income and book income of the Company for the six (6) months ending on the preceding June 30, (iii) not later than each October 21 a schedule of actual taxable income and book income of the Company for the nine (9) months ending on the preceding September 30 and (iv) not later than each December 21 a schedule of actual book income of the Company for the eleven (11) months ending on the preceding November 30 and of estimated book income of the Company for the one (1) month ending on the following December 31 (including all estimated accruals as of such December 31). All schedules of book income shall be prepared on a GAAP basis. Promptly after the end of each fiscal year, the Administrative Member will cause the Company Accountant (defined below) to prepare and deliver to each Member a report setting forth in sufficient detail all such additional information and data with respect to business transactions effected by or involving the Company during the fiscal year as will enable the Company and each Member to timely prepare its federal, state and local income tax returns in accordance with applicable laws, rules and regulations. The Administrative Member will use its diligent commercially reasonable efforts to cause the Company Accountant to prepare all federal, state and local tax returns required of the Company, submit those returns to the other Members for their approval not later than March 1^st of the year following such fiscal year and will file the tax returns after they have been approved by the Executive Committee. If the Executive Committee shall not have approved any such tax return prior to the date required for the filing thereof (including any extensions granted), the Administrative Member will diligently endeavor

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to timely obtain an extension of such date to the extent such an extension is available. The above dates shall be adjusted if the fiscal year of the Company is other than a calendar year.

(e)        The Administrative Member shall prepare, or cause to be prepared, at Company expense, such additional financial reports and other information as the Executive Committee may reasonably determine are appropriate.

(f)        All decisions as to accounting principles shall be made by the Executive Committee, subject to the provisions of this Agreement.

8.04      The Company Accountant.   The Company shall retain as the regular accountant and auditor for the Company (the “Company Accountant”) any accountant or accounting firm designated by the Executive Committee. The fees and expenses of the Company Accountant shall be a Company expense.

8.05      Reserves.   The Executive Committee may, in its reasonable discretion and subject to such conditions as it shall determine, establish reserves for the purposes and requirements as it may reasonably deem appropriate.

8.06      The Budget and Operating Plan.

(a)        The Administrative Member shall, within thirty (30) days after the date hereof, prepare and submit to the Executive Committee for such committee’s approval a budget and strategic operating plan, or shall prepare and submit the same to the Executive Committee for the Executive Committee’s approval (as approved or to be approved, the “Initial Budget and Operating Plan”) for the Company monthly through December 31, 2011, with quarterly projections through the Project Sell-Out, which sets forth a construction budget, including all hard and soft construction costs, all anticipated income, operating expenses, and capital expenditures of the Company, together with an exit valuation/strategy and projected quarterly/annual capital contributions and capital returns, and aggregate IRR’s to each Member, all of which is based on the strategic and comprehensive business plan designed to maximize the Company’s returns on the Company Property, and all of which shall be consistent with preliminary figures previously provided to the Executive Committee by the Administrative Member. Thereafter, the Budget and Operating Plan shall be prepared in proposed form and submitted annually by the Administrative Member to the Executive Committee for approval at least sixty (60) calendar days prior to the end of each fiscal year with respect to the following fiscal year, together with forward projections through Project Sell-Out (provided if the Administrative Member should fail to timely prepare and submit in proposed form any such Budget and Operating Plan, the Executive Committee shall be authorized to prepare such Budget and Operating Plan). In formulating the comprehensive Budget and Operating Plan, to the extent reasonably feasible at the time of preparation thereof, the Administrative Member will develop (for approval by the Executive Committee) proposed strategies regarding (i) plans for construction, financing, sale and rehabilitation of any real property and proposed reductions to Expenses and other Company costs and expenses and increases in revenues, (ii) preparation and release of all promotional and advertising relating to, and a marketing plan for, the Company Property or concerning the Company, (iii) terms for any proposed sale or disposition of any Company Property, or acquisition of additional Company Property, and (iv) selection of

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legal counsel, accountants, appraisers and other consultants for the Company to efficiently implement the Budget and Operating Plan. It is acknowledged that Orrick, Herrington & Sutcliffe LLP is counsel for SunBrook, Westbrook, WREF and Affiliates of Westbrook and WREF, and is hereby approved as legal counsel for the Company for all matters that the Executive Committee or Managing Member determines is appropriate and the Members waive any conflict of interest associated with such representation of SunBrook, Westbrook, WREF, their Affiliates and the Company. It is also acknowledged that Dzida, Carey & Steinman is counsel for Sponsor and Affiliates of Sponsor, and is hereby approved as legal counsel for the Company for all matters that the Executive Committee determines is appropriate and the Members waive any conflict of interest associated with such representation of Sponsor and its Affiliates. The Administrative Member will also consider and make recommendations to the extent it deems the same appropriate regarding the amendment, modification, alteration, change, cancellation, or prepayment of any indebtedness evidenced by any mortgage loan presently or hereafter affecting any Company Property, and procurement of title insurance and other insurance for the Company, or decrease or vary the insurance carried by or on behalf of the Company and any other matters affecting the Company’s business. The Executive Committee may review the Initial Budget and Operating Plan and make such amendments or modifications thereto as the Executive Committee shall determine appropriate or necessary in its discretion based on the actual operating results for the Company Property.

(b)        In conjunction with the formulation of the Operating Plan, to the extent applicable to the Company Property and not otherwise prepared pursuant to the Construction Management Agreement, the Administrative Member will also develop (for approval by the Executive Committee) proposed sales and operating guidelines for each such property for the upcoming fiscal year, which sales and operating guidelines shall include to the extent reasonably feasible at the time of preparation thereof (i) a proposed standard form or forms of purchase and sale agreement be offered to prospective buyers of single family homes in the Project, (ii) a schedule setting forth proposed sale prices and terms for each unsold single family home in the Project, (iii) a description of any proposed sales inducements, concessions, improvements or allowances to be offered prospective buyers, and (iv) proposed submittals to the California Department of Real Estate, including homeowner association budgets for common areas and proposed master covenants, conditions and restrictions and other homeowners’ association documentation.

8.07      Accounts.     All funds of the Company shall be deposited in such checking accounts, savings accounts, time deposits, or certificates of deposit in the Company’s name or shall be invested in the Company’s name, in such manner as shall be designated by the Executive Committee. Company funds shall not be commingled with those of any other person or entity. Company funds shall be used only for the business of the Company.

ARTICLE IX.

TRANSFER OF INTERESTS

9.01      No Transfer.  Except as expressly permitted or contemplated by this Agreement, no Member may sell, assign, give, hypothecate, pledge, encumber or otherwise transfer (“Transfer”) all or any portion of its Interest, whether directly or indirectly, without the written consent of the other Members. Except as expressly permitted or contemplated by this

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Agreement, Sponsor agrees not to permit any Transfer of any equity interest in such Member or in its managing member, unless (a) such Transfer is for estate planning purposes to a family trust of the Sponsor Persons or (b) immediately following such Transfer, Sponsor and the Sponsor Persons retain Control of Sponsor. Any Transfer in contravention of this Article IX shall be null and void. No Member, without the prior written consent of the other Members, shall resign from the Company except as a result of such Member’s involuntary dissolution or final adjudication as a bankrupt or in connection with a Transfer permitted by this Article IX. Notwithstanding anything to the contrary contained herein, Sponsor agrees that in no event shall Starwood Capital, Rockpoint Partners, Meadow Partners or Barclays or any of their Affiliates be permitted to acquire any direct or indirect ownership or equity interest in Sponsor, Sponsor’s members, General Contractor or an of their Affiliates, managers, members or shareholders.

9.02      Permitted Transfers.

(a)        Subject to any necessary Lender approval and this Article IX, Westbrook may from time to time and in its sole discretion without the consent of any other Member, sell or assign its Interest in whole or in part to any Affiliate of Westbrook.

(b)        Any permitted Transfer shall not relieve the transferor of any of its obligations prior to such Transfer. The parties hereto agree to amend the transfer provisions of Article IX if the Managing Member reasonably determines that such amendment is necessary for the Company to be treated as a partnership for Federal, California and New York income tax purposes. Nothing contained in this Article IX shall prohibit a Transfer indirectly of any interest in the Company if a direct Transfer would otherwise be permitted under this Section 9.02. Subject to Section 9.03, any transferee pursuant to this Section 9.02 shall become a Member of the Company. The provisions of this Section 9.02 will not apply to or be deemed to authorize or permit any collateral transfer of, or grant of a security interest in, a Member’s interest in the Company, or in Company Property or of an equity interest of an Acquisition Vehicle (which transfer or grant shall be subject to the other provisions of this Agreement).

9.03      Transferees.      Notwithstanding anything to the contrary contained in this Agreement, no transferee of all or any portion of any Interest shall be admitted as a Member unless (a) such Interest is transferred in compliance with the applicable provisions of this Agreement, (b) such transferee shall have furnished evidence of satisfaction of the requirements of Section 9.02 reasonably satisfactory to the remaining Members, and (c) such transferee shall have executed and delivered to the Company such instruments as the remaining Members reasonably deem necessary or desirable to effectuate the admission of such transferee as a Member and to confirm the agreement of such transferee to be bound by all of the terms and provisions of this Agreement with respect to such Interest. At the request of the remaining Members, each such transferee shall also cause to be delivered to the Company, at the transferee’s sole cost and expense, a favorable opinion of legal counsel reasonably acceptable to the Company, to the effect that (i) such transferee has the legal right, power and capacity to own the Interest proposed to be transferred, (ii) if applicable, such Transfer does not violate any provision of any loan commitment or any mortgage, deed of trust or other security instrument encumbering all or any portion of the Company Property, and (iii) such Transfer does not violate any federal or state securities laws and will not cause the Company to become subject to the Investment Company Act of 1940, as amended or become a “publicly traded partnership” for

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purposes of Section 7704 of the Code. As promptly as practicable after the admission of any Person as a Member, the books and records of the Company shall be changed to reflect such admission. All reasonable costs and expenses incurred by the Company in connection with any Transfer of any Interest and, if applicable, the admission of any transferee as a Member shall be paid by such transferee.

9.04      Section 754 Election.  In the event of a Transfer of all or part of the Interest of a Member, at the request of the transferee or if in the best interests of the Company (as determined by the Executive Committee), the Company shall elect pursuant to Section 754 of the Code to adjust the basis of Company Property as provided by Sections 734 and 743 of the Code, and any cost of such election or cost of administering or accounting for such election shall be at the sole cost and expense of the requesting transferee.

9.05      Drag Along Rights..  If Westbrook intends to sell, directly or indirectly, to one or more third party purchaser, (i) more than fifty percent (50%) of its Interest (in one or more related transactions), or (ii) any portion of its Interest as part of a transaction immediately after which Westbrook will no longer Control the Company, Westbrook may, in its discretion, require Sponsor and any other Members (all Members other than Westbrook, the “Other Members”) to sell their entire Interest pursuant to and in accordance with the terms and conditions of such sale. If Westbrook elects to exercise its rights pursuant to this Section 9.05, Westbrook shall give written notice (the “Drag Along Notice”) to the Other Members that Westbrook intends to sell their Interest (or portion thereof), which Drag Along Notice shall set forth the purchase price at which an unrelated third party purchaser has proposed to purchase such Interest (or portion thereof) of Westbrook and the other material terms of such proposed sale (the “Westbrook Interest Purchase Price”). The “Drag Along Purchase Price” shall mean the deemed sale price at which all of the Interests of all of the Members of the Company would have been sold in the event that the Drag Along Notice had contemplated a sale of all of such Interests (rather than only a portion of such Interests), which Drag Along Purchase Price shall be determined by applying the terms of Section 6.03(a) or Section 6.03(b), as appropriate, based upon the following assumptions: (1) the Interest of Westbrook being sold includes a proportional interest in any and all of the distributions to which Westbrook would be entitled pursuant to each Subsection of Section 6.03(a) (or Section 6.03(b), as appropriate) (e.g., if 60% of Westbrook’s Interest is being sold, then such sale is deemed to include 60% of Westbrook’s unreturned Member Loans, 60% of Westbrook’s accrued and unpaid interest on its Member Loans, 60% of the Westbrook’s unreturned Capital Contributions and any other unpaid portion of the respective IRR running thereon, etc.), (2) the amount of the Westbrook Interest Purchase Price is equal to the distributions which Westbrook would have received with respect to Westbrook’s Interest actually being sold by Westbrook in the event that all of the Interests of all of the Members (including, without limitation, Westbrook’s entire Interest) were sold for the Drag Along Purchase Price. The consideration paid to Sponsor in connection with the sale of its entire Interest pursuant to this Section 9.05 shall be equal to the amount which Sponsor would have received if the Drag Along Purchase Price had been distributed to the Members in accordance with the provisions of Section 6.03(a) or Section 6.03(b) as appropriate.

(a)        In connection with any such sale pursuant to which any Other Members shall participate in accordance with this Section 9.05, the sale of the Interests of Westbrook and such Other Members shall be consummated simultaneously and the proceeds attributable to such sale

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of each Member’s Interest shall be paid simultaneously to Westbrook and each such Other Member.

(b)        Upon the occurrence of an event that which would permit Westbrook to deliver a Drag Along Notice as set forth in Section 9.05 above, the Sponsor shall have the right to require Westbrook, or such third party purchaser, to purchase the Sponsor’s entire Interest in the Company pursuant to the terms of this Section 9.05 for a purchase price equal to the portion of the Drag Along Purchase Price to which Sponsor would be entitled pursuant to the terms of the first paragraph of Section 9.05, above.

(c)        If Westbrook delivers the Drag Along Notice to the Other Members, then:

(i)       the Other Members shall sell all of their respective Interests for the Drag Along Purchase Price and upon the terms set forth in the Drag Along Notice and otherwise in accordance with this Section 9.05;

(ii)      the transfer of the Other Members’ respective Interests shall occur at a closing on a date specified by Westbrook, which shall be no more than one hundred eighty (180) days after the date the Drag Along Notice is delivered;

(iii)     the Other Members shall execute all documents, agreements and instruments which Westbrook may reasonably request to consummate the conveyance of the Other Members’ respective Interests, provided that Westbrook shall execute substantially the same documents, agreements and instruments with respect to its Interest;

(iv)     each of the Other Members shall be deemed to represent and warrant to the purchaser of their Interests, on and as of the date of closing of the transfer of the Other Members’ respective Interests to such purchaser, that (A) such Other Member is the sole owner of such Interest in the Company and holds the same free and clear of any liens or other encumbrances, and (B) such Other Member has all requisite power and authority to transfer its Interest to such purchaser pursuant to this Section 9.05;

(v)      the Other Members shall bear their respective pro rata share of all closing costs and deliver their respective pro rata share of all closing escrow funds, reserves and similar closing obligations; provided that no Other Member shall be liable or responsible for any default or breach with respect to any escrow funds caused by Westbrook, its Affiliates or any Member of the Company other than such Other Member and its member group; and

(vi)     if any of the Other Members fail to transfer their Interest in accordance with this Section 9.05, Westbrook and the Company shall have all rights and remedies available pursuant to law and in equity, including (without limitation) the exercise of any power of attorney granted to Westbrook pursuant to Section 9.05(c) and/or the right to enforce their respective rights under this Section 9.05 by specific performance and to bring an action for damages against such Other Member.

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(d)        Each Other Member hereby represents and warrants to, and agrees with and for the benefit of, Westbrook and the Company that Westbrook have all requisite authority to complete and facilitate any sale of such Other Member’s Interest in accordance with this Section 9.05, including transferring such Other Member’s Interest and, if and to the extent any of the Other Members fail to transfer their Interest in accordance with this Section 9.05, provided Westbrook shall have given such Other Member at least thirty (30) days prior written notice of the closing of the transfer of such Other Member’s Interest pursuant to this Section 9.05, such Other Member hereby irrevocably appoints Westbrook as its true and lawful attorney-in-fact (which appointment shall be deemed coupled with an interest) to execute all documents, agreements and instruments which Westbrook may reasonably request, and take any and all other action necessary or appropriate, to consummate the conveyance of such Other Members’ respective Interests. This Section 9.05(c) is self-operative and no additional authorization or consent of any Other Member or any of their respective members, managers, officers, directors or owners shall be required for the sale under this Section 9.05 of such Other Member’s Interest.

9.06      Right of Sale.

(a)        Westbrook may at any time cause the sale of all of the Company Property on the terms and conditions set forth in this Section 9.06; provided, however, the terms of this Section 9.06 shall not apply in the event that both Members agree to the sale of all of the Company Property.

(b)        Any sale under this Section 9.06 shall be initiated by Westbrook giving written notice (the “Initial Sale Notice”) to the Sponsor of Westbrook’s election to require the Company to sell the Company Property as outlined in Section 9.06(a) above.

(c)        Upon receipt of the Initial Sale Notice, Sponsor shall have fifteen (15) days to deliver to Westbrook a written notice of its desire to purchase the Company Property (a “Purchase Notice”), which Purchase Notice shall set forth the purchase price (“Offer Price”) and basic terms (“Basic Terms”), on which Sponsor would be willing to purchase the Company Property and the amount that Westbrook would receive, assuming such offer price were distributed to the Members pursuant to the terms of this Agreement.

(d)        Upon Westbrook’s receipt of the Purchase Notice, Westbrook shall have fifteen (15) days to elect to sell the Company Property for the Offer Price, and otherwise on the Basic Terms, or (ii) allow the Company Property to be sold in the open market in accordance with the terms of this Section 9.06. Notwithstanding anything to the contrary contained in this Section 9.06, the parties acknowledge that any sale to the Sponsor pursuant to this Section will be structured as a purchase by the Sponsor of Westbrook’s interest in the Company and Westbrook shall indemnify, defend and hold Sponsor and the Company harmless from and against any loss, claim or damage arising out of or resulting from any obligation incurred on behalf of the Company by Managing Member or Project Coordinator after the date of such agreement without the consent of Sponsor or the failure of Westbrook to disclose to Sponsor any material agreement that Westbrook entered into without disclosing to Sponsor prior to the date of closing for Sponsor’s acquisition of the Property from the Company that would be binding on Sponsor after the closing of any such sale. In the event that Westbrook does not deliver a

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response to the Purchase Notice within such fifteen (15) day period, it shall be deemed to have elected to allow the Company Property to be sold in the open market in accordance with the terms of this Section 9.06.

(e)        If Westbrook elects to sell the Company Property to Sponsor as provided in Section 9.06(d) above, the Members shall have fifteen (15) business days to enter into a binding purchase contract on the Basic Terms and such other terms consistent therewith, as may be acceptable to the Members, in the sole and absolute discretion of each Member. If no such agreement is entered into within such fifteen (15) business day period, then Westbrook may proceed to cause the Company to market the assets of the Company in the open market in accordance with the terms of this Section 9.06. Upon the execution of such binding purchase contract, the Sponsor shall make a deposit of ten percent (10%) of the purchase price under such purchase contract, which shall be held as liquidated damages thereunder.

(f)        Any purchase contract entered into pursuant to Section 9.06(d) above, shall provide for a closing thereunder not later that forty-five (45) days after the execution of such purchase contract. Any failure by a Member to close under such purchase contract in accordance with the terms thereof shall be deemed an Event of Default hereunder. In the event of any such purchase by the Sponsor, Westbrook and/or its Affiliates as a condition to closing must be released from its liability under any third party loans to the Company and any guarantees made in connection therewith.

(g)        If the Sponsor does not acquire the Company Property, as provided above, or the Members have not entered into a binding purchase contract within the time period provided above, then after the expiration of the applicable periods, Westbrook shall have the right to cause the Company to market and sell the Real Property to an independent third party on such terms as may be approved by the Executive Committee, provided that Westbrook again first follow the procedures in Sections 9.06(b) through 9.06(d) if such third party sale would be for a price less than 95% of the price set forth in any Purchase Notice previously submitted by Sponsor. If in connection with any such sale to an independent third party the Members are not fully released from all recourse guarantees and environmental indemnities they executed with respect to Company or LR8 Owner financing, the Members shall indemnify, defend and hold each other harmless such that the liability, if any, under any such instruments shall ultimately be borne by the Members in proportion to their respective Percentage Interests.

(h)        Each of the Members shall cooperate in good faith in connection with the sale of the Company Property, with the objective of achieving the best possible price and terms available in the market from a sale to an unrelated third party.

ARTICLE X.

EXCULPATION AND INDEMNIFICATION

10.01    Exculpation.    No Member, member of the Executive Committee, general or limited partner of any Member, shareholder or member or other holder of an equity interest of any Member or manager, officer or director of any of the foregoing, shall be liable to the Company or to any other Member for monetary damages for any losses, claims, damages or liabilities arising from any act or omission performed or omitted by it and arising out of or in

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connection with this Agreement or the Company’s business or affairs; provided, however, such act or omission was taken in good faith, was reasonably believed to be in the best interests of the Company and was within the scope of authority granted to such Person, and was not attributable to such Member’s or Person’s fraud, bad faith, willful misconduct or gross negligence. No general or limited partner of any Member, shareholder, member or other holder of an equity interest in such Member or manager, officer or director of any of the foregoing shall be personally liable for the performance of any such Member’s obligations of this Agreement, but the foregoing shall not relieve any partner or member of any Member from its obligations to such Member.

10.02    Indemnification.

(a)        The Company shall, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each Member, each member of the Executive Committee and each general or limited partner of any Member or such Member’s Affiliate, shareholder, member or other holder of any equity interest in such Member or its Affiliate, or any manager, officer or director of any of the foregoing (collectively, the “Indemnitees”), from and against any losses, claims, demands, liabilities, costs, damages, expenses and causes of action to which such Indemnitee may become subject in connection with any matter arising out of or incidental to any act performed or omitted to be performed by any such Indemnitee in connection with this Agreement or the Company’s business or affairs; provided, however, that such act or omission was taken in good faith, was reasonably believed by the applicable Indemnitee to be in the best interest of the Company and within the scope of authority granted to such Member or applicable Indemnitee, and in the case of a Member or related Indemnitee, was not attributable to such Indemnitee’s fraud, bad faith, willful misconduct or gross negligence. Any indemnity under this Section 10.02 shall be paid solely out of and to the extent of Company assets and shall not be a personal obligation of any Member and in no event will any Member be required, or permitted without the consent of all of the Members, to contribute additional capital under Section 4.02 to enable the Company to satisfy any obligation under this Section 10.02. All judgments against the Members, or any one or more thereof, wherein such Member (or Members) is entitled to indemnification, must be satisfied from Company assets before the Members shall be responsible therefor. The Company shall provided insurance that meets the minimum insurance requirements attached hereto as Exhibit “B”.

(b)        The Company and the other Members shall be indemnified and held harmless by each Member from and against any and all claims, demands, liabilities, costs, damages, expenses and causes of action of any nature whatsoever arising out of or attributable to (i) any act performed by or on behalf of any such Member (including acts performed as the Administrative Member) or its designated Executive Committee member which is not performed in good faith or is not reasonably believed by such Member or its designated Executive Committee member to be in the best interest of the Company and within the scope of authority conferred upon such Member or its designated Executive Committee member under this Agreement, (ii) the fraud, bad faith, willful misconduct or gross negligence of such Member or its designated Executive Committee member, (iii) the breach by the Company of any of its representations and warranties made under any purchase, loan or other agreement entered into in connection with the acquisition of Company Property, which breach was the result of information or matters relating to such Member, or (iv) any denial of an insurance

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claim by the Company based on an intentional misstatement or intentional withholding of information by any Member.

(c)        The provisions of this Section 10.02 shall survive for a period of four years from the date of dissolution of the Company, provided that, if at the end of such period there are any actions, proceedings or investigations then pending, any Indemnitee may so notify the Company and the other Members at such time (which notice shall include a brief description of each such action, proceeding or investigation and the liabilities asserted therein) and the provisions of this Section 10.02 shall survive with respect to each such action, proceeding or investigation set forth in such notice (or any related action, proceeding or investigation based upon the same or similar claim) until such date that such action, proceeding or investigation is finally resolved.

(d)        Notwithstanding anything to the contrary contained in this Agreement, the obligations of the Company or any Member under this Section 10.02 shall (i) be in addition to any liability which the Company or such Member may otherwise have and (ii) inure to the benefit of such Indemnitee, its Affiliates and their respective members, managers, directors, officers, employees, agents and Affiliates and any successors, assigns, heirs and personal representatives of such Persons.

ARTICLE XI.

DISSOLUTION AND TERMINATION

11.01    Dissolution.  The Company shall be dissolved and its business wound up upon the earliest to occur of any of the following events, unless the majority-in-interest of the remaining Members vote to continue the life of the Company upon the occurrence of such an event:

(a)        The sale, condemnation or other disposition of all Company Property and the receipt of all consideration therefor;

(b)        The expiration of the period related to the election under Section 12.02(a);

(c)        The expiration of the period set forth in Section 2.03;

(d)        The written determination of (i) the Executive Committee to terminate the Company during the continuance of any Event of Default by the Sponsor or (ii) the written determination of all of the Members if no such Event of Default is continuing; or

(e)        The resignation, expulsion, bankruptcy or dissolution of any Member (which shall not include the occurrence of such an event with respect to any Member’s underlying members or partners which does not cause such an event to occur with respect to the Member itself) or the occurrence of any other event that terminates the continued membership of any Member in the Company, unless, within ninety (90) days after such event, each of the remaining Members elects in writing (i) to continue the business of the Company, (ii) if at such time there exists only one remaining Member, effective as of the date of such event, to admit at least one additional Member to the Company, and (iii) if applicable, to appoint a new Managing Member.

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Without limitation on, but subject to, the other provisions hereof, the assignment of all or any part of a Member’s Interest permitted hereunder will not result in the dissolution of the Company. Except as otherwise specifically provided in this Agreement, each Member agrees that, without the consent of the other Members, any Member may not withdraw from or cause a voluntary dissolution of the Company. In the event any Member withdraws from or causes a voluntary dissolution of the Company in contravention of this Agreement, such withdrawal or the causing of a voluntary dissolution shall not affect such Member’s liability for obligations of the Company.

11.02    Termination.    In all cases of dissolution of the Company, the business of the Company shall be wound up and the Company terminated as promptly as practicable thereafter, and each of the following shall be accomplished:

(a)        The Liquidating Member shall cause to be prepared a statement setting forth the assets and liabilities of the Company as of the date of dissolution, a copy of which statement shall be furnished to all of the Members.

(b)        The Company Property shall be liquidated by the Liquidating Member as promptly as possible, but in an orderly and businesslike and commercially reasonable manner and subject to the provisions of the Operating Plan then in effect or a liquidating plan approved by the Executive Committee. The Liquidating Member may distribute Company Property in kind only with the consent of all of the Members.

(c)        The proceeds of sale and all other assets of the Company shall be applied and distributed as follows and in the following order of priority:

(i)       To the payment of (A) the debts and liabilities of the Company (including any outstanding amounts due on any indebtedness encumbering the Company Property, or any part thereof) and (B) the expenses of liquidation.

(ii)      To the setting up of any reserves which the Liquidating Member and the Executive Committee shall determine to be reasonably necessary for contingent, unliquidated or unforeseen liabilities or obligations of the Company arising out of or in connection with the Company. Such reserves may, in the discretion of the Liquidating Member, be paid over to a national bank or national title company selected by it and authorized to conduct business as an escrow agent to be held by such bank or title company as escrow agent for the purposes of disbursing such reserves to satisfy the liabilities and obligations described above, and at the expiration of such period as the Liquidating Member may reasonably deem advisable, distributing any remaining balance as provided in Section 11.02(c)(iii); provided, however, that, to the extent that it shall have been necessary, by reason of applicable law or regulation, to create any reserves prior to any and all distributions which would otherwise have been made under Section 11.02(c)(i) and, by reason thereof, a distribution under Section 11.02(c)(i) has not been made, then any balance remaining shall first be distributed pursuant to Section 11.02(c)(i).

(iii)     The balance, if any, to the Members in accordance with Section 6.04.

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11.03    Liquidating Member.   The Liquidating Member is hereby irrevocably appointed as the true and lawful attorney in the name, place and stead of each of the Members, such appointment being coupled with an interest, to make, execute, sign, acknowledge and file with respect to the Company all papers which shall be necessary or desirable to effect the dissolution and termination of the company in accordance with the provisions of this Article XI. Notwithstanding the foregoing, each Member, upon the request of the Liquidating Member or the Executive Committee, shall promptly execute, acknowledge and deliver all such documents, certificates and other instruments as the Liquidating Member or the Executive Committee shall reasonably request to effectuate the proper dissolution and termination of the Company, including the winding up of the business of the Company.

11.04    Claims of the Members.   Members and former Members shall look solely to the Company’s assets for the return of their Capital Contributions, and if the assets of the Company remaining after payment of or due provision for all debts, liabilities and obligations of the Company are insufficient to return such Capital Contributions, the Members and former Members shall have no recourse against the Company or any other Member.

ARTICLE XII.

DEFAULT BY MEMBER

12.01    Events of Default.  If a Member commits a material violation or breach of any of the provisions of this Agreement that remains uncured after a Reasonable Period, such Member shall have committed an “Event of Default”; provided that violations or breaches under Section 4.02 of this Agreement shall be addressed solely by the default and remedy provisions of Section 4.02 and the For Cause removal provisions under Section 7.03(e) and the change in distribution provisions in Section 6.03(b).

12.02    Effect of Event of Default.   Upon the occurrence of an Event of Default by any Member (other than defaults or breaches under Section 4.02), Sponsor (if the defaulting Member is Westbrook) or Westbrook (if the defaulting Member is Sponsor) shall have the right, at any time within one year from the date of such Event of Default and 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 ten (10) day period) to take any of the following actions:

(a)     Dissolve the Company; and

(b)     Pursue any other right or remedy available at law or in equity.

ARTICLE XIII.

MISCELLANEOUS

13.01   Representations and Warranties of the Members.

(a)     Each Member represents and warrants to the other Members as follows:

(i)       It is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation with all requisite power and authority to enter

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into this Agreement and to conduct the business of the Company.

(ii)      This Agreement constitutes the legal, valid and binding obligation of the Member enforceable in accordance with its terms.

(iii)     No consents or approvals are required from any governmental authority or other person or entity for the Member to enter into this Agreement and the Company. All limited liability company, corporate or partnership action on the part of the Member necessary for the authorization, execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, have been duly taken.

(iv)     The execution and delivery of this Agreement by the Member, and the consummation of the transactions contemplated hereby, does not conflict with or contravene the provisions of its organizational documents or any agreement or instrument by which it or its properties are bound or any law, rule, regulation, order or decree to which it or its properties are subject.

(v)       Except as set forth in the Purchase Agreement and except for ORION Property Partners, who shall be compensated by Seller upon the closing of the acquisition of the Real Property, no Member has retained any broker, finder or other commission or fee agent, and no such person has acted on its behalf in connection with the acquisition of the Real Property or the execution and delivery of this Agreement.

(vi)     It understands that (A) an investment in the Company involves substantial and a high degree of risk, (B) no federal or state agency has passed on the offer and sale of the Interest in the Company to such Person, (C) it must bear the economic risk of such Person’s investment in the Company for an indefinite period of time, since such Person’s Interest in the Company has not been registered for sale under the Securities Act of 1933 and, therefore, cannot be sold or otherwise transferred unless subsequently registered under the Securities Act of 1933 or an exemption from such registration is available, and the Interest in the Company of such Person cannot be sold or otherwise transferred unless registered under applicable state securities or blue sky laws or an exemption from such registration is available, (D) there is no established market for the Interest of such Person in the Company and no public market will develop and (E) such Person’s principals have such knowledge and experience in real estate and, other financial and business matters that they are capable of evaluating the merits and risks of an investment in the Company.

(vii)    Neither such Member nor any Person who holds any interest in such Member is a Prohibited Person or a Person with whom a U.S. Person, including a “financial institution” as defined in 31 U.S.C. Section 5312(a)(z), as amended, is prohibited from transacting business of the type contemplated by this Agreement or any related transaction document, whether such prohibition arises under United States law, regulation, executive orders and lists published by the OFAC (including those executive orders and lists published by OFAC with respect to Specially Designated

54

Nationals and Blocked Persons) or otherwise.

(viii)   Such Member has taken and shall continue to take such measures as are required by applicable law to assure that funds used to pay Seller and others under the Purchase Agreement and related transaction documents are derived from transactions that do not violate United States law and to the extent such funds originate outside the United States do not violate the laws of the jurisdiction in which they originate.

(ix)     Such Member is in compliance with all applicable provisions of the USA Patriot Act of 2001, Pub. L. No. 107-56.

(b)        In addition to the representations and warranties set forth above, Sponsor represents and warrants to Westbrook as follows:

(i)       Sponsor is a limited liability company currently existing pursuant to that certain Certificate of Formation filed with the Secretary of State of Delaware on September 17, 2009 (the “Organizational Documents”).

(ii)      The aforementioned Organizational Documents have not been terminated nor modified or amended and continue to be in full force and effect.

(iii)     No consent or authorization of any other persons or entities, other than those whose consent has been secured, is required for Sponsor to enter into this Agreement or to take any action or grant any consent or approval under this Agreement.

(iv)     The offer and sale of interests in Sponsor has been undertaken in full compliance with all applicable federal and state securities laws and no interests in Sponsor have been offered or sold to any person who was not at the time of such offer or sale an “accredited investor” as defined in Section 2(15) of the Securities Act of 1933 and Rule 501 promulgated thereunder and under the securities laws of various states.

(v)      The Sponsor Persons have no knowledge that any of the representations and warranties of Seller under the Purchaser Agreement are inaccurate in any material respect.

(vi)     Sponsor and none of its direct or indirect equity owners are “qualified organizations” within the meaning of Code Section 514(c)(9)(C), and Sponsor does not own a direct or indirect interest in Seller.

(vii)    To Sponsor’s knowledge, which shall mean the knowledge of H. Lawrence Webb, A.J. Jarvis, Wayne Stelmar, Joseph Davis and Tom Redwitz, Sponsor and its Affiliates have acted in good faith and have used diligent, commercially reasonable efforts to provide Westbrook with all due diligence materials in the Sponsor’s possession, or the possession of any Affiliates of Sponsor, that Westbrook has requested, other than certain materials regarding valuation and offers to purchase.

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(viii)   To Sponsor’s actual knowledge, which shall mean the actual knowledge of H. Lawrence Webb, A.J. Jarvis, Wayne Stelmar, Joseph Davis and Tom Redwitz, except as disclosed in the preliminary title report regarding the Real Property initially provided by Sponsor to Westbrook and its Affiliates, there is no legal or administrative action, proceeding, claim, arbitration or suit pending before any court, agency or official, nor any such claim or action threatened in writing, relating to Sponsor, the Real Property or with respect to the validity of any statutes, ordinances, regulations or restrictions or any permits or approvals thereunder relating to the Real Property.

(c)        In addition to the representations and warranties set forth above, Westbrook represents and warrants to Sponsor as follows:

(i)       Westbrook is a limited liability company currently existing pursuant to that certain Certificate of Formation filed with the Secretary of State of Delaware on September 20, 2010.

(ii)      No consent or authorization of any other persons or entities, other than those whose consent has been secured, is required for Westbrook to enter into this Agreement or to take any action or grant any consent or approval under this Agreement.

(iii)     The offer and sale of interests in Westbrook has been undertaken in full compliance with all applicable federal and state securities laws and no interests in Westbrook have been offered or sold to any person who was not at the time of such offer or sale an “accredited investor” as defined in Section 2(15) of the Securities Act of 1933 and Rule 501 promulgated thereunder and under the securities laws of various states.

(d)        Each Member agrees to indemnify and hold harmless the Company and each other Member and their officers, directors, shareholders, partners, members, employees, successors and assigns from and against any and all loss, damage, liability or expense (including costs and attorneys’ fees) which they may incur by reason of, or in connection with, any breach of the foregoing representations and warranties by such Member and all such representations and warranties shall survive the execution and delivery of this Agreement and the termination and dissolution of Sponsor and/or the Company or any other Member.

13.02   Further Assurances.  Each Member agrees to execute, acknowledge, deliver, file, record and publish such further instruments and documents, and do all such other acts and things as may be required by law, or as may be reasonably required to carry out the intent and purposes of this Agreement.

13.03   Notices.     All notices, demands, consents, approvals, requests or other communications which any of the parties to this Agreement may desire or be required to give hereunder (collectively, “Notices”) shall be in writing and shall be given by (a) personal delivery, (b) facsimile transmission or (c) a reputable overnight courier service, fees prepaid, addressed as follows:

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If to Westbrook to:	c/o Westbrook Partners
	645 Madison Avenue, 18th Floor
	New York, New York 10022
	Attn: Marcus L. Scroggins
	Facsimile No.: (212) 849-8801
and a copy to:	Westbrook Partners
	645 Madison Avenue, 18th Floor
	New York, New York 10022
	Attn: Kashif Z. Sheikh, Esq.
	Facsimile No.: (212) 849-8801
and a copy to:	Westbrook Partners
	P.O. Box 1908
	Hobe Sound, Florida 33455
and a copy to:	SunBrook Partners
	11661 San Vicente Blvd., Suite 910
	Los Angeles, California 90049
	Attn: Jason Glasgow
	Facsimile No. (310) 432-2731
and a copy to:	Orrick, Herrington & Sutcliffe LLP
	777 South Figueroa Street, Suite 3200
	Los Angeles, California 90017
	Attn: Gerard J. Walsh, Esq.
	Facsimile No.:	(213) 612-2499
If to Sponsor to:	The New Home Company Southern California, LLC
	95 Enterprise, Suite 325
	Aliso Viejo, California 92656
	Attention:	H. Lawrence Webb
	Facsimile:	(949) 382-7801
and a copy to:	Dzida, Carey & Steinman
	3 Park Plaza, Suite 750
	Irvine, California 92614
	Attention:  Steven J. Dzida, Esq.
	Facsimile:	(949) 399-0361

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Any Member may designate another addressee (and/or change its address) for Notices hereunder by a Notice given pursuant to this Section 13.03. A Notice sent in compliance with the provisions of this Section 13.03 shall be deemed given on the date of receipt.

13.04   Governing Law.     This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed wholly within that State.

13.05   Attorney Fees.   If the Company or any Member obtains a judgment against any Member by reason of the breach of this Agreement or the failure to comply with the terms hereof, reasonable attorneys’ fees and costs as fixed by the court shall be included in such judgment.

13.06   Captions.  All titles or captions contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend, or describe the scope of this Agreement or the intent of any provision in this Agreement.

13.07   Pronouns.  All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, and neuter, singular and plural, as the identity of the party or parties may require.

13.08   Successors and Assigns.  This Agreement shall be binding upon the parties hereto and their respective executors, administrators, legal representatives, heirs, successors and assigns, and shall inure to the benefit of the parties hereto and, except as otherwise provided herein, their respective executors, administrators, legal representatives, heirs, successors and assigns.

13.09   Extension Not a Waiver.   No delay or omission in the exercise of any power, remedy or right herein provided or otherwise available to a Member or the Company shall impair or affect the right of such Member or the Company thereafter to exercise the same. Any extension of time or other indulgence granted to a member hereunder shall not otherwise alter or affect any power, remedy or right of any other Member or of the Company, or the obligations of the Member to whom such extension or indulgence is granted.

13.10   Creditors Not Benefited.    Nothing contained in this Agreement is intended or shall be deemed to benefit any creditor of the Company or any Member, and no creditor of the Company shall be entitled to require the Company or the Members to solicit or accept any Additional Capital Contribution for the Company or to enforce any right which the Company or any Member may have against any Member under this Agreement or otherwise or under any Guaranty.

13.11   Recalculation of Interest.  If any applicable law is ever judicially interpreted so as to deem any distribution, contribution, payment or other amount received by any Member or the Company under this Agreement as interest and so as to render any such amount in excess of the maximum rate or amount of interest permitted by applicable law, then it is the express intent of the Members and the Company that all amounts in excess of the highest lawful rate or amount theretofore collected be credited against any other distributions, contributions, payments or other amounts to be paid by the recipient of the excess amount or refunded to the appropriate Person,

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and the provisions of this Agreement immediately be deemed reformed, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the payment of the fullest amount otherwise required hereunder. All sums paid or agreed to be paid that are judicially determined to be interest shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the term of such obligation so that the rate or amount of interest on account of such obligation does not exceed the maximum rate or amount of interest permitted under applicable law.

13.12   Severability.     In case any one or more of the provisions contained in this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and other application thereof shall not in any way be affected or impaired thereby.

13.13   Entire Agreement.    This Agreement contains the entire agreement between the parties relating to the subject matter hereof and all prior agreements relative hereto which are not contained herein are terminated. Amendments, variations, modifications or changes herein may be made effective and binding upon the Members by, and only by, the setting forth of same in a document duly executed by each Member, and any alleged amendment, variation, modification or change herein which is not so documented shall not be effective as to any Member.

13.14   Publicity.    The parties agree that no Member shall issue any press release or otherwise publicize or disclose the terms of this Agreement or the proposed terms of any acquisition of the Initial Company Property or the Real Property, without the consent of each of the other Members, except as such disclosure may be made in the course of normal reporting practices by any Member to its members, shareholders or partners or as otherwise required by law, or as otherwise reasonably required in connection with the performance of its obligations under this Agreement.

13.15   Time is of the Essence.  Time is expressly made of the essence with respect to the performance by Members of each and every obligation and condition of this Agreement in general and of the making of Capital Contributions in particular.

13.16   Counterparts.   This Agreement may be executed in multiple counterparts, each of which shall be an original but all of which together shall constitute but one and the same agreement.

13.17   Confidentiality.

(a)        The terms of this Agreement, the identity of any person with whom the Company may be holding discussions with respect to any investment, acquisition, disposition or other transaction, and all other business, financial or other information relating directly to the conduct of the business and affairs of the Company or the relative or absolute rights or interests of any of the Members (collectively, the “Confidential Information”) that is not already publicly available or that has not been publicly disclosed pursuant to authorization by all of the Members is confidential and proprietary information of the Company, the disclosure of which would cause irreparable harm to the Company and the Members. Accordingly, each Member represents that it has not and agrees that it will not and will direct its shareholders, partners,

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directors, officers, agents, advisors and Affiliates not to, disclose to any Person any Confidential Information or confirm any statement made by third Persons regarding Confidential Information until the Company has publicly disclosed the Confidential Information pursuant to authorization by the Executive Committee and has notified each Member that it has done so; provided, however, that any Member (or its Affiliates) may disclose such Confidential Information if required by law (it being specifically understood and agreed that anything set forth in a registration statement or any other document filed pursuant to law will be deemed required by law or a proceeding regarding tax liability), if reasonably required in connection with the exercise of any of its rights under this Agreement or the performance of any of its duties or obligations hereunder or in any development management or property management agreement to which it is a party covering any Company Property, or to market the Company Property or any Interests as permitted by Sections 9.05 and 9.06, and to its attorneys and advisors who agree to maintain a similar confidence.

(b)        Subject to the provisions of Section 13.17(a), each Member agrees not to disclose any Confidential Information to any Person (other than a Person (including without limitation an attorney or advisor) agreeing to maintain all Confidential Information in strict confidence or a judge, magistrate or referee in any action, suit or proceeding relating to or arising out of this Agreement or otherwise), and to keep confidential all documents (including without limitation, responses to discovery requests) containing any Confidential Information. Each Member hereby consents in advance to any motion for any protective order brought by any other Member represented as being intended by the movant to implement the purposes of this Section 13.17, provided that, if a Member receives a request to disclose any Confidential Information under the terms of a valid and effective order issued by a court or governmental agency and the order was not sought by or on behalf of or consented to by such Member, then such Member may disclose the Confidential Information to the extent required if the Member as promptly as practicable (i) notifies each of the other Members of the existence, terms and circumstances of the order, (ii) consults in good faith with each of the other Members on the advisability of taking legally available steps to resist or to narrow the order, and (iii) if disclosure of the Confidential Information is required, exercises its best efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to the portion of the disclosed Confidential Information that any other Member designates. The cost (including without limitation, attorneys’ fees and expenses) of obtaining a protective order covering Confidential Information designated by such other Member will be borne by the Company.

(c)        The covenants contained in this Section 13.17 will survive the Transfer of the Interest of any Member and the dissolution of the Company.

13.18   Venue.   Each party hereto agrees that any claim, action or relief by any party against any other party based on or arising out of this Agreement shall be brought only in the Chancery Court of the State of Delaware (or other appropriate state court in the State of Delaware) or the Federal courts located in the State of Delaware, and not in any other State or Federal court.

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13.19   Waiver of Jury Trial.   EACH OF THE MEMBERS HEREBY WAIVES TRIAL BY JURY IN ANY ACTION ARISING OUT OF MATTERS RELATED TO THIS AGREEMENT, WHICH WAIVER IS INFORMED AND VOLUNTARY.

13.20   Limitation of Liability.  Except as otherwise expressly provided by Delaware law, 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. Except as otherwise expressly provided by this Agreement (with respect to liability among Members) or by Delaware law, the liability of each Member shall be limited to the amount of Capital Contributions, if any, required to be made by such Member in accordance with this Agreement, but only when and to the extent the same shall become due pursuant to the provisions of this Agreement.

13.21   Cooperation.  In connection with the sale of the Company Property or any portion thereof, the Executive Committee agrees to reasonably cooperate with each Member (the “Exchanging Member”), which seeks to structure the disposition of its Interest in a manner that will afford the Exchanging Member an opportunity to take advantage of provisions of the Code governing tax free exchanges or reorganizations; provided that such structuring does not have an adverse effect on any such sale (including without limitation, with respect to timing), and provided that the Exchanging Member shall bear all costs and expenses associated with such structuring, the other Member Group shall not be required to take title to any property or interest or assume or be subject to any obligations, and the Exchanging Member shall indemnify, defend and hold the other Member(s) and the Company harmless from and against any and all liabilities that they may incur by reason of their participation or cooperation in such exchange or reorganization transaction, and such structuring shall not delay any such transaction, and shall be subject to the restrictions proposed by the Managing Member.

[Signatures on Next Page]

61

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the introductory paragraph hereof.

“SPONSOR”

THE NEW HOME COMPANY

SOUTHERN CALIFORNIA LLC,

a Delaware limited liability company

By:

Name: Thomas O. Redwitz

Title:	President
	The New Home Company
	Southern California LLC

[Signature(s) Continue on Following Page]

Signature Page to Limited Liability Company Agreement of LR8 Investors, LLC

“WESTBROOK”

MFCI8 LR, LLC,

a Delaware limited liability company

By:

Kashif Z. Sheikh

Authorized Representative

Signature Page to Limited Liability Company Agreement of LR8 Investors, LLC

EXHIBIT A

DEVELOPMENT MANAGEMENT AGREEMENT

[Attached]

A

EXHIBIT B

PROJECT INSURANCE REQUIREMENTS AND

MINIMUM CONTRACTOR INSURANCE REQUIREMENTS

1. Westbrook shall cause LR8 Owner to purchase and maintain or cause to be purchased and maintained on behalf of the Company and as a project cost the following insurance policies and required coverages with at least the following minimum limits during the term of this Agreement and, as provided herein:

a. All Risk Property and Builders Risk insurance with the following limits and coverages:

i. One hundred percent (100%) of the full replacement costs of the Work, including, but not limited to, all improvements to the Property performed by Contractor, and without any co-insurance requirements or penalties. Such insurance shall have deductibles no greater than $50,000 per occurrence. During the course of construction such insurance shall include full value coverage for transit, off-site storage, vandalism, loss or damage due to strike, riot & civil commotion, Professional Fees, Advance Claim Payment, Mysterious Disappearance and such other coverages as are standard and customarily found in broad form Builders Risk policies. Other than as specifically set forth in the Agreement to which these Insurance Requirements are attached, Contractor shall be responsible for all deductibles and SIR during the course of construction. All Builders’ Risk losses will be adjusted with and payable to LR8 Owner or its designee for the benefit of all parties as their interests may appear. LR8 Owner shall not settle a Builder’s Risk insurance claim in which Contractor has submitted costs (in its name and/or on behalf of subcontractors and/or suppliers) without Contractor’s prior approval, which shall not be unreasonably withheld. LR8 Owner shall not be responsible for loss or damage to, for or obtaining and/or maintaining in force insurance on temporary structures, construction equipment, tools or personal effects, owned by or rented to or in the care, custody, and control of Contractor or any Subcontractor. Loss, if any payable under the Builders Risk Policy, shall be adjusted with LR8 Owner and Contractor and made payable to LR8 Owner, LR8 Owner’s lender per any loan requirements, Contractor and Contractor as trustees for all Contractors.

2. Westbrook shall purchase and maintain or cause to be purchased and maintained on behalf of the Company, and as a project cost, general liability and umbrella insurance covering the project land until such time as the premises liability exposure is covered through the OCIP policy as referenced in Section 4 below.

3. Contractor shall purchase and maintain and cause all additional contractors and subcontractors to purchase and maintain the following insurance:

B-1

a. Contractor shall maintain and shall cause all subcontractors to maintain in effect at all times and at its own expense the following lines of insurance at the sole cost to the Contractor and/or subcontractor;

i. Workers Compensation.   Statutory workers’ compensation for all employees of Contractor and Subcontractors with maximum available limits together with Employers’ liability coverage of at least one million dollars ($1,000,000) each accident for bodily injury by accident, one million dollars ($1,000,000) policy limit for bodily injury by disease including death at any time resulting therefrom, and One Million Dollars ($1,000,000) each employee for bodily injury by disease including death at any time resulting therefrom (including “insurers’” waiver of subrogation rights in favor of Contractor);

ii. Off Site Commercial General Liability:    With limits of not less than One Million Dollars ($1,000,000) per occurrence, $2,000,000 general aggregate limits, or limits carried, whichever is greater, for bodily injury, property damage and personal injury liability on a per project basis (except as otherwise noted), including but not limited to: (1) Premises-Operations Coverage; (2) Products and Completed Operations that:

1. Affording thirty (30) days written notice to the Additional Insureds (as defined in the Construction Management Agreement) prior to cancellation, non-renewal or amendment (excepting amendments naming additional insureds); and

2. Endorsing that such insurance policy as primary as respects the Additional Insureds, and any claim, loss, or liability arising from the insureds operation, and that any other insurance maintained by the Additional Insureds is excess and non-contributing with the insurance required hereunder.

3. Contractor or any contractors or subcontractors shall be responsible for their own tools and equipment and all associated property insurance.

iii. Business/Automobile:  Business automobile liability covering liability arising out of any auto (including owned, hired, leased and non-owned vehicles, trucks and trailers) with limits of not less than $1,000.000 combined single limit each accident, or limits carried, whichever is greater. The business automobile liability insurance shall be written on the most recent edition of ISO for CA 00 01 or equivalent, and shall include contractual liability coverage and additional insured status for LR8 Owner.

iv. Professional Liability Insurance:   For all professional design or engineering services for the Project, whether provided by professionals on Contractor’s staff or by independent parties under consulting agreements with Contractor or such independent parties must secure, acquire and maintain, or cause to be secured, acquired and maintained, Professional Liability insurance in limits

not less than $1,000,000 covering the professional services performed in connection with the Project and continuing in force by renewal or extended reporting provision for not less than three years after completion of the Project. This coverage form shall be “claims made” form. The policy shall not contain any exclusions or restrictions for residential development or any exclusion or limitation applicable to work or operations of the type contemplated by this Agreement

v. Contractor Pollution Legal Liability Coverage: Contractor must obtain Contractor’s Pollution Liability or equivalent coverage covering Contractor and all subcontractors in an amount not less than $1,000,000 per pollution incident and $1,000,000 per project aggregate terms Satisfactory to The Company, including additional insured status for ownership entities where available.

4. Westbrook shall purchase and maintain or the Company at Westbrook’s request shall purchase and maintain on behalf of the Company and as a Project Cost (to the extent included in the Project Budget) a Owner’s Controlled Insurance Program (“wrap-up policy”) for the benefit of LR8 Owner, Contractor and Subcontractors (when enrolled) with at least the following minimum coverages during the term of this Agreement and, as provided herein, thereafter.

i. Commercial General Liability Insurance, including coverage for bodily injury (including coverage for death, mental anguish), Premises-Operations (on-site), Independent Contractors’ Protective, Products-Completed Operations, Blanket Contractual Liability, Personal Injury and Broad form Property Damage (including coverage for Explosion, Collapse and Underground hazards), and including Cross Liability and Severability of Interests, endorsements, coverage for Subsidence with Defense Outside of the limits of insurance with the following minimum limits:

1.	$25,000,000	Each Occurrence;
2.	$25,000,000	General Aggregate;
3.	$25,000,000	Personal and Advertising Injury;
4.	$25,000,000	Products-Completed Operations Aggregate;

ii. Such policy shall provide coverage on a per occurrence basis and be endorsed to have the General Aggregate apply on a per location/ per project basis with the aggregate limit reinstated annually. Products and Completed Operations insurance shall be maintained for a minimum period equal to the greater of (i) the period under which a claim can be asserted under the applicable statutes of limitations and/or repose or (ii) ten (10) years after Substantial Completion of the Work. The Contractual Liability Insurance shall include coverage sufficient to meet the indemnity obligations in this agreement.

a. The liability policies shall not contain any exclusions or restrictions for residential development or construction, or any exclusion or limitation applicable to work or operations of the type contemplated by this Agreement.

b.  The foregoing primary and excess liability insurance limits may be satisfied by a different combination of primary and excess policies, so long as each specified insurance limit is at least $25,000,000 per occurrence and $25,000,000 in the aggregate and the total combined primary and excess limits are equal to or exceed the total primary and excess limits specified in this subparagraph (a) and the aggregate limits are reinstated annually per subparagraph (c).

5. The Contractor hereby waives, and shall cause all of its Subcontractors, sub-subcontractors, agents and employees, to waive all causes of action or claims they may have against Westbrook to the extent such claims or causes of action are covered by any insurance required to be carried by Contractor hereunder. The Contractor shall have all such policies appropriately endorsed with Waiver of Subrogation endorsements, to the extent such endorsements are available on commercially reasonable terms.

6. Any insurance limits required herein are minimum limits only and not intended to restrict the liability imposed on any person or entity for work performed in connection with this Agreement.

7. All such insurance shall be with a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, having a rating of A-VIII or better by AM Best, such insurance as will protect Westbrook from claims set forth above which may arise out of or result from the operations under this Agreement and for which Contractor may be legally liable, whether such operations be by Contractor or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable.

8. Where applicable LR8 Owner and such other persons and entities as may from time to time be designated by Contractor in writing, shall be added as Named Insured’s under the Commercial General Liability Insurance and umbrella form excess insurance, including the Additional Insureds as defined in the Development Management Agreement.

SCHEDULE A

SOURCES AND USES OF INITIAL CAPITAL CONTRIBUTIONS

A.	$4,800,000	Deposit
B.	$500,000	Due Diligence Costs
C.	$43,200,000	Purchase Price net of deposit
	$700,000	Working capital until site development
	$49,200,000

SCHEDULE B

INITIAL CAPITAL ACCOUNT BALANCES OF EACH MEMBER

Westbrook	$4,300,000
Sponsor	$500,000

A-1

SCHEDULE C

RESOLUTIONS REGARDING APPOINTMENT OF OFFICERS

RECITAL

WHEREAS, the Members desire to appoint officers of the Company to exercise the power and authority with respect to the business and affairs of the Company as described below.

OFFICERS

RESOLVED, that the Company may have, at the discretion of the Executive Committee, one or more Presidents, one or more Executive Vice Presidents, a Secretary, a Treasurer, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and/or such other officers as may be appointed by the Executive Committee. One person may hold two or more offices. The officers of the Company shall serve at the discretion of the Executive Committee. No officer shall be deemed a “manager” of the Company, as that term is defined in Section 18-101 (10) of the Delaware Limited Liability Company Act, by reason of his or her appointment or by reason of his or her actions as an officer of the Company. Any officer may resign at any time by giving written notice to the Executive Committee. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

DUTIES

RESOLVED, that subject to Section 7.01(a) of the Agreement, the officers of the Company shall have the powers and duties described below:

PRESIDENT. The President(s) of the Company, if any, shall have, subject to the supervision, direction and control of the Executive Committee, general supervision, direction and control of the business and affairs of the Company. He/she shall have the general powers and duties of management usually vested in the president of a company organized for profit under the General Corporation Law of the State of Delaware, and shall have such other powers and duties with respect to the administration of the business and affairs of the Company as may from time to time be assigned to him/her by the Executive Committee, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the Company and the authority to enter into any contract and execute and deliver any instrument in the name and on behalf of the Company except where required by applicable law to be otherwise signed and executed and except where signing and execution thereof shall be expressly delegated by the Executive Committee to some other officer or agent of the Company.

EXECUTIVE VICE PRESIDENT. The Executive Vice President(s), if any, shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Company as from time to time may be assigned to each of

1

them by the President(s) or the Executive Committee. Subject to the control and the direction of the Executive Committee or the President(s), each Executive Vice President may enter into any contract and execute and deliver any instrument in the name and on behalf of the Company except where required by applicable law to be otherwise signed and executed and except where signing and execution thereof shall be expressly delegated by the Executive Committee to some other officer or agent of the Company. In the absence or disability of the President(s), the Executive Vice Presidents, in order of their rank as fixed by the Executive Committee, or if not ranked, the Executive Vice President(s) shall perform all of the duties of the President(s) and when so acting shall have all of the powers of and be subject to all the restrictions upon the President(s).

VICE PRESIDENT. The Vice President(s), if any, shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Company as from time to time may be assigned to each of them by the President(s) or the Executive Committee. Subject to the control and the direction of the Executive Committee or the President(s), each Vice President may enter into any contract and execute and deliver any instrument in the name and on behalf of the Company except where required by applicable law to be otherwise signed and executed and except where signing and execution thereof shall be expressly delegated by the Executive Committee to some other officer or agent of the Company.

SECRETARY. The Secretary and/or any Assistant Secretary may keep and maintain, or cause to be kept and maintained, the records of the Company at the principal office for the transaction of the business of the Company, or such other place as the Executive Committee may order. If requested by the Executive Committee, he/she shall exercise and perform such other powers and duties with respect to the administration of the business and affairs of the Company as generally are incident to the position of a secretary of a company organized for profit under the General Corporation Law of the State of Delaware or as from time to time may be assigned to him or her by the President(s) or the Executive Committee.

TREASURER. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and membership interests. The books of account at any reasonable time shall be open to inspection by any Members of the Company and the Executive Committee. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Company with such depositories as may be designated by the Executive Committee, the President(s) or such officers as may be designated by the Executive Committee. He/she shall disburse the funds of the Company as may be ordered by the Executive Committee, shall render to the President(s) and the Executive Committee, whenever they request it, an account of all of his/her transactions as Treasurer and of the financial condition of the Company. The Treasurer shall have such other powers and perform such other duties that generally are incident to the position of a treasurer of a company organized for profit under the General Corporation law of the State of Delaware or as may from time to time be assigned to him or her by the Executive Committee or the President.

2

ASSISTANT SECRETARY. The Assistant Secretary, if any, or, if there be more than one, the Assistant Secretaries, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary. The Assistant Secretary shall have all such further powers and duties as generally are incident to the position of an assistant secretary of a company organized for profit under the General Corporation Law of the State of Delaware or as may from time to time be assigned to him or her by the Executive Committee or the President(s).

ASSISTANT TREASURER. The Assistant Treasurer, if any, or, if there shall be more than one, the Assistant Treasurers, in the order determined by the Executive Committee, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. The Assistant Treasurer shall have all such further powers and duties as generally are incident to the position of an assistant treasurer of a company organized for profit under the General Corporation Law of the State of Delaware or as may from time to time be assigned to him or her by the Executive Committee or the President(s).

COMPENSATION. The compensation of the officers of the Company, if any, shall be fixed from time to time by the Executive Committee.

APPOINTMENT OF OFFICERS

RESOLVED, that the individuals listed below be, and they hereby are, elected to the offices set forth opposite their respective names, to serve in such capacities until the earlier of their resignation or removal, or until their successors are elected and qualified by the Executive Committee:

NAME	OFFICE
Paul D. Kazilionis	Chief Executive Officer
Kashif Z. Sheikh	Vice President and Secretary
Cindy Woon	Vice President and Treasurer
Diego Rico	Vice President and Assistant Treasurer
Stephen A. Smith	Vice President and Assistant Treasurer
Marcus L. Scroggins	Vice President

RESOLVED FURTHER, that each of the authorizations resulting from the preceding resolution shall cease automatically upon such individual’s termination of employment with the Company or any affiliate of the Company.

3

SCHEDULE 4.02(C)(II)(A)

SAMPLE DILUTION CALCULATION

By way of example only, and without limitation, assume that there are only two Members and on the Closing Date, the Members made Capital Contributions aggregating $10,000,000, of which $9,500,000 was made by Westbrook, with a Percentage Interest of 95%, and $500,000 was made by the Sponsor, with a Percentage Interest of 5%. Subsequent to the Closing Date, the Executive Committee calls for Additional Capital Contributions of $500,000 in the aggregate, of which Westbrook is responsible for $475,000 and the Sponsor for $25,000. Westbrook makes its share of such additional capital call, but the Sponsor does not, and Westbrook also funds the $25,000 contribution on behalf of the Sponsor and elects to treat such $25,000 as a Substitute Contribution and elects the Dilution Option. In such event, the Members’ Percentage Interests would be adjusted as follows, in accordance with Section 4.02(c):

1. Westbrook:  The Percentage Interest of Westbrook would be increased by 0.476%, which is a fraction (expressed as a percentage) computed by dividing $50,000 (i.e., the “Dilution Numerator” of $25,000 times 200%) by $10,500,000 (i.e., the “Dilution Denominator”). This results in a Percentage Interest for Westbrook of 95.476% (i.e., 95% plus the increase of 0.476%).

2. Sponsor:   The Sponsor’s Percentage Interest would be decreased by the same 0.476%. This results in a Percentage Interest for the Sponsor of 4.524% (i.e., 5% minus the decrease of 0.476%).

EXHIBIT C

APPROVED CONTRACT AND DUE DILIGENCE COSTS AND MEMBER

NEGOTIATION EXPENSES

[Attached]

C-1

THE NEW HOME COMPANY

LAMBERT RANCH

Feasibility Budget

09.20.2010

TYPE	CONSULTANT	AMOUNT
CFD Consulting	Springbrook Realty Advisors	$	5,000
Architecture	Robert Hidey Architects	$	12,000	Site Planning
Civil Engineering	Adams Streeter	$	42,000	ALTA, Site Engineering
Cost Estimating	Developers Research	$	15,000	Cost Estimating
Legal	Dzida, Carey, Steinman	$	75,000	PSA and Partnership Agreements
Blueprinting		$	2,000
Total		$	151,000

C-2

EX-10

Exhibit 10.14

FIRST AMENDMENT TO

LIMITED LIABILITY COMPANY AGREEMENT

OF

LR8 INVESTORS, LLC

THIS FIRST AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT OF LR8 INVESTORS, LLC (this “Amendment”) is dated as of January 11, 2011 between MFCI8 LR, LLC, a Delaware limited liability company (“Westbrook”), and The New Home Company Southern California LLC, a Delaware limited liability company (“Sponsor”).

A.        Westbrook and Sponsor entered into that certain Limited Liability Company Agreement of LR8 Investors, LLC dated as of September 22, 2010 (the “Agreement”). Initially capitalized terms that are not otherwise defined in this Amendment shall have the meaning assigned to such terms in the Agreement.

B.        Westbrook and Sponsor desire to amend the Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants set forth in this Amendment and other good and valuable consideration, the parties agree as follows:

1.         Defined Terms.   The definition of “Construction Contract” in Section 1.01 of the Agreement is deleted in its entirety and replaced with the following:

“Construction Management Agreement” means the Construction Management Agreement to be entered into by LR8 Owner and General Contractor in a form approved by the Executive Committee and General Contractor.

All references in the Agreement to the Construction Contract shall be deemed to be to the Construction Management Agreement as amended hereby.

2.         Miscellaneous.

(i)        Except as provided in this Amendment, the Agreement is unchanged, shall remain in full force and effect and shall be binding upon the parties in accordance with its terms.

(ii)       Each provision of this Amendment shall be severable and if for any reason any provision or provisions herein are determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of this Amendment which are valid, enforceable and legal.

(iii)      In the event of any conflict between the provisions of this Amendment and the Agreement in existence prior to the effectiveness of this Amendment or any other document or instrument governing the affairs of the Company, the provisions of this Amendment shall prevail.

(iv)      This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed wholly within that State.

3.        Counterparts; Telefacsimile Execution.    This Amendment may be executed in multiple counterparts, each of which shall be an original but all of which together shall constitute but one and the same agreement. Delivery of an executed counterpart of this Amendment by telefacsimile or electronic mail shall be equally as effective as delivery of an original of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile or electronic mail also shall deliver an original counterpart of this Amendment, but the failure to deliver an original counterpart shall not affect the validity, enforceability and binding effect of this Amendment. Signature pages may be detached from the counterparts and attached to a single copy of this Amendment to form one (1) document.

[Signature Page Follows Immediately]

2

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above-written.

SPONSOR:	THE NEW HOME COMPANY SOUTHERN
	CALIFORNIA LLC,
	a Delaware limited liability company
	By:
	Name:	Thomas O. Redwitz
	Its:	President The New Home Company Southern California LLC

WESTBROOK:	MFCI8 LR, LLC,
	a Delaware limited liability company
	By:
		Kashif Z. Sheikh
		Authorized Representative

EX-10

Exhibit 10.15

LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC-HW SAN JOSE LLC

LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC-HW SAN JOSE LLC

TABLE OF CONTENTS

	Page
ARTICLE I ORGANIZATIONAL MATTERS		1
1.1 Formation		1
1.2 Name		1
1.3 Registered Office and Principal Office of Company; Addresses of Members		1
1.4 Term		2
1.5 No Individual Authority		2
1.6 Title to Company Property		2
1.7 Ownership		2
1.8 Limits of Company		2
ARTICLE II DEFINITIONS		2
ARTICLE III PURPOSE		16
3.1 Purposes and Scope		16
ARTICLE IV CAPITAL CONTRIBUTIONS		17
4.1 Initial Capital Contributions		17
4.2 Additional Capital Contributions		17
4.3 Monetary Default by a Member in Making Additional Capital Contributions		21
4.4 Capital Accounts		23
4.5 Negative Capital Accounts		26
4.6 Interest		26
4.7 No Withdrawal		26
4.8 Limitation on Capital Contributions and Loans		26
ARTICLE V ALLOCATIONS		27
5.1 Allocations of Profits and Losses		27
5.2 Special Allocations of Profits and Losses		29
5.3 Curative Allocations		31
5.4 Tax Allocations: Code Section 704(c)		31
5.5 Other Allocation Rules		31
ARTICLE VI DISTRIBUTIONS		32
6.1 Distributions of Available Cash		32
6.2 Amounts Withheld		33
6.3 Limitation on Distributions		33

i

ARTICLE VII MANAGEMENT OF THE COMPANY	33
7.1 Designation and Authority of Managing Member	33
7.2 Executive Committee	34
7.3 Major Decisions	37
7.4 Certificate of Formation	40
7.5 Compensation and Reimbursement of Members	40
7.6 Outside Activities	41
7.7 Company Funds	42
7.8 Transactions with Affiliates	42
7.9 Insurance	44
7.10 Indemnification of Members	44
7.11 Liability of a Member	47
7.12 Duties	47
7.13 Annual Budget	48
7.14 Indemnification for Fees	49
7.15 Special Right of First Negotiation With Respect to Foster City Opportunity	49
ARTICLE VIII PHASES AND DEVELOPMENT PHASE PLANS	51
8.1 Development and Construction of Project in Phases	51
8.2 Financing	51
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS	52
9.1 Records and Accounting	52
9.2 Fiscal Year	52
9.3 Reports	52
9.4 Documents	53
ARTICLE X TAX MATTERS	53
10.1 Tax Matters Partner	53
10.2 Annual Tax Returns	53
10.3 Notice and Limitations on Authority	54
10.4 Tax Elections	55
10.5 Actions in Event of Audit	55
10.6 Organizational Expenses	55
10.7 Taxation as a Partnership	55
ARTICLE XI TRANSFERS AND PLEDGES OF MEMBERSHIP INTERESTS	55
11.1 Pledge and Transfer Restrictions	55
11.2 Consent of the Executive Committee	56
11.3 Permitted Transfers and Pledges	56
11.4 Registration	57
11.5 Prohibited Transfers	57
11.6 Rights of Assignee	57
11.7 Admission as a Member	57
11.8 Distributions and Allocations in Respect of Transferred Membership Interests	58

ii

11.9 Special Buy-Out Provision	58
11.10 Specific Performance and Other Remedies	61
11.11 Call Right	63
11.12 Hillwood Put Option	65
ARTICLE XII REMOVAL OF MANAGING MEMBER	68
12.1 Removal Events	68
12.2 Removal of Managing Member	68
12.3 Consequences of Removal	68
12.4 Cooperation	69
12.5 Consent to Remedies	69
ARTICLE XIII DISSOLUTION AND LIQUIDATION	69
13.1 Dissolution	69
13.2 Liquidation	70
13.3 Reserves	71
13.4 Distribution in Kind	71
13.5 Disposition of Documents and Records	71
13.6 Cancellation of Certificate of Formation	71
13.7 Return of Capital	72
13.8 Waiver of Partition	72
ARTICLE XIV AMENDMENT OF AGREEMENT	72
14.1 Amendment Procedures	72
ARTICLE XV GENERAL PROVISIONS	72
15.1 Addresses and Notices	72
15.2 Titles and Captions	73
15.3 Pronouns and Plurals	73
15.4 Further Action	74
15.5 Binding Effect	74
15.6 Integration	74
15.7 No Third Party Beneficiary	74
15.8 Waiver	74
15.9 Counterparts	74
15.10 Applicable Law	74
15.11 Invalidity of Provisions	74
15.12 Attorneys Fees	75
15.13 Computation of Time	75
15.14 Representations and Warranties	75
15.15 Confidentiality	76
15.16 Waiver of Jury Trial	77

iii

EXHIBITS

EXHIBIT A:	Legal Description of Project Site
EXHIBIT B:	Initial Capital Contributions of Members
EXHIBIT C:	Approved Costs Incurred by TNHC
EXHIBIT D:	Form of Construction Contract
EXHIBIT E:	Form of Sales and Marketing Agreement
EXHIBIT F:	Initial Annual Budget
EXHIBIT G:	Insurance Requirements

iv

THE MEMBERSHIP INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES ACTS IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS. THE SALE OR OTHER DISPOSITION OF THE MEMBERSHIP INTERESTS IS PROHIBITED UNLESS SUCH SALE OR DISPOSITION IS MADE IN COMPLIANCE WITH ALL SUCH APPLICABLE ACTS. ADDITIONAL RESTRICTIONS ON TRANSFER OF THE MEMBERSHIP INTERESTS ARE SET FORTH IN THIS AGREEMENT.

LIMITED LIABILITY COMPANY AGREEMENT

OF

TNHC-HW SAN JOSE LLC

This LIMITED LIABILITY COMPANY AGREEMENT OF TNHC-HW SAN JOSE LLC (the “Agreement”) is entered into as of the 23^rd day of May, 2012 (the “Effective Date”), by and between HW SAN JOSE, LLC, a Delaware limited liability company, and THE NEW HOME COMPANY NORTHERN CALIFORNIA LLC, a Delaware limited liability company, as Members.

Certain terms used in this agreement are defined in Article II hereof.

ARTICLE I

ORGANIZATIONAL MATTERS

1.1        Formation. Subject to the provisions of this Agreement, the Members hereby form the Company as a limited liability company pursuant to the provisions of the Delaware Act. Except as expressly provided and permitted herein to the contrary, the rights and obligations of the Members and the administration and termination of the Company shall be governed by the Delaware Act.

1.2        Name. The name of the Company shall be, and the business of the Company shall be conducted under the name of, TNHC-HW SAN JOSE LLC. The Company’s business may be conducted under any other name or names approved by the Executive Committee.

1.3        Registered Office and Principal Office of Company; Addresses of Members.

The registered office of the Company in the State of Delaware shall be 2140 South Dupont Highway, Camden, DE 19934, and the registered agent for service of process on the Company at such registered office shall be Paracorp Incorporated or such other registered office or registered agent as the Executive Committee may from time to time designate. The principal place of business of the Company shall be 95 Enterprise, Suite 325, Aliso Viejo, CA 92656. The principal office of the Company may be changed to another location within a 25-mile radius of the Company’s initial principal office as may be approved by the Managing Member, or it may be changed to any other location as may be approved by the Executive Committee. The addresses of the Members as of the Effective Date are set forth in Section 15.1. The address of a Member may be changed in accordance with the requirements set forth in Section 15.1.

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1.4        Term. The Company shall continue in existence perpetually or until the earlier termination of the Company in accordance with the provisions of Section 13.1.

1.5        No Individual Authority. No Member, acting alone, shall have any authority to act for, or to undertake or assume, any obligation, debt, duty, or responsibility on behalf of any other Member or the Company except as otherwise expressly provided in this Agreement.

1.6        Title to Company Property. It is the desire and intention of the Members that legal title to all property of the Company shall be held and conveyed in the name of the Company.

1.7        Ownership. The interest of each Member in the Company shall be personal property for all purposes. All property and interests in property, real or personal, owned by the Company shall be deemed owned by the Company as an entity, and no Member, individually, shall have any ownership of such property or interest except by having an ownership interest in the Company as a Member. Each of the Members irrevocably waives, during the term of the Company and during any period of its liquidation following any dissolution, any right that it may have to maintain any action for partition with respect to any of the assets of the Company.

1.8        Limits of Company. The relationship between the parties hereto shall be limited to the carrying on of the business of the Company in accordance with the terms of this Agreement. Such relationship shall be construed and deemed to be a limited liability company for the sole and limited purpose of carrying on such business. Except as otherwise provided for or contemplated in this Agreement, nothing herein shall be construed to create a partnership between the Members or to authorize any Member to act as general agent for any other Member.

ARTICLE II

DEFINITIONS

The following definitions shall for all purposes, unless otherwise clearly indicated to the contrary, apply to the terms used in this Agreement:

“Adjusted Capital Account” means, with respect to any Member, such Member’s Capital Account balance, increased by the amount (if any) of such Member’s share of the Company Minimum Gain and Member Minimum Gain.

“Adjusted Capital Account Deficit” means, with respect to any Member for a particular Fiscal Year, the deficit balance, if any, in such Member’s Capital Account as of the end of such relevant Fiscal Year, after giving effect to the following adjustments: (a) any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to section 1.704-1(b)(2)(ii)(c) of the Regulations, the penultimate sentence of section 1.704-2(g)(1) of the Regulations, or the penultimate sentence of section 1.704-2(i)(5) of the Regulations, shall be credited to such Capital Account; and (b) the items described in sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the Regulations shall be debited to such Capital Account. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.

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“Affiliate” means with respect to any Person: (a) any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person; (b) any Person owning or Controlling 20% or more of the outstanding voting securities or beneficial interests of such Person; (c) any officer, director, constituent partner or member of such Person or of any other Person described in subparagraph (a) and (b) above; (d) any relative of such Person or of any other Person described in subparagraphs (a), (b), or (c) above; or (e) any trust, family partnership, or other entity established primarily for the benefit of such Person or of any Persons described in subparagraphs (a), (b), (c), or (d) above or the estate of such Persons. For purposes of this Agreement, however, TNHC shall never be considered an Affiliate of HW, and HW shall never be considered an Affiliate of TNHC.

“Affiliate Agreement” has the meaning set forth in Section 7.8(a).

“Agreement” means this Limited Liability Company Agreement of TNHC-HW SAN JOSE LLC, as it may be further amended, supplemented, or restated from time to time.

“Annual Budget” means the budget for the Company prepared annually in accordance with Section 7.13 for each Fiscal Year (or portion thereof) and covering the expected remaining term of the Company. The Annual Budget shall consist of:

(a)        An “operating plan,” which shall include a forecast of income and budgeted expenses and cash flow of the Company for both the upcoming Fiscal Year and the projected remaining term of the Company; and

(b)        A “business plan” for the Company for the Fiscal Year in question and for the projected remaining term of the Company, including: (i) a narrative description of a proposed business plan for the Company for the applicable Fiscal Year and for the projected remaining term of the Company; and (ii) such other information that any Member reasonably determines is relevant and material to the operations of the Company.

“Applicable Laws” means any applicable law, statute, ordinance, rule, regulation, decision, order, or determination of any governmental authority or any board of fire underwriters (or any other body exercising similar functions), or any restrictive covenant or deed restriction (recorded or otherwise known to the Person to whom the restriction applies), zoning ordinances, building codes, flood disaster laws, and human health and environmental laws and regulations.

“Available Cash” of the Company as of a particular date means all cash funds of the Company on hand on such date from all sources, reduced by: (a) Company Costs and Expenses that are due and payable as of such date and/or that are expected to become due and payable in the next 60 days; and (b) a provision for adequate reserves (working capital and/or capital), with the amount of such reserves to be determined by the Executive Committee in its reasonable discretion.

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“Bad Conduct” means, with respect to a particular Member, an act or acts constituting: (a) with respect to the Company and/or its business and affairs: (i) an intentional breach of fiduciary duty or an act of self-dealing which has a material adverse effect on the Company or any other Member; or (ii) willful or wanton misconduct which has a material adverse effect on the Company or any other Member; and (b) whether or not with respect to the Company and/or its business and affairs: (i) the commission of a felony (for these purposes, either the indictment for, a plea of “no contest,” or a conviction of a felony shall be considered the commission of a felony); (ii) fraud; or (iii) any indictment and/or conviction for a drug-related crime (other than a crime involving only the consumption of alcohol).

“Bad Conduct Cost” has the meaning set forth in Section 4.2(d)(i).

“Bad Conduct Member” has the meaning set forth in the definition of Uncured Bad Conduct.

“Bankruptcy” means the occurrence of any of the following events with respect to a particular Person: (a) the filing by such Person of an application for, or a consent to, the appointment of a trustee for such Person’s assets; (b) the filing by such Person of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing its inability to pay its debts as they come due; (c) the making by such Person of a general assignment for the benefit of creditors; (d) the filing by such Person of an answer admitting the material allegations of, or its consenting to or defaulting in answering, a bankruptcy petition filed against it in any bankruptcy proceeding; or (e) the entry of an order, judgment, or decree by any court of competent jurisdiction adjudicating such Person a bankrupt or appointing a trustee of its assets, and such order, judgment, or decree continues unstayed and in effect for a period of one hundred twenty (120) days.

“Book Depreciation” has the meaning set forth in Section 4.4(b)(v).

“Book Value” has the meaning set forth in Section 4.4(c).

“Breaching Member” has the meaning set forth in the definition of Material Breach.

“Budgeted Category Cost” means, with respect to a particular Cost Category, all of the projected pre-development, development, and construction costs anticipated to be incurred in such Cost Category in connection with the development and construction of the Improvements as set forth in the applicable Annual Budget.

“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the Government of the United States shall not be regarded as a Business Day.

“Buy/Sell Closing Date” has the meaning set forth in Section 11.9(b)(v).

“Call Closing Date” has the meaning set forth in Section 11.9(g).

“Call Event” means: (a) a Member has engaged in Bad Conduct; (b) a Member has engaged in Uncured Bad Conduct; (c) a Member has committed a Material Breach; (d) a Member commits a Material Monetary Default; (e) a Member becomes a Defaulting Purchaser or Defaulting Seller; or (f) a Bankruptcy occurs with respect to a Member.

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“Call Interest” has the meaning set forth in Section 11.9(a).

“Call Notice” has the meaning set forth in Section 11.9(b).

“Call Price” has the meaning set forth in Section 11.9(f).

“Call Right” has the meaning set forth in Section 11.9(a).

“Called Member” has the meaning set forth in Section 11.9(a).

“Calling Member” has the meaning set forth in Section 11.9(a).

“Cap Call Notice” has the meaning set forth in Section 4.2(a).

“Capital Account” means the capital account maintained for a Member pursuant to Section 4.4.

“Capital Contribution” means, with respect to any Member, the amount of money and the initial Book Value of any property (other than money) contributed to the Company with respect to the interest in the Company held by such Member, reduced by the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by such Member to the Company.

“Cash-Out Financing” has the meaning set forth in Section 4.2(h).

“CCRs” means any declaration of covenants, conditions, and restrictions to be recorded against all or any portion of the Project Site.

“Certificate of Formation” means the Certificate of Formation that was filed with the Secretary of State of Delaware on May 17, 2012, as it may be amended and/or restated from time to time.

“Closing Date” has the meaning set forth in Section 7.16(d).

“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time. All references herein to the Code shall include any corresponding provision or provisions of succeeding law.

“Company” means TNHC-HW SAN JOSE LLC, a Delaware limited liability company established by filing of the Certificate of Formation with the Secretary of State of Delaware.

“Company Costs and Expenses” mean all expenditures of any kind provided for in the applicable Annual Budget that are made or are to be made with respect to the operations of the Company and the development of the Project Site and Improvements, including without limitation, the cost of all development and construction costs for the Improvements, development

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fees, brokerage fees, principal, interest, fees, points, penalties, and other amounts payable on Company indebtedness (including, without limitation, any amounts owed by the Company with respect to any Company Obligation), ad valorem taxes, state and local taxes, special taxes, assessments, permit fees, insurance premiums, escrow payments, repair and maintenance costs, engineering fees, advertising expenses, professional fees, utilities costs, equipment costs, sales commissions, management fees, consulting fees, salaries, wages, fringe benefits, and other similar types of costs, expenses, charges, liabilities, and obligations of the Company.

“Company Minimum Gain” means partnership minimum gain as set forth in Regulations section 1.704 -2(d).

“Company Obligation” means, as the context may require any obligation that the Company may have with respect to the Project and the development of the Project Site and the Improvements.

“Construction Contract” means that certain Owner-Contractor General Contract, to be entered into between the Company, as owner, and TNHC Realty, as contractor, in the form attached hereto as Exhibit D.

“Construction Cost Overrun” means, at any particular time, the amount by which Total Project Category Costs exceed Budgeted Category Costs.

“Contribution Date” has the meaning set forth in Section 4.2(e)(iv)).

“Contribution Notice” has the meaning set forth in Section 4.2(e).

“Contribution Percentages” means the percentage of certain Capital Contributions each Member is required to and/or may make pursuant to this Agreement. The Contribution Percentage of each Member is set forth below:

Member	Contribution Percentage
TNHC	15.0%
HW	85.0%
Total:	100.0%

The Contribution Percentage of a Member may be adjusted pursuant to Section 4.2(h). In addition, the Contribution Percentage of a Member that Transfers part or all of its Membership Interest may be adjusted as a result of such Transfer pursuant to Article XI. After such adjustment, the Contribution Percentage of such Member, as adjusted, shall constitute such Member’s Contribution Percentage for all purposes of this Agreement.

“Control” or any derivation thereof, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, by contract, or otherwise.

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“Controllable Construction Cost Overrun” means that portion of any Construction Cost Overrun to the extent it is incurred by the Company as a result of the negligence or willful misconduct of the Managing Member. Without limiting the generality of the foregoing, Construction Cost Overruns arising from changes in market conditions or changes in laws, ordinances or regulations applicable to the Project cannot be Controllable Construction Cost Overruns.

“Cost Category” means a major cost category for development or construction costs identified in the applicable Annual Budget.

“Credit Enhancements” means any credit enhancements, including, without limitation, letters of credit, bonds, guarantees, cash deposits, pledges of additional collateral, or similar items and/or similar recourse obligations.

“Default Amount” has the meaning set forth in Section 4.3(b)(i).

“Default Date” has the meaning set forth in Section 4.3(b)(i).

“Default Member” has the meaning set forth in Section 4.3(b).

“Default Notice” has the meaning set forth in Section 4.3(a).

“Defaulting Purchaser” has the meaning set forth in Section 11.10(b).

“Defaulting Seller” has the meaning set forth in Section 11.10(c).

“Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. §18-101, et seq., as amended from time to time, and any successor to such Delaware Act.

“Dissolution Event” has the meaning set forth in Section 13.1(b).

“DMB” means DMB Pacific Properties, LLC, an Arizona limited liability company.

“Effective Date” has the meaning set forth in the introductory paragraph to this Agreement.

“Election Period” has the meaning set forth in Section 7.15(b)(i).

“Excess Amounts” has the meaning set forth in Section 5.1(a)(vi).

“Executive Committee” means the committee appointed by HW and TNHC in accordance with Section 7.2.

“Fair Market Value” means the most probable price, in cash, for which the property in question should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for their own self-interest, and assuming that neither is under undue duress, and with respect to the valuation of equity securities (including limited partnership interests and limited liability company interests), without giving any effect to minority discounts, “restricted interest” discounts, and/or “control” premiums.

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“First Call Appraiser” has the meaning set forth in Section 11.9(c).

“First Put Appraiser” has the meaning set forth in Section 11.10(c).

“First Priority Preference Amount” means, with respect to a particular Member, an aggregate amount computed like interest at a rate equal to twenty percent (20%) per annum, compounded monthly, on the outstanding balance from time to time of such Member’s Undistributed First Priority Capital, reduced by distributions made to such member pursuant to Section 6.1(a).

“Fiscal Year” means the 12 calendar month period ending December 31 of each year; provided that the initial Fiscal Year shall be the period beginning on the Effective Date and ending December 31, 2012, and the last Fiscal Year shall be the period beginning on January 1 of the calendar year in which the final liquidation and termination of the Company is completed and ending on the date such final liquidation and termination is completed (to the extent any computation or other provision hereof provides for an action to be taken on a Fiscal Year basis, an appropriate proration or other adjustment shall be made in respect of the initial and final Fiscal Years to reflect that such periods are less than full calendar year periods).

“Foster City Opportunity” means that certain tract of approximately 15 acres of undeveloped land located in Foster City, California, to be entitled and improved as a senior housing and retail community, including attached single-family housing, affordable housing, an assisted-care facility, and retail.

“GAAP” means generally accepted accounting principles as set forth from time to time in the opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements of the Financial Accounting Standards Boards or in such opinions and statements of such other entities as shall be approved by a significant segment of the accounting profession.

“Guaranty Contribution Request” has the meaning set forth in Section 4.2(b)(ii).

“High Risk Person” has the meaning set forth in Section 15.14(i).

“Home” means a condominium or townhome residence constructed on a Home Lot.

“Home Lots” means the residential lots that are to be developed on the Project Site.

“HW” means HW San Jose, LLC, a Delaware limited liability company, and its permitted Transferees under this Agreement.

“HW Interest FMV” has the meaning set forth in Section 11.10(c).

“HW Management Fee” has the meaning set forth in Section 7.8(c).

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“HW Members” has the meaning set forth in Section 11.9(a).

“HW Party” means: (a) H.R. Perot, Jr.; (b) the estate of H.R. Perot, Jr.; (c) any Relative of H.R. Perot, Jr.; (d) any trust or family partnership established primarily for the benefit of any of the foregoing Persons; or (e) any other Person who is Controlled by and/or who Controls any of the foregoing Persons (or any combination thereof).

“HW Price” has the meaning set forth in Section 11.9(b)(ii)(D).

“Improvements” means the Land Improvements, the Homes, and any other capital improvements that either has been constructed on the Project Site as of the Effective Date and/or that the Company constructs (or causes to be constructed on the Project Site after the Effective Date, together with all improvements appurtenant thereto.

“Indemnitee” has the meaning set forth in Section 7.10.

“Independent Accountants” means any national or regional accounting firm in the United States that has been designated by the Managing Member and approved by the Executive Committee.

“Individual TNHC Members” means H. Lawrence Webb, Wayne J. Stelmar, Joseph D. Davis, and Thomas Redwitz.

“Innocent Purchaser” has the meaning set forth in Section 11.10(c).

“Innocent Seller” has the meaning set forth in Section 10.10(b).

“Land Improvement” means any capital improvements to be constructed on the Project Site other than the Homes, including without limitation, streets, sewers, storm drains, utilities, water connections, landscaping, grading, and similar capital improvements.

“Liquidator” has the meaning set forth in Section 13.3(a).

“Losses” has the meaning set forth in Section 4.4(b).

“ Major Decision” means a Supermajority Major Decision or a Majority Major Decision.

“Majority Control” (or any derivation thereof) means, with respect to a particular corporation, partnership, limited liability company, limited partnership or other entity, the possession and ownership by one or more designated Persons of: (a) Control; and (b) more than 50% of the voting and equity interests in such entity.

“Majority Major Decision” has the meaning set forth in Section 7.3(c).

“Managing Member” means TNHC or any successor to TNHC appointed in accordance with the terms of this Agreement.

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“Material Breach” means that:

(a)        A Member has breached a material term of this Agreement other than a failure to make a required Capital Contribution (the Member that is alleged or deemed to have committed the act or acts described in this subparagraph (a) is referred to as a “Breaching Member”);

(b)        Another Member delivers a written notice to the Breaching Member, informing the Breaching Member that an act or acts described in subparagraph (a) above has occurred and describing such breach (such written notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the written notice is contained and must alert the Breaching Member to the time period in which a cure must be effected); and

(c)        The Breaching Member fails to cure such breach within 15 days after the Breaching Member’s receipt of the written notice described in subparagraph (b) above; provided, however, if such act or event is subject to cure by performance, but the act or event is such that it is not reasonably susceptible to being cured within said 15-day period, then the Breaching Member shall be entitled to such additional time as may be required in order to cure such breach so long as such cure is commenced within said 15-day period and is thereafter diligently prosecuted to completion on or before 75 days after the expiration of such 15 day period.

“Material Monetary Default” means Monetary Defaults by a Member and/or any Members that are Affiliates of such Member shall have occurred (i.e., the Member and/or any Member who is an Affiliate of such Member that committed a Potential Monetary Default has failed to contribute the required capital contribution within ten (10) Business Days after receiving the Default Notice pursuant to Section 4.3(b)) and the cumulative amount of unfunded capital under such Monetary Defaults which have not been cured by the applicable Defaulting Member and Members that are Affiliates of such Defaulting Member is in excess of $250,000 at the time such determination is being made.

“Maximum Rate” means the lesser of: (a) 18% per annum, compounded quarterly; and (b) the maximum rate of interest permitted to be charged under Applicable Law.

“Member” means TNHC, HW, and/or any other Person who is admitted as a Member in the Company in accordance with this Agreement on and after the Effective Date and whose admission has been reflected on the books and records of the Company in accordance with the applicable provisions of this Agreement.

“Member Minimum Gain” means partner nonrecourse debt minimum gain as determined under the rules of section 1.704-2(i) of the Regulations.

“Member Nonrecourse Debt” has the meaning set forth in Regulations section 1.704-2(b)(4).

“Member Nonrecourse Deduction” means a partner nonrecourse deduction as set forth in Regulations section 1.704-2(i).

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“Membership Interest” means the interest of a Member in the Company, including, without limitation, such Member’s right: (a) to a distributive share of the Profits, Losses, and other items of income, gain, loss, deduction and credit of the Company; (b) to a distributive share of the assets of the Company; (c) to vote on those matters described in the Agreement; and (d) to participate in the management and operation of the Company as provided in this Agreement.

“Modification Notice” has the meaning set forth in Section 4.2(h).

“Monetary Default” has the meaning set forth in Section 4.3(b)(i).

“Movant” has the meaning set forth in Section 11.9(b)(i).

“Non-Defaulting Members” has the meaning set forth in Section 4.3(b).

“Non-Promoted Percentage Interest” has the meaning set forth in Section 4.3(c).

“Nonrecourse Deductions” has the meaning set forth in section 1.704-2(b)(1) of the Regulations.

“OFAC” has the meaning set forth in Section 15.14(i).

“Offer” has the meaning set forth in Section 11.9(b)(ii)(A).

“Opportunity Notice” has the meaning set forth in Section 7.15(a).

“Percentage Interest” means the percentage interest of a Member in certain allocations of Profits, Losses and other items of income, gain, loss or deduction and certain distributions of cash and property. The initial Percentage Interest of each Member is set forth below:

Member	Percentage Interest
TNHC	30%
HW	70%
Total:	100%

The Percentage Interest of a Member may be adjusted pursuant to Section 4.2(h), Section4.3 , and Section 12.3. In addition, the Percentage Interest of a Member that Transfers part or all of its Membership Interest may be adjusted as a result of such Transfer pursuant to Article XI. After such adjustment, the Percentage Interest of such Member, as adjusted, shall constitute such Member’s Percentage Interest for all purposes under this Agreement.

“Person” means an individual, corporation, limited partnership, general partnership, joint venture, limited liability company, trust, estate, unincorporated organization, association or other entity.

“Phase” has the meaning set forth in Section 8.1(a).

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“Plans and Specifications” means the plans and specifications for any Improvements constructed and/or to be constructed on the Project Site.

“Pledge,” or any derivation thereof means, as the context may require, a pledge, encumbrance, lien, mortgage, hypothecation, or similar disposition (other than a Transfer) with respect to any applicable property in connection with the granting of a lien or security interest to secure an obligation of the pledgor or another Person.

“Potential Monetary Default” means the failure by any Member to make any Capital Contribution that such Member is required to make pursuant to Section 4.2 of this Agreement.

“Profits” has the meaning set forth in Section 4.4(b).

“Prohibited Investors” means: (a) Specially Designated Nationals and Blocked Persons on the list maintained by OFAC (http://www.treas.gov/ofac); (b) Parties subject to economic sanctions on the list maintained by OFAC (http://www.treas.gov/ofac); (c) Specially Designated Terrorists, Specially Designated Global Terrorists or Foreign Terrorist Organizations on the list maintained by OFAC (http://www.treas.gov/ofac); (d) Specially Designated Narcotics Traffickers on the list maintained by OFAC (http://www.treas.gov/ofac), or (e) Foreign banks unregulated in the jurisdiction in which they are organized or chartered, but which have no physical presence.

“Project” means the Project Site, the Improvements to be constructed on the Project Site, all ancillary rights thereto, and all activities of the Company relating, directly or indirectly, to the acquisition, ownership, development, operation, and/or sale or other disposition of the Project Site and/or the Improvements.

“Project Documents” means all architectural drawings, renderings, or studies, soil and engineering tests, borings and soil analysis, marketing studies, feasibility studies, traffic studies, cost projects, governmental permits, development allocations and other entitlements, or any other data or information of a similar nature relating to the acquisition of the Project Site and the development and construction of the Home Lots, the Homes and any other Improvements on the Project Site.

“Project Employee” means any employee of the Managing Member or TNHC Realty that provides services to the Company that are directly related to the Project (e.g., the Project superintendent, other on-site personnel, and the Project manager). For these purposes, members of the TNHC executive team shall not be included in the definition of Project Employee.

“Project Employee Cost” means the cost of the salary, incentives and employee benefits of each Project Employee to the extent properly allocable to the Project and provided for in a specific line item in the Annual Budget designated as “Project Employee Costs.”

“Project Site” means that certain real property consisting of approximately 15.95 acres, located in the City of San Jose, County of Santa Clara, California, as more particularly described on Exhibit A.

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“Purchase Contract” means that certain Purchase and Sale Agreement, dated as of January 14, 2011, by and between DMB, as buyer, and Seller, as seller, as amended by that certain Letter Agreement, dated February 28, 2011, as further amended by that certain Letter Agreement, dated March 31, 2011, as further amended by that certain Letter Agreement, dated April 29, 2011, and as further amended by that certain Fourth Amendment to Purchase and Sale Agreement, dated January 26, 2012.

“Purchase Contract Acquisition Agreement” means that certain Agreement to Assign Real Property Purchase Agreement, dated March 30, 2012, by and between DMB, as seller, and The New Home Company Northern California, LLC, a Delaware limited liability company, as buyer, as amended by that certain First Amendment to Agreement to Assign Real Property Purchase Agreement, dated April 30, 2012.

“Put Closing Date” has the meaning set forth in Section 11.10(g).

“Put Notice” has the meaning set forth in Section 11.10(b).

“Put Price” has the meaning set forth in Section 11.10(f).

“Put Right” has the meaning set forth in Section 11.10(a).

“Qualified Appraiser” means a member of the Appraisal Institute or its successor organization who shall have at least five (5) years of experience in valuing properties which are similar in character to the Project Site and the Improvements and which are located within the general area of the Project Site and the Improvements.

“Regulations” means the Treasury Regulations promulgated under the Code, as amended and in effect from time to time (including corresponding provisions of any succeeding regulations).

“Regulatory Allocations” has the meaning set forth in Section 5.3.

“Relative” means, with respect to a particular Person, any spouse, sibling, parent, grandparent, or descendant of such Person.

“Removal Event” has the meaning set forth in Section 12.1.

“Removal Notice” has the meaning set forth in Section 12.2.

“Respondent” has the meaning set forth in Section 11.9(b)(i).

“Response Period” has the meaning set forth in Section 11.9(b)(iii).

“Sales and Marketing Agreement” means that certain Sales and Marketing Contract, between the Company, as owner, and TNHC Realty, as the selling agent, in the form attached hereto as Exhibit E.

“Second Call Appraiser” has the meaning set forth in Section 11.9(d).

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“Second Priority Preference Amount” means, with respect to a particular Member, an aggregate amount computed like interest at a rate equal to twelve percent (12%) per annum, compounded monthly, on the outstanding balance from time to time of such Member’s Undistributed Second Priority Capital, reduced by distributions made to such member pursuant to Section 6.1(c).

“Second Put Appraiser” has the meaning set forth in Section 11.10(d).

“Section 7.15 Offer” has the meaning set forth in Section 7.15(b).

“Securities Act” means the U.S. Securities Act of 1933, as amended, and all rules, rulings, and regulations thereunder.

“Seller” means Markovits & Fox, Inc., a California corporation.

“Settlement Notice” has the meaning set forth in Section 7.10(c).

“Shortfall Amount” has the meaning set forth in Section 4.2(a).

“Stated Value” has the meaning set forth in Section 11.9(b)(ii)(B).

“Supermajority Major Decision” has the meaning set forth in Section 7.3(b).

“Tax Matters Member” has the meaning set forth in Section 10.1.

“Third Call Appraiser” has the meaning set forth in Section 11.9(e)(ii)(A).

“Third Put Appraiser” has the meaning set forth in Section 11.10(e)(ii)(A).

“TNHC” means THE NEW HOME COMPANY NORTHERN CALIFORNIA LLC, a Delaware limited liability company, and its permitted Transferees under this Agreement.

“TNHC Interest FMV” has the meaning set forth in Section 11.10(c).

“TNHC Management Fee” has the meaning set forth in Section 7.8(b).

“TNHC Members” has the meaning set forth in Section 11.9(a).

“TNHC Partners” means TNHC Partners, LLC, a Delaware limited liability company.

“TNHC Party” means: (a) any of the Individual TNHC Members; (b) the estate of any Person named in clauses (a); or (c) any other Person who is Controlled by and/or who Controls any of the foregoing Persons (or any combination thereof).

“TNHC Price” has the meaning set forth in Section 11.9(b)(ii)(C).

“TNHC Realty” means TNHC Realty & Construction, Inc., a Delaware corporation.

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“Total Project Category Costs” means with respect to a particular Cost Category, all pre-development, development, and construction costs paid, payable, or actually incurred by or on behalf of the Company in such Cost Category in connection with the development of the Improvements.

“Transfer,” “Transferred,” or any other derivation thereof, means as the context may require, a direct or indirect sale, assignment, transfer, merger, consolidation, interest exchange, conversion, or other disposition (other than a Pledge) of the applicable property, by operation of law or otherwise.

“Transfer Affiliate” means: (a) with respect to TNHC, a TNHC Party; and (b) with respect to HW, an HW Party.

“Transferee” means a Person to whom a Membership Interest has been Transferred.

“Transferor” means a Member that has Transferred all or any portion of its Membership Interest.

“Trigger Date” means the first (1st) anniversary of the Effective Date.

“Uncured Bad Conduct” means with respect to a particular Member, the status of such Member’s conduct if all of the following conditions have been met:

(a)        Such Member has committed, with respect to the Company and/or its business and affairs, an act or acts constituting gross negligence which has a material adverse effect on the Company or any Member (the Member that is alleged or deemed to have committed the act or acts described in this subparagraph (a) is referred to as the “Bad Conduct Member”);

(b)        Another Member delivers a written notice to the Bad Conduct Member, informing such Bad Conduct Member that such alleged act or acts have occurred, and describing such alleged act or acts (such written notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the written notice is contained and must alert the Bad Conduct Member to the time period in which a cure must be effected); and

(c)        The Bad Conduct Member fails, within 15 days after receiving the written notice described in subparagraph (b), to cure such breach and/or to take such other corrective action as may be necessary to put the Company and the other Members in substantially the same position that they would have been in if such acts, misconduct, or gross negligence had not occurred, provided, however, if such acts, misconduct, or gross negligence is curable by performance, but is not reasonably susceptible to being cured within said 15-day period, then the Bad Conduct Member shall be entitled to such additional time as may be required in order to cure such breach and/or to take such other corrective action as may be necessary so long as such cure and/or corrective action is commenced within said 15-day period and is thereafter diligently prosecuted to completion on or before 75 days after the expiration of such 15 day period.

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“Undistributed First Priority Capital” means, with respect to a Member, the amount in a special recordkeeping account maintained by the Company for such Member, equal to: (a) the amounts described in Section 4.3 that increase the Undistributed First Priority Capital of a Non-Defaulting Member after the Effective Date in connection with a request for Capital Contributions with respect to which there has been a Default; reduced (but not below zero) by: (b) the aggregate amount of cash distributed to such Member pursuant to Section 6.1(b).

“Undistributed Second Priority Capital” means, with respect to a Member, the amount in a special recordkeeping account maintained by the Company for such Member, equal to: (a) any Capital Contributions made by such Member to the Company pursuant to Section 4.1, Section 4.2(a), and Section 4.2(b) (subject to the potential recharacterization of certain amounts as Undistributed First Priority Capital under those conditions described in Section 4.3(b)); reduced (but not below zero) by: (b) the cash distributions made to such Member pursuant to Section 4.2(h) (if any) and Section 6.1(d).

ARTICLE III

PURPOSE

3.1        Purposes and Scope.

(a)        Subject to the provisions of this Agreement, the sole purposes of the Company are to:

(i)       Acquire DMB’s interest in the Purchase Contract from DMB and acquire TNHC’s interest in the Purchase Contract Acquisition Agreement from TNHC;

(ii)      acquire the Project Site from Seller pursuant to the Purchase Contract;

(iii)     conduct pre-construction activities (including without limitation design of the Project), tests, studies, an/or analyses with respect to the Project Site;

(iv)     obtain entitlements and/or permits for the construction of the Land Improvements and the Homes;

(v)      construct the Improvements on the Project Site;

(vi)     construct, market, and sell the Home Lots and the Homes on the Home Lots and cause the construction of any other necessary Improvements on the Project Site;

(vii)    hold, own, operate, maintain, manage, market, sell, exchange, lease, and otherwise dispose of all or any portion of the Project Site, the Homes, the Home Lots, and any Improvements that may be constructed thereon;

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(viii)    borrow money in furtherance of any or all of the objectives of the Company business, and secure the same by mortgage, pledge or other lien; and

(ix)     do any and all other acts or things which may be incidental or necessary to carry on the business of the Company as herein contemplated.

(b)        The Company shall not engage in any other business or activity without the prior written consent of the Executive Committee (as a Supermajority Major Decision).

ARTICLE IV

CAPITAL CONTRIBUTIONS

4.1        Initial Capital Contributions.

(a)        TNHC.

(i)        On the Effective Date, TNHC shall assign to the Company all right, title, and interest that TNHC has in any Project Documents relating to the Project Site. To the extent an Affiliate of TNHC owns any Project Documents related to the Project, TNHC shall acquire such Project Documents from such Affiliate and then assign such Project Documents to the Company. Such assignment shall be made pursuant to an assignment instrument in a form reasonably acceptable to HW. The Members acknowledge and agree that the fair market value of the Capital Contribution described in this Section 4.1(a)(i) is zero as of the Effective Date.

(ii)      On the Effective Date, TNHC shall contribute the amount specified on the attached Exhibit B as its initial Capital Contribution. TNHC shall receive a credit against its required initial Capital Contribution, as of the Effective Date, in the amount of the costs incurred by TNHC for the Project (e.g., deposits pursuant to the Purchase Contract, consultant costs, attorneys fees in connection with the Purchase Contract and acquisition of the Project Site, etc.) prior to the Effective Date as shown on the attached Exhibit C.

(b)        HW. On the Effective Date, HW shall contribute the amount specified on the attached Exhibit B as its initial Capital Contribution.

4.2        Additional Capital Contributions.

(a)        Additional Capital Contributions. If the Managing Member reasonably determines that the Company requires additional cash funds in order to pay Company Costs and Expenses then due and payable or due and payable within the next 60 days (the amount by which such Company Costs and Expenses exceeds the Company’s available funds is referred to as the (“Shortfall Amount”), and if another Member is not otherwise obligated to make such additional Capital Contribution pursuant to Section 4.2(b), Section 4.2(c), and/or Section 4.2(d) below, the Managing Member shall deliver a Contribution Notice to all of the other Members requesting that such Members make

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additional Capital Contributions to the Company in the aggregate amount equal to the Shortfall Amount. Such additional Capital Contributions shall be made by the Members pro rata in accordance with their Contribution Percentages. If a Member reasonably determines that the Company requires additional Capital Contributions to pay Company Costs and Expenses and the Managing Member has not delivered a Contribution Notice to the Members, then such Member may deliver a written notice (a “Cap Call Notice”) to the Managing Member directing the Manager Member to deliver a Contribution Notice to the Members requesting that the Members make additional Capital Contributions to the Company in the aggregate amount equal to the Shortfall Amount (or if a particular Member is obligated to make such additional Capital Contribution pursuant to Section 4.2(b), Section 4.2(c), and/or Section 4.2(d), directing the Managing Member to deliver a Contribution Notice to the applicable Member that is so required to make such additional Capital Contributions). If the Managing Member fails to deliver a Contribution Notice to the Members within three (3) Business Days of the delivery of the Cap Call Notice, then the Member who delivered the Cap Call Notice may deliver a Contribution Notice to the Members requesting that the Members (or the applicable Member) make additional Capital Contributions to the Company in an aggregate amount equal to the Shortfall Amount.

(b)        Payments With Respect to Credit Enhancements.

(i)        To the extent any nonrecourse carveout guarantees or environment indemnities are required in connection with any secured debt of the Company that has been approved by the Executive Committee pursuant to Section 7.3(b)(iv), then TNHC shall provide any such nonrecourse carveout guarantees or environmental indemnities in a form reasonably acceptable to TNHC. TNHC, however, shall determine in its sole discretion whether to provide any payment guarantees (including without limitation any loan-to-value maintenance guaranty) with respect to a Company Obligation.

(ii)      Except as otherwise provided in Section 4.2(b)(iii) below, in the event that a Member or any of its Affiliates is required to fund any amount pursuant to any Credit Enhancement provided by such Member or its Affiliate in connection with the Project, the amount so funded shall be considered a Company Cost and Expense, and the Member shall have the right to make a request for additional Capital Contributions under Section 4.2(a) hereof for the purpose of funding such liability, or if such liability has already been funded, for the purpose of providing prompt reimbursement to the applicable guarantor (such a request, a “Guaranty Contribution Request”). Except as provided in Section 4.2(b)(iii) below, each Member shall be required to fund its Contribution Percentage of any such Guaranty Contribution Request.

(iii)      Notwithstanding anything to the contrary in this Section 4.2(b)(ii):

(A)        Neither the Member nor any Affiliate of such Member shall be entitled to any such reimbursement or any right of contribution for any amount funded or liability incurred on account of any Credit Enhancement by reason of the Controllable Construction Cost Overruns, Bad Conduct, Material Breach, or Uncured Bad Conduct of such Member;

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(B)        (i) Neither the Member nor any Affiliate of such Member nor any of their respective Affiliates shall be entitled to any such reimbursement for any amount funded or liability incurred on account of any nonrecourse carveout guaranty or environmental indemnity to the extent that the amounts funded or the liabilities incurred were caused by the actions or omissions of such Member (or its Affiliates), as the case may be. (ii) Any Member or any Affiliate of such Member which is required to fund any amount or incur any liability under any nonrecourse carveout guaranty or environmental indemnity by the actions or omissions of another Member (or its Affiliates), as the case may be, shall be reimbursed by such other Member for the amounts funded and the liabilities incurred; and

(C)        Non-reimbursable amounts paid or incurred by a Member and/or its Affiliates in connection with a Credit Enhancement shall not be treated as a loan to the Company nor shall any such amount be treated as a Capital Contribution. To the extent federal income tax or other rules require that a Member’s Capital Account be increased by payments made with respect to a Credit Enhancement pursuant to this Section 4.2(b), then such deduction and/or loss shall be specially allocated to such Member in an amount equal to any such Capital Contributions. Amounts reimbursed by a Member under clause (B)(ii) above shall not be treated as a loan to the Company nor shall any such amount be treated as a Capital Contribution. To the extent federal income tax or other rules require that a Member’s Capital Account be increased by payments made with respect to a Credit Enhancement pursuant to this Section 4.2(b), then such deduction and/or loss shall be specially allocated to such Member in an amount equal to any such Capital Contributions.

(c)        Additional Contributions to Fund Controllable Construction Cost Overruns.

(i)        Subject to Section 4.3(d), if, at any time, the Company incurs a Controllable Construction Cost Overrun, TNHC shall immediately make additional Capital Contributions to the Company until the aggregate additional Capital Contributions made by TNHC pursuant to this Section 4.2(c) equal the aggregate amount of Controllable Construction Cost Overruns at such time.

(ii)      Notwithstanding anything to the contrary in this Agreement, TNHC shall not receive any Capital Account credit for any additional Capital Contributions made to the Company with respect to Controllable Construction Cost Overruns. To the extent federal income tax or other rules require that TNHC’s Capital Account be increased by the Capital Contributions described in this Section 4.2(c), then gross items of deduction and/or loss shall be specially allocated to TNHC in an amount equal to any such Capital Contributions described in this Section 4.2(c).

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(d)        Additional Capital Contributions to Fund Bad Conduct Costs.

(i)        If, at any time, the Company incurs any cost, expense, or liability, or suffers any damage or claim that is attributable to an act or acts of a Member (or an Affiliate of a Member under an approved Affiliate Agreement) that constitutes Bad Conduct, Uncured Bad Conduct, and/or a Material Breach or similar conduct under such Affiliate Agreement (to the extent any such cost, expense, liability, damage, and/or claim is attributable to such an act or acts of a Member, it is referred to as a “Bad Conduct Cost”), then such Member shall immediately make additional Capital Contributions to the Company in an amount equal to such Bad Conduct Cost, and such Capital Contribution shall be treated in the manner described in Section 4.2(d)(ii).

(ii)      Notwithstanding anything to the contrary in this Agreement, a Member shall not receive any Capital Account credit for any additional Capital Contributions made to the Company with respect to a Bad Conduct Cost. To the extent federal income tax or other rules require that such Member’s Capital Account be increased by the Capital Contributions described in this Section 4.2(d), then gross items of deduction and/or loss shall be allocated to such Member in an amount equal to any such Capital Contributions described in this Section 4.2(d).

(e)        Contribution Notice Procedures. If the Managing Member is required to deliver a Contribution Notice pursuant to Section 4.2(a) (or another Member if such Member reasonably determines that another Member is required to make an additional Capital Contribution pursuant to this Section 4.2, and such other Member has not yet made such additional Capital Contributions), then the Managing Member or other applicable Member may deliver a notice (“Contribution Notice”) to the appropriate Member, requesting that such Member make such required additional Capital Contribution. Each Contribution Notice shall specify the following information:

(i)        the aggregate amount of additional Capital Contributions requested in the Contribution Notice pursuant to this Section 4.2;

(ii)      the additional Capital Contributions that each Member is required to make to the Company pursuant to this Section 4.2;

(iii)     a brief description of the reason for such additional Capital Contributions; and

(iv)     the date (the “Contribution Date”) on which such additional Capital Contributions are due, which date shall not be less than ten (10) Business Days after the date on which the Contribution Notice is delivered;

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(f)        Limitation on Other Additional Capital Contributions. Except as provided in Section 4.1, this Section 4.2, and Section 4.3, no Member shall have any obligation or right to make any additional Capital Contributions.

(g)        Notification of Required Capital Contributions. TNHC shall notify the other Member in writing if TNHC is obligated to make an additional Capital Contribution pursuant to Section 4.2(b), Section 4.2(c), or Section 4.2(d). Such notice shall briefly describe the amount of such additional Capital Contribution and the reasons for such additional Capital Contribution.

(h)        Modification of Percentage Interests and Contribution Percentages. For a period of three (3) months after the Effective Date, HW may assist the Company in obtaining certain financing for the Company from Affiliates of HW in an amount sufficient to permit TNHC to fund 25% (instead of 15%) of the projected peak Capital Contributions to the Company over the life of the Project without exceeding $5 million in aggregate Capital Contributions (referred to as the “Cash-Out Financing”). If the Executive Committee approves such Cash-Out Financing and the Company closes on such Cash-Out Financing, then: (i) TNHC’s Contribution Percentage shall increase from 15% to 25%; (ii) HW’s Contribution Percentage shall decrease from 85% to 75%; (iii) TNHC’s Percentage Interests shall increase from 30% to 38.24%; and (iv) HW’s Percentage Interests shall decreased from 70% to 61.76% . In addition, on the closing of such Cash-Out Financing, the Company will distribute the proceeds of Cash-Out Financing to the Members so that following such distributions, the Undistributed Second Priority Capital balances of the Members shall be in proportion to the adjusted Contribution Percentages of the Members (and for these purposes the distribution described in this Section 4.2(h) shall only reduce the Undistributed Second Priority Capital balances of the Members).

4.3        Monetary Default by a Member in Making Additional Capital Contributions.

(a)        If a Member or any representative on the Executive Committee reasonably determines that a Member has failed to make additional Capital Contributions required pursuant to Section 4.2, then such Member or applicable representative on the Executive Committee shall immediately send a written notice (the “Default Notice”) to the Member(s) that failed to make the required Capital Contribution, notifying such Member(s) of its failure to make such Capital Contributions, the amount to be contributed, the date such contribution was due, and requesting that such contributions be made immediately.

(b)        (i)        If the Member receiving the Default Notice fails to make the applicable additional Capital Contribution required under Section 4.2 within ten (10) Business Days after receiving the Default Notice (the date that is ten (10) Business Days after the receipt of the applicable Default Notice is referred to as the “Default Date”), then such Member (referred to as a “Default Member” and the amount that the Default Member failed to contribute is referred to as the “Default Amount”) shall be in default (a “Monetary Default”). The Members that did not fail to make the required Capital Contribution (the “Non-Defaulting Members”), in their sole and absolute discretion, may elect to make the additional Capital Contribution in the stead of the Default Member in an amount up to the Default Amount.

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(ii)      If the Non-Defaulting Members elect to make such additional Capital Contributions in the stead of the Default Member, then (A) all of the additional Capital Contributions made by the Non-Defaulting Members in connection with a request for additional Capital Contributions with respect to which a Monetary Default has occurred shall increase the Undistributed First Priority Capital of such Non-Defaulting Members (including those Capital Contributions that the Non-Defaulting Members are required to contribute in their own stead with respect to the applicable Contribution Notice); and (B) and in the case of a Monetary Default other than a Monetary Default arising from a Guaranty Contribution Request, the Percentage Interests of the Default Member and the Non-Defaulting Members shall be redetermined in accordance with Section 4.3(c).

(c)        (i)        In connection with any Monetary Default, the Percentage Interest of a Default Member shall be reduced by the product (expressed as a percentage) of: (A) the quotient of: (I) the Default Amount; divided by (II) the sum of the aggregate Capital Contributions actually made to the Company by all Member from and after the Effective Date through the applicable date of determination; multiplied by (B) 2.0.

(ii)      For illustration purposes only, assume that: (A) an additional Capital Contribution was requested under this Agreement; (B) the Default Member’s Percentage Interest is thirty percent (30%); (C) the Non-Defaulting Member’s Percentage Interest is seventy percent (70%); (D) the Default Amount is fifty thousand dollars ($50,000); and (E) the sum of the aggregate Capital Contributions made to the Company by the Members from the Effective Date through the applicable date of determination equals five million dollars ($5,000,000). Under these facts, the Default Member’s Percentage Interest would decrease by two whole percentage points (2%) (i.e., 30.00% minus the product (expressed as a percentage) of: (x) the quotient of (I) $50,000 divided by (II) $5,000,000; multiplied by (y) 2.0). The Non-Defaulting Member’s Percentage Interest would increase by a like amount (i.e., from 70% to 72%). Notwithstanding the foregoing, if the Default Member is TNHC, TNHC’s Percentage Interest shall not be reduced in the aggregate pursuant to this Section 4.3 by more than 15 whole percentage points, but this limitation shall not restrict the further reduction of TNHC’s Percentage Interest pursuant to Section 12.3 if a Removal Event has occurred.

(iii)    The amount of the aggregate reduction in the Percentage Interests of the Default Members pursuant to this Section 4.3(c) shall be allocated to the Non-Defaulting Members who make the additional Capital Contributions in the stead of the Default Members in proportion to the amount of the additional Capital Contributions made by such Non-Defaulting Members.

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(d)        Notwithstanding anything to the contrary in this Agreement, if a Member commits a Material Monetary Default, then neither the Default Member nor any Affiliate of the Default Member shall have the right to initiate the procedures set forth in Section 11.9.

(e)        The Contribution Percentage of a Default Member shall not be reduced pursuant to this Section 4.3, and the Contribution Percentage that the Non-Defaulting Members hold shall not be increased pursuant to this Section 4.3.

(f)        EACH MEMBER ACKNOWLEDGES AND AGREES THAT EACH SUCH MEMBER’S INTEREST IN THE COMPANY MAY BE SUBSTANTIALLY DILUTED AND/OR FORFEITED IF SUCH MEMBER FAILS TO MAKE REQUIRED CONTRIBUTIONS UNDER THIS AGREEMENT. EACH MEMBER FURTHER ACKNOWLEDGES AND AGREES THAT THE REMEDIES AVAILABLE TO A NON-DEFAULTING MEMBER PURSUANT TO THIS SECTION 4.3, ARTICLE XI AND ARTICLE XII ARE THE SOLE AND EXCLUSIVE REMEDIES AVAILABLE TO ANY MEMBER FOR A DEFAULT BY ANY OTHER MEMBER IN ITS OBLIGATIONS TO MAKE CAPITAL CONTRIBUTIONS UNDER THIS AGREEMENT.

4.4        Capital Accounts.

(a)        Maintenance Rules. The Company shall maintain for each Member a separate Capital Account in accordance with this Section 4.4, which shall control the division of assets upon liquidation of the Company as provided in Section 12.3. Each Capital Account shall be maintained in accordance with the following provisions:

(i)        Such Capital Account shall be increased by the cash amount or Book Value (as of the date of the contribution) of any property contributed by such Member to the Company pursuant to this Agreement, such Member’s allocable share of Profits and any items in the nature of income or gain which are specially allocated to such Member pursuant to Section 5.2 and Section 5.3, and the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member.

(ii)      Such Capital Account shall be decreased by the cash amount or Book Value of any property distributed (as of the date of the distribution) to such Member pursuant to this Agreement, such Member’s allocable share of Losses and any items in the nature of deductions or losses which are specially allocated to such Member pursuant to Section 4.2(c)(ii), Section 4.2(d)(ii), Section 5.2 and Section 5.3, and the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by such Member to the Company.

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(iii)    In the event all or a portion of an interest in the Company is Transferred in accordance with the terms of this Agreement, the Transferee shall succeed to the Capital Account of the Transferor to the extent it relates to the Transferred interest.

(iv)    In determining the amount of any liability for purposes of Section 4.4(a)(i) or Section 4.4(a)(ii), there shall be taken into account Code section 752(c) and any other applicable provisions of the Code and Regulations.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts generally are intended to comply with section 1.704-1(b) of the Regulations and shall be interpreted and applied in a manner consistent with such Regulations. If the Executive Committee reasonably determines that it is prudent to modify the manner in which the Capital Accounts, or any increases or decreases to the Capital Accounts (including, without limitation, increases or decreases relating to liabilities which are secured by contributions or distributed property or which are assumed by the Company or a Member), are computed in order to comply with such Regulations, the Managing Member may authorize, after first obtaining the approval of the Executive Committee as a Supermajority Major Decision, such modifications, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Section 13.3(d) upon the dissolution of the Company.

(b)        Definition of Profits and Losses. “Profits” and “Losses” mean, for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(i)        Income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits and Losses pursuant to this Section 4.4(b) shall be added to such taxable income or loss;

(ii)      Any expenditures of the Company described in Code section 705(a)(2)(B), or treated as Code section 705(a)(2)(B) expenditures pursuant to Regulations section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits and Losses pursuant to this Section 4.4(b) shall be subtracted from such taxable income or loss;

(iii)    If the Book Value of any Company asset is adjusted pursuant to Section 4.4(c)(ii) or Section 4.4(c)(iii), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits and Losses;

(iv)    Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Book Value;

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(v)     In lieu of the deduction for depreciation, cost recovery, or amortization taken into account in computing such taxable income or loss, there shall be taken into account Book Depreciation. “Book Depreciation” means for any Fiscal Year or other period, an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or other period, except that if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year or other period, Book Depreciation shall be an amount that bears the same ratio to such beginning Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction allowable for that asset for such year or other period bears to the adjusted tax basis of that asset at the beginning of such Fiscal Year or other period; provided, however, if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year or other period is zero, then Book Depreciation for that asset shall be determined with reference to such beginning Book Value using any reasonable method selected by the Executive Committee.

(vi)     To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code section 734(b) or Code section 743(b) is required pursuant to Regulations section 1.704-1(b)(2)(iv)(m)(2) or Regulations section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses.

(vii)    Notwithstanding any other provision of this Section 4.4(b), any items that are specially allocated pursuant to Section 4.2(c)(ii), Section 4.2(d)(ii), Section 5.2 or Section 5.3 shall not be taken into account in computing Profits and Losses.

(c)        Definition of Book Value. “Book Value” means for any asset the asset’s adjusted basis for federal income tax purposes, except as follows:

(i)        The initial Book Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as reasonably determined by the Executive Committee.

(ii)      The Book Values of all Company assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Executive Committee, as of the following times: (A) on the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) on the distribution by the

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Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (C) on the liquidation of the Company within the meaning of Regulations section 1.704-1(b)(2)(ii)(g); and (D) on the grant by the Company of more than a de minimis interest in the Company as consideration for the provision of services to or for the benefit of the Company by a new or existing Member acting in a Member capacity or in anticipation of being a Member; provided, however, that adjustments pursuant to clauses (A), (B), and (D) above shall be made only if the Executive Committee reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

(iii)     The Book Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution, as determined by the Executive Committee.

(iv)     The Book Values of Company assets shall be increased (or decreased) to reflect any adjustment to the adjusted basis of such assets pursuant to Code section 734(b) or Code section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations section 1.704-1(b)(2)(iv)(m) and Section 4.4(b)(vi) or Section 5.2(e); provided, however, that Book Values shall not be adjusted pursuant to this Section 4.4(c)(iv) to the extent the Executive Committee determines that an adjustment pursuant to Section 4.4(c)(ii) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 4.4(c)(iv).

(v)     If the Book Value of an asset has been determined or adjusted pursuant to Section 4.4(c)(i), Section 4.4(c)(ii), or Section 4.4(c)(iv), such Book Value shall thereafter be adjusted by the Book Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

4.5          Negative Capital Accounts. If any Member has a deficit balance in its Capital Account, such Member shall have no obligation to restore or repay to the Company or any other Member such negative balance or to make any Capital Contribution to the Company by reason thereof, and such negative balance shall not be considered an asset of the Company or of any Member.

4.6          Interest. No interest shall be paid by the Company on Capital Contributions or on balances in Capital Accounts.

4.7          No Withdrawal. No Member shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Company, except as provided in Articles VI and XII.

4.8          Limitation on Capital Contributions and Loans. Except as specifically provided in this Article IV, no Member may contribute capital to the Company. In addition, no Member may loan or advance money to the Company unless such loan or advance has been approved by the Executive Committee.

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ARTICLE V

ALLOCATIONS

5.1        Allocations of Profits and Losses.

(a)        Allocation of Profits Generally. After giving effect to the allocations set forth in Section 4.2(c)(ii), Section 4.2(d)(ii), Section 5.2, and Section 5.3, and after giving effect to all distributions of cash or property (other than cash or property to be distributed pursuant to Article XIII), Profits for any Fiscal Year shall be allocated to the Members in the following manner:

(i)        First, to each Member with a negative balance in its Adjusted Capital Account, pro rata in accordance with each such negative Adjusted Capital Account balance, until each such negative Adjusted Capital Account balance has been eliminated;

(ii)      Next, to such of the Members that have an accrued and unpaid First Priority Preference Amount in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(iii)     Next, to such of the Members that have: (A) an accrued and unpaid First Priority Preference Amount; plus (B) Undistributed First Priority Capital, in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(iv)     Next, to such of the Members that have: (A) an accrued and unpaid First Priority Preference Amount; plus (B) Undistributed First Priority Capital; plus (C) an accrued and unpaid Second Priority Preference Amount, in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(v)      Next, to such of the Members that have: (A) an accrued and unpaid First Priority Preference Amount; plus (B) Undistributed First Priority Capital; plus (C) an accrued and unpaid Second Priority Preference Amount; plus (D) Undistributed Second Priority Capital, in excess of each such Member’s positive Adjusted Capital Account balance, pro rata to the extent of such excess;

(vi)     Next, to the Members in the minimum amount necessary to cause the ratios among their positive Excess Amounts to equal the ratios among their Percentage Interests. For purposes of this Agreement, a Member’s “Excess Amount” equals the positive balance in such Member’s Adjusted Capital Account (computed after the allocation of Profits under subparagraphs (i) through (v) of this Section 5.1(a) for the Fiscal Year of the allocation), reduced by the sum of such Member’s: (A) accrued and unpaid First Priority Preference Amount; (B) Undistributed First Priority Capital; (C) accrued and unpaid Second Priority

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Preference Amount; and (D) Undistributed Second Priority Capital (with the amounts in subparagraphs (A) through (D) being computed after giving effect to all Capital Contributions and all distributions that took place during and before the Fiscal Year with respect to which the allocation is being made); and

(vii)    Next, to the Members in proportion to their Percentage Interests.

(b)        Allocation of Losses Generally. After giving effect to the allocations set forth in Section 4.2(c)(ii), Section 4.2(d)(ii), Section 5.2, and Section 5.3, and after giving effect to all distributions of cash or property (other than cash or property to be distributed pursuant to Article XIII), and subject to the limitation set forth in Section 5.1(c), Losses for any Fiscal Year shall be allocated to the Members in the following manner:

(i)        First, in circumstances in which all Members have positive Excess Amounts, to the Members in the minimum amounts necessary to cause their positive Excess Amounts to be in the same ratios as their Percentage Interests, and in circumstances in which one or more Members, but not all Members, have positive Excess Amounts, to the Members with positive Excess Amounts in the minimum amounts necessary to cause such Members’ positive Excess Amounts to be in the same ratios as their Percentage Interests;

(ii)      Next, to the Members with positive Excess Amounts pro rata in accordance with their positive Excess Amounts, until such positive Excess Amounts have been eliminated;

(iii)     Next, to each Member that has Undistributed Second Priority Capital, pro rata to the extent necessary to cause each such Member’s positive Adjusted Capital Account balance to equal the sum of each such Member’s: (A) accrued and unpaid First Priority Preference Amount; (B) Undistributed First Priority Capital; and (C) accrued and unpaid Second Priority Preference Amount;

(iv)      Next, to each Member that has accrued and unpaid Second Priority Preference Amounts, pro rata to the extent necessary to cause each such Member’s positive Adjusted Capital Account balance to equal the sum of each such Member’s: (A) accrued and unpaid First Priority Preference Amount; and (B) Undistributed First Priority Capital;

(v)      Next, to each Member that has Undistributed First Priority Capital, pro rata to the extent necessary to cause each such Member’s positive Adjusted Capital Account balance to equal each such Member’s accrued and unpaid First Priority Preference Amounts;

(vi)     Next, to each Member with a positive Adjusted Capital Account balance, pro rata in accordance with such positive Adjusted Capital Account balances, until such positive Adjusted Capital Account balances have been reduced to zero; and

(vii)    Next, to the Members in proportion to their Percentage Interests.

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(c)        Notwithstanding anything to the contrary in Section 5.1(b):

(i)        The Losses allocated pursuant to Section 5.1(b) hereof to any Member for any Fiscal Year shall not exceed the maximum amount of Losses that may be allocated to such Member without causing such Member to have an Adjusted Capital Account Deficit at the end of such Fiscal Year.

(ii)      If some but not all of the Members would have an Adjusted Capital Account Deficit as a consequence of an allocation of Losses pursuant to Section 5.1(b) hereof, the limitations set forth in this Section 5.1(c) shall be applied by allocating Losses pursuant to this Section 5.1(c) only to those Members who would not have an Adjusted Capital Account Deficit as a consequence of receiving such an allocation of Losses (with the allocation of such Losses among such Members to be determined by the Executive Committee, based on the allocation that is most likely to effectuate the distribution priorities set forth in Section 6.1 hereof).

(iii)     If no Member may receive an additional allocation of Losses pursuant to Section 5.1(c)(ii) above, such additional Losses not allocated pursuant to Section 5.1(c)(ii) shall be allocated among the Members in a manner that is most likely to effectuate the distribution priorities set forth in Section 6.1 hereof), as reasonably determined by the Executive Committee.

5.2      Special Allocations of Profits and Losses.

(a)        Minimum Gain Chargeback. Except as otherwise provided in section 1.704-2(f) of the Regulations, notwithstanding any other provision of Article V, if there is a net decrease in Company Minimum Gain during any Company taxable year, each Member shall be specially allocated items of Company gross income and gain for such taxable year (and if necessary, subsequent taxable years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with section 1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be allocated shall be determined in accordance with sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 5.2(a) is intended to comply with the minimum gain chargeback requirement (set forth in section 1.704-2(f) of the Regulations) relating to Company nonrecourse liabilities (as defined in section 1.704-2(b)(3) of the Regulations) and shall be so interpreted.

(b)        Minimum Gain Chargeback. Except as otherwise provided in section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article V, if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Company taxable year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company gross income and gain for such taxable year (and if necessary, subsequent taxable years) in an amount equal to the Member Minimum Gain attributable

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to such Member Nonrecourse Debt, determined in accordance with section 1.704-2(i)(4) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 5.2(b) is intended to comply with the minimum gain chargeback requirement (set forth in section 1.704-2(i)(4) of the Regulations) relating to Member Nonrecourse Debt and shall be so interpreted.

(c)        Qualified Income Offset. If any Member unexpectedly receives any adjustments, allocations, or distributions described in section 1.704-1(b)(2)(ii)(d)(4), section 1.704-1(b)(2)(ii)(d)(5), or section 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company gross income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.2(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(c) were not in the Agreement.

(d)        Gross Income Allocation. If any Member has an Adjusted Capital Account Deficit at the end of any Company taxable year, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.2(d) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.

(e)        Basis Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code sections 734(b) or 743(b) is required, pursuant to Regulations section 1.704-1(b)(2)(iv)(m)(2) or Regulations section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a Transferor a distribution to a Member in complete liquidation of its interest in the Company or a Transfer of a Membership Interest, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Regulations.

(f)        Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year shall be considered an additional item of taxable loss or deduction that is included in the determination of Profits and Losses pursuant to Section 4.4(b) and that is then allocated among the Members as a part of the allocation of Profits and Losses.

(g)        Member Nonrecourse Deductions. Member Nonrecourse Deductions shall be allocated pursuant to Regulations section 1.704-2(b)(4) and (i)(1) to the Member or Members who bears the economic risk of loss with respect to such deductions.

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5.3        Curative Allocations. The allocations set forth in Section 5.2(a) through Section 5.2(g) (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 5.3. Therefore, notwithstanding any other provisions of this Article V (other than the Regulatory Allocations), the Executive Committee shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 4.2(c)(ii), Section 4.2(d)(ii), and Section 5.1 hereof. In exercising its discretion under this Section 5.3, the Executive Committee shall take into account future Regulatory Allocations under Section 5.2(a) and Section 5.2(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Section 5.2(f) and Section 5.2(g).

5.4        Tax Allocations: Code Section 704(c).

(a)        In accordance with Code section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Book Value (computed in accordance with Section 4.4(c)(i)).

(b)        If the Book Value of any Company asset is adjusted pursuant to Section 4.4(c)(ii), subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value in the same manner as under Code section 704(c) and the Regulations thereunder.

(c)        Any elections or other decisions relating to allocations made pursuant to this Section 5.4 shall be made by the Executive Committee in any manner that reasonably reflects the purpose and intention of the Agreement. Allocations pursuant to this Section 5.4 are solely for purposes of federal, state, and local taxes and shall not affect or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, and other items or distributions pursuant to any provision of this Agreement.

5.5        Other Allocation Rules.

(a)        For purposes of determining the Profits, Losses, or any other item allocable to any period, Profits, Losses, and any such other item shall be determined on a daily, monthly, or other basis, as determined by the Executive Committee using any permissible method under Code section 706 and the Regulations thereunder.

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(b)        For federal income tax purposes, every item of income, gain, loss, and deduction shall be allocated among the Members in accordance with the allocations under Section 5.1, Section 5.2, Section 5.3, and Section 5.4.

(c)        The Members are aware of the income tax consequences of the allocations made by this Article V and hereby agree to be bound by the provisions of this Article V in reporting their shares of Company income and loss for income tax purposes.

(d)        It is intended that the allocations in Section 5.1, Section 5.2, Section 5.3, and Section 5.4 effect an allocation for federal income tax purposes consistent with section 704 of the Code and comply with any limitations or restrictions therein.

(e)        The Members agree that their Percentage Interests represent their respective interests in Company profits for purposes of allocating excess nonrecourse liabilities (as defined in Regulations section 1.752-3(a)(3)) pursuant to Regulations section 1.752-3(a)(3).

ARTICLE VI

DISTRIBUTIONS

6.1        Distributions of Available Cash. Subject to Section 12.3, the Managing Member shall periodically determine in its reasonable discretion if there is any Available Cash. If the Managing Member determines that Available Cash exists, then such Available Cash shall be distributed to the Members as soon as reasonably practicable in the manner set forth below:

(a)        First, to each Member to the extent such Member has an accrued and unpaid First Priority Preference Amount, in proportion to each such Member’s accrued and unpaid First Priority Preference Amount, in an amount up to the accrued and unpaid First Priority Preference Amount of each such Member;

(b)        Next, to each Member to the extent such Member has Undistributed First Priority Capital, in proportion to each such Member’s Undistributed First Priority Capital, in an amount up to the Undistributed First Priority Capital of each such Member;

(c)        Next, to each Member to the extent such Member has an accrued and unpaid Second Priority Preference Amount, in proportion each such Member’s accrued and unpaid Second Priority Preference Amount, in an amount up to the accrued and unpaid Second Priority Preference Amount of each such Member;

(d)        Next, to each Member to the extent such Member has Undistributed Second Priority Capital, in proportion to each such Member’s Undistributed Second Priority Capital, in an amount up to the Undistributed Second Priority Capital of each such Member; and

(e)        Next, to the Members in proportion to their respective Percentage Interests.

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6.2        Amounts Withheld.

(a)        Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local, or foreign taxes that the Company reasonably determines the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Company pursuant to sections 1441, 1442, 1445, or 1446 of the Code.

(b)        Any amount paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be repaid by such Member within 15 days after notice from any Member that such payment must be made unless: (i) the Company withholds such payment from a distribution which would otherwise be made to the Member; or (ii) the Company determines, in its reasonable discretion, that such payment may be satisfied out of the available funds of the Company which would, but for such payment, be distributed to the Member. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Member.

(c)        Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Member’s Membership Interest to secure such Member’s obligation to pay to the Company any amounts required to be paid pursuant to this Section 6.2.

(d)        Any amounts payable by a Member hereunder shall bear interest at the lesser of: (i) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four percentage points, or (ii) the Maximum Rate, until such amount is paid in full. Each Member shall take such actions as the Company or the other Members shall reasonably request in order to perfect or enforce the security interest created hereunder.

6.3        Limitation on Distributions. Any other provision of this Agreement to the contrary notwithstanding, no distribution to the Members will be declared and paid unless after the distribution is made, the Fair Market Value of all of the assets of the Company is in excess of all liabilities of the Company, other than liabilities to the Members on account of their Capital Accounts.

ARTICLE VII

MANAGEMENT OF THE COMPANY

7.1        Designation and Authority of Managing Member.

(a)        The Members hereby designate TNHC as the initial Managing Member of the Company. TNHC shall continue to serve as the Managing Member of the Company until such time as: (i) the Members mutually agree that TNHC shall cease to serve as the Managing Member, in which event the Members shall appoint a successor Managing Member; (ii) TNHC is no longer a Member in the Company; (iii) TNHC has been removed as Managing Member pursuant to Article XII; or (iv) the Company is dissolved and wound up in accordance with the provisions of Article XIII.

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(b)        Except as otherwise provided in Section 7.2, Section 7.3, and elsewhere in this Agreement, the Managing Member shall conduct, direct, and exercise full control over all activities of the Company. Except as otherwise provided in Section 7.2, Section 7.3, and elsewhere in this Agreement, all management powers over the business and affairs of the Company shall be vested in the Managing Member.

(c)        The Managing Member shall: (i) plan, operate and manage, or cause to be managed, the Company affairs and business in accordance with the Delaware Act and this Agreement, and (ii) implement and act in accordance with the then-current approved Annual Budget and any Major Decision approved by the Executive Committee.

7.2        Executive Committee.

(a)        The Company hereby constitutes an Executive Committee to consult from time to time concerning the Company, to review the status of the Company’s activities, and to make such Major Decisions as may be required from time to time. Meetings of the Executive Committee shall be held in accordance with the procedures set forth in either Section 7.2(b) or Section 7.2(c) below, as applicable.

(b)        (i)        The procedures for holding a meeting of the Executive Committee as set forth in this Section 7.2(b) shall become effective only after a representative on the Executive Committee designated by TNHC and/or HW notifies the representatives designated by the other Member, in writing, that the procedures set forth in this Section 7.2(b) have been invoked. The procedures set forth in this Section 7.2(b) shall be in effect until such procedures are revoked, in writing, by a representative of the Member that initially invoked such procedures. If no election has been made to invoke the procedures set forth in this Section 7.2(b), or if such an election has been made but is subsequently revoked, then until an election to use the procedures in Section 7.2(b) is made (or until another election is made after an earlier revocation), the more simplified procedure for making Major Decisions in Section 7.2(c) shall be in effect.

(ii)      If the procedures set forth in this Section 7.2(b) have been invoked, then upon five (5) Business Days prior written notice from TNHC, HW, and/or any member of the Executive Committee, there shall be a meeting of the Executive Committee, and each Member shall cause its representatives to be in attendance at such meeting (in person or by telephone or other communication equipment). All notices requesting a meeting shall be accompanied by an agenda in sufficient detail to provide adequate notice of the matters to be discussed and to permit each of the representatives to make knowledgeable decisions. Each such notice shall be sent in an envelope or other container marked “CONFIDENTIAL/URGENT.” Matters discussed at any meeting shall be limited to the items set forth in the agenda unless otherwise agreed to by the representatives in attendance at the meeting. The agenda may include items that are not Major Decision items.

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(iii)     In the event that all of the representatives of a Member receiving such notice fail to attend a proposed meeting, then the Member that requested the meeting and sent the initial notice shall send a second notice to the Member whose representatives failed to attend. This second notice also shall be sent in a package or other container marked “CONFIDENTIAL/URGENT,” shall be accompanied by the same information that was sent in the first notice, and also shall include a statement notifying the recipient Member that if all of the representatives of the recipient Member fail to attend the meeting of the Executive Committee specified in the second notice, then the representatives of the recipient Member shall be deemed to have approved the agenda items specified in the second notice. This second notice shall be sent at least ten (10) Business Days prior to the date of the rescheduled Executive Committee meeting.

(iv)     In the event no representative of a Member attends the proposed meeting of the Executive Committee after two notices have been sent, then the proposal of the Member delivering such notice with respect to such Major Decision shall be deemed to be approved, but only with respect to those agenda matters that were described in sufficient detail on the written notice of the meeting. Except as provided for in the preceding sentence: (A) no Supermajority Major Decision shall be deemed to have been adopted unless such Supermajority Major Decision has been approved by each representative of the Executive Committee who is then entitled to vote, and (B) no Majority Major Decision shall be deemed to have been adopted unless such Majority Major Decision has been approved by at least two (2) representatives of the Major Decision who are then entitled to vote.

(v)      Except as otherwise provided in Section 7.2(d)(v), meetings of the Executive Committee shall be held at the principal office of the Company under Section 1.3, or at such other location as approved by the Executive Committee. The Managing Member shall cause to be prepared minutes of each meeting, which shall be promptly delivered to the Members for their approval.

(c)        Unless the more formalized and elaborate procedure for calling and holding meetings of the Executive Committee has been invoked pursuant to Section 7.2(b), (i) all Supermajority Major Decisions must be approved in writing by each representative of the Executive Committee who is then entitled to vote, and (ii) all Majority Major Decision must be approved in writing by at least two (2) representatives of the Executive Committee who are then entitled to vote.

(d)        (i)        The Executive Committee shall consist initially of three (3) representatives, two (2) of which shall be appointed by HW and one (1) of which shall be appointed by TNHC. Each representative on the Executive Committee shall have one (1) vote.

(ii)        Each Member shall be entitled to rely upon the authority of each of the other Member’s Executive Committee representatives to act on behalf of the Member which appointed such representatives unless such Member has received prior written notice to the contrary.

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(iii)     Representatives on the Executive Committee shall serve until their resignation, death, or removal (except as otherwise provided below) by the Member appointing such member.

(iv)     Except as provided in Section 7.2(b)(iv), for purposes of establishing a quorum at any such meeting, it is only necessary that two (2) representatives of the Executive Committee be in attendance.

(v)      At the election of any representative on the Executive Committee, the Executive Committee may hold a meeting pursuant to Section 7.2(b) and/or Section 7.2(c), by means of conference telephone or similar communication equipment, and an action shall be deemed approved at such a meeting so long as within five (5) Business Days of the telephone meeting such action is ultimately consented to in writing by the number of representatives required to approve such Major Decision (any such writing must include the signatures of the applicable representatives on the Executive Committee). A “writing” for these purposes includes any handwritten, typewritten or digitally written communication or a telecopy of a signed document. In addition, the notice requirements for any meeting of the Executive Committee pursuant to Section 7.2(b) may be waived if such waiver is approved by at least one (1) representative appointed by each Member.

(vi)     Until further notice, the representative of the Executive Committee for TNHC shall be Kevin Carson, and the representatives on the Executive Committee for HW shall be Todd Platt and L.M. Cummings. Any Member may designate replacement representatives by a written notice of such designation to the other Member; provided, however, that no Member shall remove its designated representatives without appointing a successor representative in the notice of removal. Any action by a Member in contravention of the foregoing provision shall be void and of no effect. If at any time a Member notifies the other Member that any of the representatives of the Executive Committee appointed by the Member delivering such notice is no longer to serve in such capacity, the representatives on the Executive Committee designated in such notice shall, from and after the date on which the other Member receives such notice, have no authority, power, or capacity with respect to any matter whatsoever to bind the Member that delivered the removal notice.

(e)        The Members acknowledge and agree that each representative on the Executive Committee is a representative and agent of the Member that appointed such representative and is not a “manager” as defined in Section §18-101(10) of the Delaware Act.

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7.3        Major Decisions.

(a)        The Managing Member shall not have the right or the power to make any commitment or engage in any undertaking on behalf of the Company and/or a subsidiary entity in respect of a Major Decision unless or until the same has been approved by the Executive Committee in accordance with Section 7.2. Any Member shall have the right to submit Major Decisions to the Executive Committee for approval.

(b)        The term “Supermajority Major Decision,” as used in this Agreement, means any decision with respect to the following matters:

(i)        Approval of each Annual Budget to the extent it varies materially from the initial Annual Budget and any material amendments or modifications to any of the foregoing (e.g., with respect to the “operating plan” portion of the Annual Budget, a material variance or a material amendment means an amendment that results in aggregate “net” increases (from such amendment and/or all previous amendments) in total costs for the Project exceeding $600,000 (after taking into account the allocation of all of the $3,018,000 of contingency line items in the initial Annual Budget to other cost categories) from the aggregate costs approved in the initial Annual Budget);

(ii)      Except as specifically provided for in the applicable Annual Budget, approval of any Affiliate Agreements, approval of any amendments or modifications to any Affiliate Agreements, and approval of the termination of any such Affiliate Agreement;

(iii)     Approval of a Pledge of all or a portion of the Company’s property or the Pledge of any Company assets, except for: (A) liens arising by operation of law and securing Company debts, which are not then currently due or payable (i.e., real estate taxes); or (B) the grant of utility and other easements or licenses over the Project Site for the purpose of providing utilities, cable television, or other necessary services to the Project Site in a manner consistent with an approved Annual Budget and/or the approved final map recorded on the Project Site;

(iv)     Approval of any Company indebtedness (excluding any third-party trade payables incurred in the ordinary course of business of the Company and in accordance with the Annual Budget then in effect), and approval of any renewals, extensions, amendments, or modifications to any such Company indebtedness;

(v)      Except as otherwise provided in the Annual Budget, approval of: (A) the filing and/or prosecution of any lawsuit or claim on behalf the Company against any Person with an amount at risk in excess of $100,000 or that would affect the reputation of the Company and/or a Member; and/or (B) the settlement, compromise, defense and/or waiver of any claims or causes of actions of the Company against any third party and/or of any third party against the Company with respect to a lawsuit or claim described in clause (v)(A) above;

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(vi)      Acquiring on behalf of the Company any real property in addition to the Project Site, the Improvements, or any interests therein, except as specifically provided in the Annual Budget for any property immediately adjacent to the Project;

(vii)     Lending any funds of the Company other than the deposit of Company funds in a federally insured institution;

(viii)    File a petition for relief under the United States Bankruptcy Code, as amended, with respect to the Company, make an assignment for the benefit of creditors of the Company, apply for the appointment of a custodian, receiver or trustee for the Company or any of the Company’s property, consent to any other bankruptcy or similar proceeding, or consent to the filing of such proceeding with respect to the Company, or admit in writing the Company’s inability to pay its debts generally as they become due;

(ix)      Filing any application to zone, rezone, or subdivide the Project Site (or any other real property owned by the Company), and making any material modifications or amendments to such application;

(x)       Except as otherwise in provided in the approved Annual Budget, approval of the draft form of CCRs to be recorded on all or any portion of the Project Site and any material amendments or modifications to such draft form of CCRs;

(xi)      Approval of any easements, restrictions or other encumbrances affecting the Project, other than Pledges (which are separately approved pursuant to subparagraph (iii) above) or easements, restrictions and encumbrances that have been approved in connection with the approval of the final map recorded against the Project Site;

(xii)     Approval of any changes to the tentative map approved for the Project Site as of the Effective Date, approval of any final map to be recorded against the Project Site, approval of any changes to such final map, approval of the final site plan, and approval of any changes to the final site plan;

(xiii)    Approval of the commencement of construction of each Phase (including the Land Improvements and vertical Improvements);

(xiv)    Except as otherwise provided in the approved Annual Budget, approval of the exterior design, overall quality of materials, and floor plan for the “model” units to be constructed by the Company, and approval of any significant changes to the exterior design, overall quality of materials, and floor plan for the “for sale” units to be constructed on the Project Site after or in connection with the construction and development of the model units.;

(xv)      Approval of the hiring of any employees of the Company and the delegation of any authority to such employees;

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(xvi)    Approval of any distributions to the Members pursuant to Article VI or Article XIII;

(xvii)   Designating a “manager” for the Company under the Delaware Act;

(xviii)  Taking any action and incurring any expenditure and/or obligation that is materially inconsistent with an Annual Budget then in effect; provided, however, the Managing Member shall pay all Controllable Construction Cost Overruns and Bad Conduct Costs out of the Capital Contributions required to be made by a Member pursuant to Section 4.2(c) and Section 4.2(d);

(xix)    Except as specifically provided in an approved Annual Budget, approval of any contract or other agreement if, as a result of the Company’s execution of such contract or other agreement, the aggregate amount committed to be expended by the Company under such contract or agreement would exceed $250,000, and approval of material amendment or modification of any such contract or agreement;

(xx)     Confessing a judgment against the Company in connection with any threatened or pending legal action;

(xxi)    Executing or delivering any assignment for the benefit of creditors of the Company;

(xxii)   Doing any act in contravention of this Agreement (including any act which requires the consent of other Members) or failing to do any act required by this Agreement;

(xxiii)  Doing any act which would make it impossible to carry on the ordinary business of the Company;

(xxiv)  Except as otherwise provided in Section 11.7 hereof, admitting any other Person to be a Member in the Company;

(xxv)   Causing the Company to settle any casualty or other insurance claim or any condemnation action involving a claim in excess of $100,000 or any such claim that, when added to all other insurance and condemnation claims during a single Fiscal Year, exceeds $100,000, in each case, above any amounts payable by insurance;

(xxvi)  Approval of any insurance coverage for the Company and the Project that is inconsistent with the requirements set forth in Section 7.9 below;

(xxvii) Approval of any agreement with local, federal, or state governmental or administrative agency, any school board, any quasi-governmental agency, or any non-profit corporation or similar entity with respect to financial incentives, rebates, tax abatements or similar economic benefits relating to the Project Site and approval of the termination or any amendment or modification of any such agreements;

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(xxviii) Using the Company’s name, credit, or assets for other than the Company’s purposes;

(xxix)    Causing the Company to consolidate or merge with or into any entity or engaging in any other transaction having substantially the same effect;

(xxx)     Except for sales of Home Lots and Homes developed and/or constructed by the Company in the ordinary course of the Company’s business for cash and at prices equal to or greater than the prices set forth in the applicable Annual Budget, approval of the Transfer of any asset of the Company; and

(xxxi)   Approval of any other matter designated in this Agreement as a Supermajority Major Decision.

(c)        The term “Majority Major Decision,” as used in this Agreement, means any decision with respect to the following matters:

(i)        Approval of any tax elections federal, state, or local purposes;

(ii)      Approval of any material decision concerning Company accounting for book and federal income tax purposes; and

(iii)    Making any other decision under this Agreement that specifically requires the approval of the Executive Committee as a Majority Major Decision.

7.4        Certificate of Formation. Jody Harrington is hereby designated as an “authorized person” within the meaning of the Delaware Act and, in such capacity, she executed, delivered and filed the Certificate of Formation of the Company, dated May 17, 2012. Upon such filing of the Certificate of Formation with the Secretary of State of Delaware, the powers of such “authorized person” ceased, and the Managing Member thereupon became a designated “authorized person” and shall continue as the designated “authorized person” within the meaning of the Delaware Act. The Managing Member shall cause to be filed at the Company’s expense such other certificates or documents (including, without limitation, copies, renewals, amendments or restatements of this Agreement) as may be determined by the Managing Member to be reasonable and necessary or appropriate for the formation or qualification and operation of a limited liability company in any other state in which the Company may elect to do business.

7.5        Compensation and Reimbursement of Members.

(a)        Except as provided in Section 7.5(b), Section 7.5(c) and Section 7.8, no Member shall be compensated for any services rendered to the Company and no Member shall be entitled to any reimbursements from the Company, unless such reimbursements have been specifically approved by the Executive Committee.

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 (b)        Notwithstanding anything to the contrary in Section 7.5(a), but subject to Section 7.8, a Member may be reimbursed for direct, third party expenses that such Member incurs and/or makes for or on behalf of the Company after the Effective Date, but only to the extent such expenditure made by such Member is consistent with and provided for in the approved Annual Budget then in effect. The Company will not pay any interest to the relevant Member with respect to such advances.

 (c)        Notwithstanding anything to the contrary in Section 7.5(a), but subject to Section 7.8, the Managing Member shall be reimbursed for the allocable portion of all Project Employee Costs incurred by the Managing Member after the Effective Date, but only to the extent such expenditure made by such Member is consistent with and provided for in a specific detailed line item in the approved Annual Budget then in effect. The Company will not pay any interest to the Managing Member with respect to Project Employee Costs.

7.6        Outside Activities.

 (a)        Except as otherwise provided in Section 7.6(b) and Section 7.15 below, the Members (including the Managing Member) or any Affiliates thereof, and any director, officer, partner, or employee of the Members or any Affiliates thereof, shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company and may engage in any real estate activities and in any other businesses and activities for their own accounts and for the accounts of others without having or incurring any obligation to offer any interest in or funds from such properties, businesses or activities to the Company or any Member, and no other provision of this Agreement shall be deemed to prohibit the Members or any such Person from conducting such other businesses and activities. Except as otherwise provided in Section 7.6(b) and Section 7.15, neither the Company nor any of the Members shall have any rights by virtue of this Agreement or the relationship created hereby to participate in, to be notified of or to own any interest in any business ventures of a Member, any Affiliates thereof, or any director, officer, partner, or employee of a Member or an Affiliate thereof.

(b)       (i)        Notwithstanding anything to contrary in Section 7.6(a) but subject to Section 7.6(b)(ii), no Member nor any Affiliate of a Member shall directly or indirectly acquire, manage, own, or otherwise participate in any single family residential development within a three (3) mile radius of the Project Site; provided, however, the restriction set forth in this Section 7.6(b)(i) shall expire after seventy-five percent (75%) of the Homes and Home Lots that the Company intends to develop on the Project Site have been sold or otherwise disposed of to third parties.

(ii)       Notwithstanding anything to the contrary in Section 7.6(b)(i), the restrictions set forth in Section 7.6(b)(i) shall not apply to any real property owned directly or indirectly, in whole or in part, by a Member and/or any Affiliate of a Member as of the Effective Date.

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7.7        Company Funds. The funds of the Company shall be deposited in such Company account or Company accounts as are designated by the Managing Member. The Managing Member shall not commingle Company funds with any funds or accounts of the Managing Member and/or its Affiliates. The Managing Member and each representative of the Executive Committee appointed by HW shall be authorized to sign checks or drafts against any Company account. Any withdrawals from or charges against such accounts may be made by the Managing Member or by its officers or agents in accordance with the terms of the Agreement.

7.8        Transactions with Affiliates.

 (a)        Except as provided in Section 7.5, Section 7.8(b), Section 7.8(c), and Section 7.8(d), or except as specifically provided for in an approved Annual Budget on a line item designated “Affiliate Transaction,” a Member may not, on behalf of the Company, enter into any transaction, agreement, or contract with respect to the Company, and/or the business and affairs of the Company, with any Person that is a Member, an Affiliate of any Member, and/or an Affiliate of the Company (an “Affiliate Agreement”) unless such Affiliate Agreement is approved by the representative(s) on the Executive Committee appointed by the other Member. Under all circumstances, the terms to the Company of any such Affiliate Agreement including the amount of fees to be paid by the Company to such Person, shall be competitive with the terms of similar transactions, agreements, or contracts obtained by persons in the same business as the Company in arms-length agreements with unrelated parties.

 (b)        The Company shall pay TNHC a management fee (the “TNHC Management Fee”) equal to three percent (3%) of the gross sale proceeds derived by the Company from the sale of the Project Site or any portion thereof, including, but not limited to, the sale of any Home or Home Lot. Fifty percent (50%) of the TNHC Management Fee shall be paid in equal monthly installments on or about the first day of each month over the projected life of the Project based on the estimated gross sale proceeds to be realized by the Company over the life of the Project as reflected in the most recently approved Annual Budget. The amount of such monthly installments will be adjusted, as necessary, whenever the Annual Budget is revised. The remaining fifty percent (50%) of the TNHC Management Fee shall be paid in monthly installments upon the closing of the sale of any Home or Home Lot (i.e., 1.5% of the gross sale price for a Home or Home Lot, payable on the first day of the month following closing). At the end of the Project, and prior to the Company’s final liquidating distributions, the Company and TNHC shall reconcile (and shall make any necessary “adjustment” payments with respect to) the amount of TNHC Management Fee that has been paid to date with the amount of TNHC Management Fees that should have been paid based on the actual amount of gross sales proceeds realized through the life of the Project.

 (c)        The Company shall pay HW a management fee (the “HW Management Fee”) equal to one percent (1%) of the gross sale proceeds derived by the Company from the sale of the Project Site or any portion thereof, including, but not limited to, the sale of any Home or Home Lot. Fifty percent (50%) of the HW Management Fee shall be paid in equal monthly installments on or about the first day of each month over the projected life of the Project based on the estimated gross sale proceeds to be realized by the

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Company over the life of the Project. The amount of such monthly installments will be adjusted, as necessary, whenever the Annual Budget is revised. The remaining fifty percent (50%) of the HW Management Fee shall be paid in monthly installments upon the closing of the sale of any Home or Home Lot (i.e., 0.5% of the gross sale price for a Home or Home Lot, payable on the first day of the month following closing). At the end of the Project, and prior to the Company’s final liquidating distributions, the Company and HW shall reconcile (and shall make any necessary “adjustment” payments with respect to) the amount of HW Management Fee that has been paid to date with the amount of HW Management Fees that should have been paid based on the actual amount of gross sales proceeds realized through the life of the Project.

 (d)        The Members hereby unanimously approve the form of the Construction Contract and the form of the Sales and Marketing Agreement attached as Exhibits D and E and to this Agreement.

 (e)        Notwithstanding any other provision to the contrary in this Agreement and subject to clause (f) below, if an Affiliate of any Member is the party to any Affiliate Agreement (as applicable), such Affiliate has committed a material default under the applicable Affiliate Agreement, and any applicable notice and cure periods have expired, then the Member that is not an Affiliate to the Person providing services under the Affiliate Agreement shall have the right, but not the obligation, unilaterally and without requiring concurrence of any other Member or the Executive Committee, to act on behalf of the Company with respect to the enforcement of remedies under the applicable Affiliate Agreement (including the right to terminate such agreement to the extent provided for in such agreement).

 (f)        (i) Rather than enter into the Construction Agreement and the Sales and Marketing Agreement with TNHC Realty, the Company could contract directly with unaffiliated contractors, suppliers, brokers or sales and marketing consultants for such services. The Members acknowledge and agree that TNHC has caused its affiliated company TNHC Realty to enter into the Construction Agreement and the Sales and Marketing Agreement for the convenience of the Company, to reduce costs and to facilitate construction and marketing of the Project by the Company. TNHC Realty’s compensation under the Construction Agreement and the Sales and Marketing Agreement has been established as a “pass through” of costs and not as a “for profit” enterprise. Except as provided in Section 7.8(f)(ii), the Members do not intend for either TNHC or TNHC Realty to have the same liability, including without limitation liability for construction defects or for personal injury or property damage during the course of TNHC Realty’s activities under the Construction Agreement and the Sales and Marketing Agreement, or otherwise, as would a third-party, unaffiliated general contractor or a third-party, unaffiliated broker or sales and marketing consultant. Therefore, notwithstanding anything in this Agreement, the Construction Agreement or the Sale and Marketing Agreement to the contrary, but subject to Section 7.8(f)(ii) below, the Members intend and agree that all such liability shall be retained by the Company and insured against by the Company’s insurance. Subject to Section 7.8(f)(ii) below, to the extent any such liability is not covered by Company insurance, payments on any such claim shall be made by the Company and included in Company Costs and Expenses.

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Nothing in this Agreement shall be construed as a guarantee by TNHC of TNHC Realty’s obligations under the Construction Contract and/or the Sales and Marketing Agreement. If there is a conflict between this Agreement and the Construction Contract and/or Sales and Marketing Agreement, this Agreement shall control.

(ii)       Notwithstanding anything to the contrary in Section 7.8(f)(i):

(A)       To the extent TNHC Realty engages in conduct in the performance of its services under the Construction Contract and/or the Sales and Marketing Agreement that would constitute Bad Conduct or Uncured Bad Conduct if committed by TNHC in the performance of its duties under this Agreement (defined as “TNHC Realty Bad Conduct”), then any cost, expense, damage, or liability suffered or incurred by the Company as a result of such TNHC Realty Bad Conduct shall be considered a Bad Conduct Cost within the meaning of this Agreement; and

(B)       TNHC Realty and TNHC shall be liable to the Company for any cost, expense, damage, or liability suffered or incurred by the Company as result of the negligent acts by TNHC Realty pursuant to the Sales and Marketing Agreement in connection with the submission of any materials to the California Department of Real Estate and/or any statements made or actions taken by the sales agents employed by TNHC Realty in connection with the sale of Homes or Home Lots.

7.9        Insurance. Except as otherwise provided in this Agreement, the Managing Member, on behalf of the Company and at the Company’s cost and expense, shall during the entire term hereof, obtain, maintain, and keep in full force and effect all insurance required by the insurance requirements set forth on Exhibit G, any other insurance that may be required by any Company Obligation, and any other form or forms of insurance on the Project or for the Company that has been approved by the Executive Committee.

7.10      Indemnification of Members. The Company shall indemnify, defend, and hold harmless the Managing Member, the other Members, their directors, officers, shareholders, constituent members, constituent partners, and employees, and the individual representatives on the Executive Committee (individually, an “Indemnitee”), as follows:

(a)         (i)        In any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, to which an Indemnitee was or is a party or is threatened to be made a party by reason of the fact that such Indemnitee is or was a Member, a director, officer, shareholder, constituent member, constituent partner, or employee of a Member, or is an individual representative on the Executive Committee, the Company shall indemnify such Indemnitee against attorneys’ fees, judgments, fines, penalties, settlements, and reasonable expenses actually incurred by such Indemnitee in connection with the defense and/or settlement of such action, suit or proceeding, if such Indemnitee acted in good faith, and in the case of the exercise of authority

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by the Indemnitee under the Delaware Act or this Agreement, other than service for another enterprise, in a manner reasonably believed by such Indemnitee to be in the best interests of the Company and, in all other cases, that the Indemnitee’s conduct was not a willful and intentional act in opposition to the Company’s best interests, and with respect to any criminal action or proceeding, the Indemnitee did not have reasonable cause to believe that his conduct was unlawful.

(ii)       In no event, however, shall indemnification ever be made: (A) in relation to a proceeding in which the Indemnitee has been found liable for fraud or a criminal act or for gross negligence, breach of fiduciary duty, willful or intentional misconduct in the Indemnitee’s performance of its duty to the Company or in relation to a proceeding which arises out of a Material Breach by the Indemnitee of the terms and provisions of this Agreement; (B) with respect to a claim or suit brought by one Member (and/or an Affiliate thereof) against another Member (and/or an Affiliate thereof); and/or (C) with respect to TNHC’s obligation to make additional Capital Contributions for Controllable Construction Cost Overruns.

(iii)      The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that an Indemnitee did not act in good faith and in a manner reasonably believed by such Indemnitee to be in the best interests of the Company or not opposed to the Company’s best interests.

  (b)       If a claim or assertion of liability is made or asserted by a third party against an Indemnitee by reason of the fact that such Indemnitee was or is a party or is threatened to be a party by reason of the fact that such Indemnitee is or was a Member or is a director, officer, shareholder, constituent partner, constituent member, or employee of a Member or an individual representative on the Executive Committee, Indemnitee will forthwith give to the Company and the Executive Committee written notice of the claims or assertion of liability and request the Company to defend the same and any other related claims or assertions of liability that are included in the same complaint. Failure to so notify the Company will not relieve the Company of any liability which the Company might have to Indemnitee except to the extent that such failure actually prejudices the Company’s legal position. The Company will have the obligation to defend against such claims or assertions and the Company will give written notice to the Indemnitee of acceptance of the defense of such claims and the name of the counsel selected by the Company to defend such claims. The Indemnitee will be entitled to be kept informed by the Company and its counsel of the status of such defense and also will be entitled at its option (and expenses) to employ separate counsel for such defense. In the event the Company does not accept the defense of the claims or in the event that the Company or its counsel fails to use reasonable care in maintaining such defense, the Indemnitee will have the right to employ counsel for such defense at the expense of the Company. The Company and the Indemnitee will cooperate with each other in the defense of any such action and the relevant records of each will be made available to the other with respect to such defense. If, at the conclusion of any such proceedings, it is determined that the Indemnitee would not have been entitled to indemnification pursuant to this Section 7.10

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for such claims or assertions, then the Indemnitee shall immediately reimburse the Company for any costs and expenses paid by the Company to defend the Indemnitee pursuant to this Section 7.10(b).

(c)       No Indemnitee will be entitled to indemnification under this Section 7.10 if it has entered into any settlement or compromise of any claim giving rise to any indemnifiable loss without the written consent of the Company. If a bona fide settlement offer is made with respect to a claim and the Company desires to accept and agree to such offer, the Company will give written notice to the Indemnitee to that effect (the “Settlement Notice”). If the Indemnitee fails to consent to the settlement offer within ten calendar days after receipt of the Settlement Notice, then the Indemnitee will be deemed to have rejected such settlement offer and will be responsible for continuing the defense of such claim and, in such event, the maximum liability of the Company as to such claim will not exceed the amount of such settlement offer plus any and all reasonable costs and expenses paid or incurred by the Indemnitee up to the date of the Settlement Notice and which are otherwise the responsibility of the Company pursuant to this Section 7.10.

(d)       Any indemnification permitted under this Section 7.10 shall be made only out of the assets of the Company and no Member shall be obligated to contribute to the capital of or loan funds to, the Company to enable the Company to provide such indemnification.

(e)       The indemnification provided by this Section 7.10 shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement or vote of the Members, as a matter of law or otherwise, as to action in the Indemnitee’s capacity as a Member, as a director, officer, employee, constituent member, or a constituent partner of a Member, or as a member of the Executive Committee, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, administrators and personal representatives of the Indemnitee.

(f)       Except as otherwise provided in this Agreement, the Company may purchase and maintain insurance on behalf of any one or more Indemnitees if approved by the Executive Committee.

(g)       In no event may an Indemnitee subject another Member or its Affiliates to personal liability by reason of the indemnification provisions of this Agreement.

(h)       The provisions of this Section 7.10 are for the benefit of the Indemnitees and the heirs, successors, assigns, administrators, and personal representatives of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons.

(i)       Any action to be taken by the Company pursuant to this Section 7.10 shall instead be taken by and require the approval of the Executive Committee.

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 (j)         EXCEPT AS PROVIDED IN SECTION 7.10(A)(II)(C), THIS SECTION 7.10 INCLUDES AN INDEMNITY BY THE COMPANY OF EACH INDEMNITEE AGAINST SUCH INDEMNITEE’S ORDINARY NEGLIGENCE.

7.11      Liability of a Member.

 (a)        Neither a Member nor a Member’s shareholders, directors, officers, employees, constituent members, constituent partners, or Executive Committee representatives shall be liable to the Company or to the other Members for errors in judgment or for any acts or omissions that do not constitute fraud, gross negligence, criminal misconduct, willful and wanton misconduct, and/or breach of this Agreement.

 (b)        The Managing Member may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through agents.

7.12      Duties.

 (a)        The Managing Member shall manage the Company and its business and affairs in accordance with the terms of this Agreement and shall use all of its reasonable efforts to carry out the business of the Company. Each Member shall act honestly, in good faith, and in the best interest of the Company and shall devote such time to the business of the Company as shall be reasonably required to perform such Member’s duties and obligations under this Agreement. The Managing Member shall devote itself to the business of the Company to the extent necessary for the efficient carrying on thereof and in a manner that will permit the Managing Member to fulfill those duties and responsibilities described in Section 7.12(b) below and elsewhere in this Agreement. Whenever requested by any Member, the Managing Member shall render a just and faithful account of all material dealings and transactions relating to the business of the Company.

 (b)        The Managing Member, in addition to its other obligations under this Agreement, shall perform the following services in its capacity as the Managing Member, at the expense of the Company:

(i)       Carry out and implement the Major Decisions approved by the Executive Committee;

(ii)      Give all notices and utilize commercially reasonable efforts to ensure compliance with all laws, ordinances, rules, and regulations affecting the grading, development, construction, operation, and sale of the Project;

(iii)     Prepare, or cause to be prepared, each Annual Budget and any necessary or appropriate amendments to any Annual Budget, all maps, schematic drawings, Plans and Specifications, working drawings, and other documentation (including all revisions thereto) necessary to develop the Project Site and construct the applicable Improvements, and obtain all necessary governmental approvals therefor;

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(iv)      Conduct such other pre-development activities with respect to the Project Site as Managing Member deems necessary to develop and improve the Project Site in accordance with any approved Annual Budget;

(v)       Develop or supervise the development of a marketing plan for the Homes and/or the Home Lots and then coordinate all efforts to market and sell Homes and/or the Home Lots, including efforts to develop and implement marketing strategies;

(vi)      Prepare and distribute to each Member any and all reports required under Section 9.3 hereof;

(vii)     Prepare and submit an Annual Budget pursuant to Section 7.13 hereof for approval by the Executive Committee;

(viii)    Manage and maintain the Project Site and pay all applicable ad valorem taxes, insurance premiums, and other similar carrying costs associated with the Project; and

(ix)      Cause the Company to comply with the terms of all applicable loan agreements governing the Company Obligations and other Company indebtedness, and notify the other Members of any default of any party under any loan, Company Obligation, and/or any other significant agreement affecting the Company.

7.13      Annual Budget.

 (a)        The Members have unanimously approved the initial Annual Budget for the Company, a copy of which is attached hereto as Exhibit F. At least 45 days prior to the commencement of each Fiscal Year, commencing with the Fiscal Year beginning January 1, 2013, the Managing Member shall submit a proposed revised and updated Annual Budget for the Company for the period of time commencing on January 1 of the upcoming Fiscal Year and extending through the projected term of the Company.

 (b)        The Executive Committee shall review and, if acceptable, approve the proposed Annual Budget to the extent required under Section 7.3(b)(i). A proposed Annual Budget shall not become effective, however, until such Annual Budget has been approved by the Executive Committee.

 (c)        If the Executive Committee fails to approve a proposed Annual Budget prior to the commencement of a particular Fiscal Year, then pending a final resolution of the dispute with respect to such Annual Budget, the Managing Member shall continue to manage, maintain, supervise, direct, and operate the Company, but all expenditures must be approved by the Executive Committee except for those non-controllable expenditures that are required to be paid in order to keep the Company operating (i.e., payroll costs, utility costs, insurance costs, taxes, and similar costs and expenses).

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 (d)        After an Annual Budget has been approved, the Managing Member has the right from time to time during the applicable Fiscal Year to revise the Annual Budget to the Executive Committee for its approval. If Executive Committee approval of any such revision is required under Section 7.3(b)(i), such proposed revision to the Annual Budget shall not be effective until approved by the Executive Committee. Once approved, such revisions shall be incorporated in and become part of the approved Annual Budget.

7.14      Indemnification for Fees.

 (a)        HW represents and warrants to TNHC that no broker or other Person is entitled to a commission, fee, or other compensation in connection with the formation of the Company and/or the contribution of the equity capital to the Company, and HW hereby indemnifies and holds TNHC harmless from and against any claims, losses, damages, costs, and expenses that the Company and/or TNHC may suffer or incur in the event that any broker or other Person asserts a claim through HW for such a commission, fee, or other compensation.

 (b)        TNHC represents and warrants to HW that no broker or other Person is entitled to a commission, fee, or other compensation in connection with the formation of the Company and/or the contribution of the equity capital to the Company, and TNHC hereby indemnifies and holds HW harmless from and against any claims, losses, damages, costs, and expenses that the Company and/or HW may suffer or incur in the event that any broker or other Person asserts a claim through TNHC for such a commission, fee, or other compensation.

7.15      Special Right of First Negotiation With Respect to Foster City Opportunity.

 (a)        If TNHC or any Affiliate of TNHC desires to pursue the Foster City Opportunity, TNHC shall promptly give a written notice (the “Opportunity Notice”) to HW. The Opportunity Notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the Opportunity Notice is contained and must alert HW to the thirty (30) day time limit for response as described below. The Opportunity Notice shall also disclose the terms, provisions and conditions of the Foster City Opportunity that TNHC (or its Affiliate) desires to pursue, including the following information:

(i)        A description of the Foster City Opportunity;

(ii)       If any financing will be required in connection with the Foster City Opportunity, a summary of the market rate financing that TNHC believes is then available; and

(iii)      A due diligence package containing all information that HW would reasonably need to make an informed decision on whether or not to exercise its rights under this Section 7.15 (to the extent TNHC has or could reasonably obtain such information).

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 (b)        The delivery of the Opportunity Notice constitutes an offer (the “Section 7.15 Offer”) by TNHC to allow HW to participate in the Foster City Opportunity in accordance with the terms set forth in this Section 7.15.

(i)        HW shall immediately review the Opportunity Notice. HW shall have a period of thirty (30) days from the date of HW’s receipt of the Opportunity Notice to elect to pursue the Foster City Opportunity in accordance with this Section 7.15 and on the same terms, provisions and conditions as stated in the Opportunity Notice and this Section 7.15 (this thirty (30) day period is referred to as the “Election Period”). If HW does not make an election prior to the end of the Election Period, HW shall be deemed to have rejected the Section 7.15 Offer.

(ii)       If HW desires to pursue the Foster City Opportunity, then prior to the end of the Election Period, HW must send a written notice of acceptance to TNHC.

 (c)        If HW accepts the Section 7.15 Offer prior to the end of the Election Period, then HW and TNHC shall negotiate in good faith to pursue and acquire the Foster City Opportunity and to enter into a definitive limited liability company agreement (or a comparable agreement for another pass-through entity) to acquire, own, develop, manage, lease, sell, and/or dispose of the Foster City Opportunity. The form of such agreement shall be substantially the same as the form of this Agreement, with economic, management and control rights that are the same as the economic, management and control rights set forth in this Agreement, except as follows:

(i)        The Contribution Percentage of TNHC will be 15% (or at TNHC’s sole option 35%) and the Contribution Percentage of HW will be the difference between 100% and TNHC’s Contribution Percentage;

(ii)       The initial Percentage Interest of TNHC will be 30% if TNHC’s Contribution Percentage is 15% and 46.47% if TNHC’s Contribution Percentage is 35%;

(iii)      The initial Percentage Interest of HW will be the difference between 100% and TNHC’s Contribution Percentage;

(iv)      TNHC will make certain mutually acceptable representations and warranties for the benefit of the Company and HW regarding the Foster City Opportunity based on TNHC’s actual knowledge concerning the Foster City Project; and

(v)       TNHC will be reimbursed for its reasonable pre-formation and pre-development costs and obligations incurred in connection with the Foster City Opportunity.

 (d)        If HW either affirmatively rejects the Foster City Opportunity prior to the end of the Election Period, or if HW is deemed to have rejected the Foster City Opportunity because of HW’s failure to respond prior to the end of the Election Period,

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then TNHC or an Affiliate of TNHC may acquire the Foster City Opportunity and HW shall have no further right to participate with TNHC in the acquisition of the Foster City Opportunity; provided, however, if TNHC (or its Affiliate) changes the economic terms of such Foster City Opportunity specified below to be more favorable to an investor than those last offered to HW in the Foster City Opportunity in which HW declined to participate (i.e., (i) increase of the rate of accrual of First Priority Preference Amount, Second Priority Preference Amount, or other preferred return rates paid to the investor; (ii) decrease of the amount of Capital Contributions required by the investor; (iii) increase of the investor’s Percentage Interest; (iv) decrease of the investor’s Contribution Percentage), then TNHC must re-offer the Foster City Opportunity to HW by delivering to HW an Opportunity Notice pursuant to Section 7.15(a) that contains the more economically favorable terms; (v) amount of fees paid to TNHC and the investor; (vi) priority of distribution returns to TNHC and the investor; and (vii) liability for warranty claims and construction defects), then TNHC must re-offer the Foster City Opportunity to HW by delivering to HW an Opportunity Notice pursuant to Section 7.15(a) that contains the more economically favorable terms.

(e)       The rights and obligations under this Section 7.15 shall survive the closing of a buy/sell transaction under Section 11.9, the termination of this Agreement, and/or the dissolution and winding up of the Company (other than a termination of this Agreement and/or the dissolution and winding up of the Company that may occur after the closing of the “put” or “call” of a Membership Interest pursuant to Section 11.11 and/or Section 11.12).

ARTICLE VIII

PHASES AND DEVELOPMENT PHASE PLANS

8.1       Development and Construction of Project in Phases.

(a)       It is contemplated that the Company shall construct any proposed Improvements on any portion of the Project Site that the Company has elected to develop in phases (each such phase is referred to as a “Phase”).

(b)       The Managing Member shall not commence any Phase unless; (i) such Phase is consistent with an approved Annual Budget; and (ii) the commencement of such Phase has been approved by the Executive Committee pursuant to Section 7.3.

(c)       The commencement of any such Phase may be subject to such conditions as the representatives on the Executive Committee may, in their sole and absolute discretion, impose.

8.2       Financing. The Members acknowledge and agree that it is their intent to maximize third-party financing for the Project. In furtherance of this objective, but subject to Section 4.2(h) and Section 7.3, the Members shall cooperate with each other in using commercially reasonable efforts to obtain any and all acquisition, development and construction financing (i.e., AD&C Loans) from one or more Persons that are not Affiliates of any Member,

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in such amount as the Company may require to finance development of the Improvements in accordance with the intent of the Members or refinance any AD&C Loans prior to maturity thereof. Any such AD&C Loans must be approved by the Executive Committee pursuant to Section 7.3(b). Under no circumstances shall HW be obligated to provide any such AD&C Loans. In addition, subject to Section 4.2(b), the Members acknowledge and agree that no Member or any Affiliate of a Member shall have any personal liability, either directly or indirectly, on a AD&C Loan or any other Company Obligations.

ARTICLE IX

BOOKS, RECORDS, ACCOUNTING AND REPORTS

9.1       Records and Accounting. The Managing Member shall keep or cause to be kept appropriate books and records with respect to the Company’s business, which shall at all times be kept at the principal office of the Company or such other office as the Executive Committee may designate for such purposes. Any books and records maintained by the Company in the regular course of its business, including books of account and records of Company proceedings, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the books and records so kept are convertible into clearly legible written form within a reasonable period of time. The books of the Company shall be maintained for financial reporting purposes on the accrual basis. The Executive Committee shall have the right to make final determinations as to how any transaction, revenue, expense, asset or liability item of the Company will be accounted for on the books of the Company if generally accepted accounting principles are unclear in any instance.

9.2       Fiscal Year. The Fiscal Year of the Company shall be the calendar year for tax and accounting purposes.

9.3       Reports.

(a)       The Managing Member shall deliver to the Members, not later than 60 days following the end of each Fiscal Year, a balance sheet, an income statement, and an annual statement of source and application of funds of the Company for such Fiscal Year. The Managing Member shall, at the expense of the Company, cause the Company’s Independent Accountants to review and certify such statements.

(b)       No later than 45 days after the last day of each fiscal quarter during the term of this Agreement, other than the last quarter of the Fiscal Year in question, the Managing Member shall use its best efforts to cause the Company to prepare, or cause to be prepared and delivered to each Member a balance sheet together with a profit and loss statement for such fiscal quarter together with a cumulative profit and loss statement to date and with comparative statements for the like periods immediately preceding.

(c)       No later than 30 days after the end of each calendar month, the Managing Member shall cause the Company to prepare, or shall cause to be prepared and delivered to each Member: (i) a statement of cash receipts and cash disbursements for the month; (ii) a reconciliation, on a line item basis, of costs and expenses incurred to date with the costs and expenses set forth in the Annual Budget with a written explanation of any

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material variations; (iii) a schedule of showing the draw downs and uses of the proceeds of Company indebtedness; and (iv) monthly status reports showing the status of any construction in progress, and actual and projected costs over-runs.

(d)       At the request of a Member, the Managing Member shall additionally cause to be provided to the Member: (i) an annual analysis detailing the components, and changes therein, of each Member’s Capital Accounts, each Member’s Adjusted Capital Accounts, and each Member’s (as applicable) accrued and unpaid First Priority Preference Amount, Undistributed First Priority Capital, accrued and unpaid Second Priority Preference Amount, and Undistributed Second Priority Capital Amount; (ii) an annual analysis detailing all allocations of Profit, Loss, and other items of income, gain, loss and deduction; (iii) an annual reconciliation of accounting and taxable income; and (iv) such other financial statements or information as may be reasonably requested by a Member.

9.4       Documents. Each Member shall have the right to inspect and review and make copies (at Company expense) of all documents relating to the business of the Company, including without limitation, all reports, studies, and other items prepared by or obtained by the Managing Member in connection with the performance of its duties hereunder.

ARTICLE X

TAX MATTERS

10.1     Tax Matters Partner. The Managing Member shall be the tax matters partner (the “Tax Matters Member”) for federal income tax purposes pursuant to section 6231 of the Code with respect to each applicable taxable year of the Company. The Managing Member is authorized to do whatever is necessary to qualify as such.

10.2     Annual Tax Returns.

(a)       The Managing Member shall cause the Company’s accountants to prepare, at the Company’s expense, and shall timely file, or cause the timely filing of, all tax returns and shall, on behalf of the Company, timely file, or cause the timely filing of, all other writings required by any governmental authority having jurisdiction to require such filing. The Managing Member shall submit the proposed returns to each Member for its review and approval no later than 90 following the end of the preceding Fiscal Year.

(b)       If a Member disagrees with the treatment of any Company item (within the meaning of section 6231(a)(3) of the Code and Regulations) on a tax return of the Company, then such Member shall give written notice to the Managing Member. If, after good faith consultation, an agreement regarding the treatment of such item cannot be reached within ten days after the receipt of notice, the Company shall seek written advice from independent tax counsel approved by the Executive Committee or from the Independent Accountants. Such advice shall recommend the treatment which is consistent with the terms of this Agreement, the respective interests of the Members, and for which there exists substantial authority in support thereof. Such recommended treatment shall be the one reported on the return.

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 (c)        Without the prior approval of the Executive Committee, no Member shall file an amended return of the Company or a request for an administrative adjustment under section 6227 of the Code, nor shall any Member (other than the Tax Matters Member, as provided herein) commence any administrative or judicial proceeding relating to a return of the Company. If, after good faith consultation, such approval is not provided, no Member shall file such return or request, or commence such proceeding unless a mutually agreed upon independent tax counsel renders an opinion that there is substantial authority for the proposed treatment of the tax items with respect to which such return, request or proceeding relates. Nothing herein shall be construed to prevent a Member from undertaking any administrative or judicial proceeding with respect to its own return.

10.3      Notice and Limitations on Authority.

 (a)        Each Member shall notify the other Members upon receipt of any notice regarding an audit or tax examination of the Company and upon any request for material information of the Company by United States federal, state, local, or other tax authorities.

 (b)        The Managing Member shall, within ten (10) days after the receipt thereof, forward to each Member a photocopy of any material correspondence relating to the Company received from the Internal Revenue Service. The Managing Member shall, within ten (10) days thereof, advise each Member in writing of the substance of any conversation affecting the Company held with any representative of the Internal Revenue Service.

 (c)        The Managing Member shall have all the authority granted by the Code and Regulations to the Tax Matters Member; provided, however, the Managing Member cannot take any of the actions described below unless the Managing Member first obtains the prior approval of the Executive Committee:

(i)        entering into a settlement agreement with the Internal Revenue Service in any matter relating to the Company and/or any item reported and/or not reported on a Company tax return;

(ii)       filing a petition as contemplated in section 6226(a) or 6228 of the Code;

(iii)      intervening in any action as contemplated in section 6226(b)(5) of the Code;

(iv)      filing any request contemplated in section 6227(b) of the Code; and

(v)       entering into an agreement extending the period of limitations as contemplated in section 6229(b)(1)(B) of the Code.

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10.4     Tax Elections. Subject to Section 7.3 and this Article X, the Managing Member shall do all acts, make all elections and take whatever reasonable steps are required to maximize, in the aggregate, the federal, state, and local income tax advantages available to the Company and shall defend all tax audits and litigation with respect thereto at the expense of the Company. The Managing Member shall maintain the books, records, and tax returns of the Company in a manner consistent with the acts, elections, and steps taken by the Company. Subject to Section 7.3, in making any “tax” election for any Fiscal Year, the Managing Member shall make such election, to the extent reasonably possible, in a manner that maximizes the benefit and minimizes the detriment of each such election to each Member.

10.5     Actions in Event of Audit. Subject to Section 10.3, if an audit of the Company’s tax returns occurs, the Managing Member shall, at the expense of the Company, notify the Members thereof and participate in the audit and contest. The Managing Member may, with the approval of the Executive Committee, settle or otherwise compromise assertions of the auditing agent which may be adverse to the Company in accordance with this Article X. The Managing Member may, if it determines that the retention of accountants and/or other professionals would be in the best interests of the Company, retain such accountants and/or other professionals to assist in such audits. The Company shall indemnify and reimburse the Managing Member for all reasonable expenses, including legal and accounting fees, claims, liabilities, losses, and damages borne by the Managing Member which were incurred in connection with any administrative or judicial proceeding with respect to any audit of the Company’s tax returns, except to the extent caused by the negligence or willful misconduct of the Managing Member.

10.6     Organizational Expenses. The Company shall elect to deduct expenses incurred in organizing the Company as provided in section 709 of the Code.

10.7     Taxation as a Partnership. The Members intend for the Company to be taxed as a partnership for federal income tax purposes. No election shall be made by the Company or any Member for the Company to be classified as an association or a corporation under section 7701 of the Code and the Regulations issued thereunder and no election shall be made to otherwise be excluded from the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions of any state tax laws. If the default classification rules under section 7701 of the Regulations are ever amended so as to classify the Company as an association or corporation unless it elects otherwise, either Member shall cause the Company to elect to be classified as a partnership pursuant to section 7701 of the Regulations, as amended, for the taxable year in which such amendment to the Code or Regulations occurs.

ARTICLE XI

TRANSFERS AND PLEDGES OF MEMBERSHIP INTERESTS

11.1     Pledge and Transfer Restrictions.

(a)        Except as otherwise provided in Section 11.3, Section 11.9, Section 11.11, Section 11.12, or elsewhere in this Agreement, no Membership Interest shall be Transferred or Pledged, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any Transfer, Pledge, or purported Transfer or Pledge of any Membership Interest not made in accordance with this Article XI shall be

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null and void and shall give the alleged Transferee no right to require any information or account of the Company’s transactions or to inspect the Company’s books. The Company shall be entitled to treat the alleged Transferor in a Transfer of a Membership Interest not made in accordance with this Article XI as the absolute owner thereof in all respects, and shall incur no liability to any alleged Transferee for distributions to the Member owning such Membership Interest of record or for allocations of Profits, Losses, and other items of income, gain, losses, deductions or credits or for transmittal of reports and notices required to be given to holders of Membership Interests.

(b)        HW represents and warrants to TNHC that, as of the Effective Date, one or more HW Parties currently have Majority Control of HW. Notwithstanding anything to the contrary in this Section 11.1, and subject to the terms of the documents evidencing or securing any Company Obligation, HW shall not permit a Transfer or Pledge of ownership interests in HW, or in the direct or indirect ownership or control of HW, without first obtaining the consent of the Executive Committee, unless after giving effect to such proposed Transfer or Pledge, an HW Party continues to have Majority Control of HW.

(c)        TNHC represents and warrants to HW that, as of the Effective Date, TNHC is wholly-owned by The New Home Company, LLC, a Delaware limited liability company (“New Home Company”). Notwithstanding anything to the contrary in this Section 11.1, and subject to the documents evidencing or securing any Company Obligation, TNHC shall not permit New Home Company to Transfer or Pledge any portion of its ownership interests in TNHC without first obtaining the consent of the Executive Committee unless after giving effect to such proposed Transfer or Pledge, New Home Company continues to have Majority Control of TNHC. In addition, TNHC shall not permit a Transfer or Pledge of ownership interests in The New Home Company or in the direct or indirect ownership or control of The New Home Company, without first obtaining the consent of the Executive Committee, unless after giving effect to such proposed Transfer or Pledge: (i) one or more of the Individual TNHC Members are in control of TNHC Partners; (ii) TNHC Partners continues to own its interest in The New Home Company; and (iii) TNHC Partners continues to exercise day-to-day control over the Company in the same way that TNHC Partners exercises such control over the Company on the Effective Date.

11.2    Consent of the Executive Committee. Except as provided in Section 11.3, Section 11.9, Section 11.11, Section 11.12, or elsewhere in this Agreement, the Membership Interest of any Member may not be Transferred to a Person that is not a Member without the written consent of the representatives on the Executive Committee of the other Member, which consent may be unreasonably withheld.

11.3    Permitted Transfers and Pledges. Notwithstanding anything to the contrary in Section 11.2 above, but subject to Section 11.4, Section 11.5, and Section 11.6 below:

(a)        HW may Transfer or Pledge its Membership Interest to a Transfer Affiliate of HW without having to obtain the consent of any Person; and

(b)        TNHC may pledge its Membership Interest to a Transfer Affiliate of TNHC without having to obtain the consent of any Person.

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11.4    Registration. If any Membership Interest is to be Transferred, the proposed Transfer must be exempt from registration requirements under the Securities Act, as amended, and any applicable state securities laws. The Company and the Members have no obligation or intention whatsoever either to register Membership Interests for resale under any federal or state securities laws or to take any action which would make available to any Person any exemption from the registration requirements of such laws.

11.5    Prohibited Transfers. Any Transfer or purported Transfer, whether by operation of law or otherwise, of a Membership Interest shall be null and void and of no legal effect unless it is permitted by this Article XI or by other provisions of this Agreement.

11.6    Rights of Assignee.

(a)        Except as provided in this Article XI, and as required by operation of law, the Company shall not be obligated for any purpose whatsoever to recognize the Transfer by any Member of a Membership Interest unless such Transfer is made in accordance with the terms of this Agreement.

(b)        Any Transfer of Membership Interests must be in writing, may not contravene any of the provisions of this Agreement or the Delaware Act, and must be executed by the Transferor and delivered to the Company and recorded on the books of the Company. Any Transfer which contravenes any of the provisions of this Agreement or the Delaware Act shall be of no force and effect and shall not be recognized by the Company.

(c)        A Transferee of Membership Interests who is not admitted as a Member pursuant to Section 11.7 shall have no right to require any information or account of the Company’s transactions or to inspect the Company books or to vote, but shall only be entitled to receive the allocations and distributions to which his Transferor would otherwise be entitled under this Agreement.

(d)        Any Transferee who does not become a Member and desires to make a further Transfer of such Membership Interest shall be subject to all of the provisions of this Article XI to the same extent and in the same manner as any Member desiring to Transfer his Membership Interest.

11.7    Admission as a Member.

(a)        Subject to the other provisions of this Article XI, a permitted Transferee of a Membership Interest shall be admitted as a Member only after the satisfactory completion of items (i) through (iv) below, and if applicable, item (v):

(i)        the Transferee accepts and agrees to be bound by the terms and provisions of this Agreement;

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(ii)        a counterpart of this Agreement and such other documents or instruments as the Executive Committee may reasonably require is executed by the Transferee to evidence such acceptance and agreement;

(iii)        the Transferee pays or reimburses the Company for all reasonable legal fees and filing and publication costs incurred by the Company in connection with the admission of the Transferee as a Member;

(iv)        except for Transferees that receive their Membership Interest pursuant to a Transfer permitted under Section 11.3 above or Section 11.9, Section 11.11, and/or Section 11.12 below, the Executive Committee approves the admission of such permitted Transferee, which approval may be withheld in the unreasonable discretion of such Executive Committee; and

(v)        if the Transferee is not an individual, the Transferee provides the Company with evidence satisfactory to counsel for the Company of the authority of such Transferee to become a Member under the terms and provisions of this Agreement.

(b)        The Managing Member shall make all official filings and publications as promptly as practicable after the satisfaction by the Transferee of the conditions contained in this Article XI to the admission of such transferee as a Member.

11.8    Distributions and Allocations in Respect of Transferred Membership Interests. If any Membership Interest is Transferred or adjusted during any Fiscal Year in compliance with the provisions of this Article XI, Profits, Losses, and all other items attributable to the Transferred or adjusted Membership Interest for such period shall be divided and allocated between the affected Persons by taking into account their varying interests during the period in accordance with Code section 706(d), using any conventions permitted by law and approved by the Executive Committee. All distributions on or before the date of such Transfer shall be made to the Transferor.

11.9    Special Buy-Out Provision.

(a)        Buy-Sell Group. For the purposes of this Section 11.9, TNHC and each of its Transferees (other than any member of the HW Members) shall be considered collectively as a group (the “TNHC Members”), and HW and each of its Transferees (other than any member of the TNHC Members) shall also be considered collectively as a group (the “HW Members”). The members of each group shall be deemed to be one Member, and the members must act as a group with regard to all decisions or elections to be made pursuant to this Section 11.9. Any such decisions or elections to be made by a group of Members pursuant to this Section 11.9 shall be made by a majority of the Percentage Interests of the applicable group.

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(b)        Procedures.

(i)        At any time after the Trigger Date, the TNHC Member and its Affiliates or the HW Member and its Affiliates (the group so acting hereinafter called the “Movant”) may deliver a written notice (“Notice”) to the other group (hereinafter called the “Respondent”) which shall contain alternative offers to the Respondent either: (A) to buy from the Respondent all of the Membership Interests owned by the Respondent; or (B) to sell to Respondent all of the Membership Interests owned by the Movant; provided, however, no Member may be a Movant under this Agreement during any time in which such Member is a Defaulting Purchaser, a Defaulting Seller, or has committed a Material Monetary Default, or as otherwise provided in this Agreement.

(ii)        (A)        The Notice must be delivered with the words “CONFIDENTIAL/URGENT” clearly visible from the exterior of the container in which the Notice is contained and must alert the Respondent to the 60-day time limit for response as described below. Delivery shall be to each member of the Respondent group whose address has been previously provided in writing to Movant in accordance with the notice provisions of this Agreement.

(B)        The Notice shall state Movant’s determination of the gross value of all assets of the Company other than any value attributable to Section 7.15 and/or the Foster City Opportunity (the “Stated Value”). Each Member shall cooperate and promptly respond to any requests for information that a Member may make in order to formulate the Notice and/or to analyze the potential consequences of accepting or rejecting the alternative offers in the Notice under this Section 11.9.

(C)        If the TNHC Members are the selling Members, the actual price (the “TNHC Price”) to be paid for the Membership Interests of the TNHC Members shall equal the amount which the TNHC Members would receive pursuant to Section 13.3(d) if, on the Buy/Sell Closing Date, the entire assets of the Company were sold at a cash price equal to 97% of the Stated Value (without further adjustment for commissions and transaction costs), Profit, Loss, and other items of income, gain, loss or deduction were allocated among the Members in accordance with Article V, and appropriate distributions were made pursuant to Section 13.3(d). For purposes of determining the amount of the deemed gross proceeds available for distribution pursuant to Section 13.3(d), the deemed gross proceeds are first applied against Company trade payables and Company liabilities (including the funding of an appropriate reserve for contingent liabilities in the amount set forth in the Notice) as of the Buy/Sell Closing Date.

(D)        If the HW Members are the selling Members, the actual price (the “HW Price”) to be paid for the Membership Interests of the HW Members will be the amount which the HW Members would receive pursuant to Section 13.3(d) if, on the Buy/Sell Closing Date, the entire assets of the Company were sold at a cash price equal to 97% of the Stated Value (without further adjustment for commissions and transaction costs), Profit, Loss, and other items of income, gain, loss or deduction were

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allocated among the Members in accordance with Article V, and appropriate distributions were made pursuant to Section 13.3(d). For purposes of determining the amount of the deemed gross proceeds available for distribution pursuant to Section 13.3(d), the deemed gross proceeds are first applied against Company trade payables and Company liabilities (including the funding of an appropriate reserve for contingent liabilities in the amount set forth in the Notice) as of the Buy/Sell Closing Date.

(iii)        The Respondent shall have 60 days from its receipt of the Notice to elect by written notice given to Movant: (A) to accept Movant’s offer to buy all of Respondent’s Membership Interest for the purchase price determined pursuant to Section 11.9(b)(ii) above; or (B) to accept Movant’s offer to sell all of Movant’s Membership Interest for the purchase price determined pursuant to Section 11.9(b)(ii) above (the 60-day period of time that the Respondent has to respond to a Notice is referred to herein as the “Response Period”).

(iv)        (A)        If the Respondent fails to respond within the Response Period, then the Respondent shall be deemed to have accepted Movant’s offer to buy all of Respondent’s Membership Interest for the purchase price determined pursuant to Section 11.9(b)(ii) above.

(B)        The selling Members shall assign all of their Membership Interests to the purchasing Members by written assignment with commercially reasonable representations and warranties in a form reasonably acceptable to the purchasing Members. Except as otherwise provided herein, such assignment shall be prepared in a recordable form mutually acceptable to the parties. Subject to Section 11.9(b)(iv)(E), the selling Members shall convey their entire Membership Interests, free and clear of all liens, claims and encumbrances, and the selling Members shall execute and deliver to the purchasing Members all documents which may be required to give effect to the sale and purchase of such Membership Interests.

(C)        The documents and instruments of conveyance shall also include the indemnification of each selling Member by each purchasing Member from and against any and all liabilities relating to the Membership Interest of each selling Member accruing before or after the Buy/Sell Closing Date (including contingent liabilities that the purchasing Members had knowledge of and/or that the purchasing Members could have had knowledge of after reasonable inquiry and/or contingent liabilities that the selling Members had disclosed to the purchasing Members prior to the Offer), but excluding liabilities resulting from Bad Conduct, Uncured Bad Conduct, Material Breach and/or the breach of fiduciary duty of a selling Member and/or liabilities that could not properly be taken into account under this Section 11.9 because of a Member’s failure to provide information required to be provided by such

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Member under this Agreement or because of a breach of a Member’s duty under this Agreement. If any selling Member (or any Affiliate of a selling Member) has any liability, contingent or otherwise, on any Company indebtedness, then except for that portion of such liabilities resulting from the Bad Conduct, Uncured Bad Conduct, Material Breach and/or a breach of fiduciary duty, of the selling Member and/or its Affiliate, the purchasing Members shall take such actions as may be required to obtain a release of the selling Member and its Affiliates from any such liability on or prior to the Buy/Sell Closing Date.

(D)        The purchase price to be paid to the selling Members shall be payable entirely in cash at closing.

(E)        Notwithstanding anything to the contrary in this Section 11.9, the rights and obligations of the Members under Section 7.15 shall survive the closing of a buy/sell transaction under this Section 11.9.

(v)        The actual conveyance shall take place on the date (the “Buy/Sell Closing Date”) that is 60 days after the earlier of the following dates: (A) the date of delivery to the Movant of the response from the Respondent, or (B) the expiration of the Response Period.

(vi)        From and after the date on which a Notice has been delivered until the Buy/Sell Closing Date, no Member shall take any action to cause or permit the sale of the assets of the Company (except pursuant to a written contract executed by Movant and Respondent prior to the date of the Notice), enter into any binding agreement, make any new finance commitments on behalf of the Company, or take any other action that could materially affect the interests of the Company (including the Stated Value of any of the Company’s assets) or its Members, unless such action has been approved in writing by the Executive Committee as a Supermajority Major Decision. The Managing Member, however, may continue to conduct the day-to-day operations of the Company (subject to the limitations set forth in this Agreement) in a careful and prudent manner so long as the Managing Member provides weekly updates to each of the other Members of the status of Company affairs, including the Stated Value of the Company’s assets, the amount of any Company liabilities and any changes in such liabilities, and the existence of any new contingent liabilities. Furthermore, no Member shall sell any assets of the Company or acquire additional assets of the Company other than those assets necessary and incidental to the general administration of the Company.

11.10    Specific Performance and Other Remedies.

(a)        It is expressly agreed that the remedy at law for breach of any of the obligations to transfer a Membership Interest is inadequate in view of: (i) the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of a Member to comply fully with each of said obligations, and

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(ii) the uniqueness of the Company business and the Company relationship. Accordingly, each of the aforesaid obligations to transfer and/or convert a Membership Interest shall be, and is hereby expressly made, enforceable by specific performance.

(b)        If a Member is a purchasing Member pursuant to Section 11.9, and such Member defaults on its obligation to purchase the Membership Interests of the selling Members (the purchasing Member that so defaulted is referred to as the “Defaulting Purchaser” and the selling Members are referred to as the “Innocent Seller”), then the Innocent Seller shall, in addition to the remedy of specific performance set forth in Section 11.10(a) above, have the following rights and remedies against the Defaulting Purchaser:

(i)        The Innocent Seller may, within 90 days after the date on which the Defaulting Purchaser defaulted on its obligation under Section 11.9, elect to purchase the Membership Interests of the Defaulting Purchaser and its Affiliates. The actual price to be paid by such Innocent Seller shall be recomputed by using a Stated Value that is 80% of the Stated Value for all of the Company’s assets that was used in determining the purchase price that the Defaulting Purchaser could have paid to purchase the Membership Interests of the Innocent Seller. The actual price to be paid by the Innocent Seller to the Defaulting Purchaser shall then be redetermined pursuant to Section 11.9(b)(ii) using this reduced Stated Value. The Innocent Seller may exercise its right pursuant to this Section 11.10(b)(i) by giving the Defaulting Purchaser 15 days’ prior written notice of its intent to purchase the Membership Interest of the Defaulting Purchaser. The remaining provisions of Section 11.9 shall then apply in connection with the Innocent Seller’s consummation of the purchase of the Membership Interest of the Defaulting Purchaser; and

(ii)        In the alternative, the Innocent Seller may pursue all other legal and equitable remedies against the Defaulting Purchaser, including a suit for damages.

(c)        If a Member is a Selling Member pursuant to this Section 11.9 and such Member defaults on its obligation to sell its Membership Interests (the selling Member that so defaults is referred to as the “Defaulting Seller” and the purchasing Member is referred to as the “Innocent Purchaser”), then the Innocent Purchaser may: (i) abandon the purchase and sale contemplated by Section 11.9 and carry forward as if the applicable Notice had not been delivered, (ii) enforce specific performance of the sale contemplated by Section 11.9, or (iii) exercise any remedy to which it may be entitled at law or in equity. If the Innocent Purchaser shall not have used one or more of the options described in the preceding clauses (i) through (iii) of this Section 11.10(c) within six (6) months after the default by the Defaulting Seller, then the Innocent Purchaser shall be deemed to have elected the option described in Section 11.10(c)(i).

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11.11    Call Right.

(a)        At any time following a Call Event, the Member that is not the subject of the Call Event (the “Calling Member”) shall have the right (the “Call Right”) to purchase all of the Membership Interests (collectively, the “Call Interest”) of the Member who was the subject of the Call Event and any Affiliates of such Member (collectively, the “Called Member”) in the manner described in this Section 11.11.

(b)        If the Calling Member elects to institute the procedures set forth in this Section 11.11, then the Calling Member shall deliver a notice (a “Call Notice”) to the Called Member.

(c)        The Call Notice shall contain: (i) a written statement that the Calling Member desires to exercise the Call Right under this Section 11.11 (ii) the Calling Member’s proposed determination of the Fair Market Value of the Call Interest; and (iii) the name of the Qualified Appraiser (the “First Call Appraiser”) to be engaged by the Calling Member to determine the Fair Market Value of the Call Interest if the Calling Member and the Called Member cannot otherwise agree on such Fair Market Value. For purposes of this Section 11.11, the Fair Market Value of the Call Interests shall exclude any value attributable to Section 7.15 and/or the Foster City Opportunity.

(d)        Within thirty (30) days after the Called Member’s receipt of the Call Notice, the Called Member shall take either of the following actions: (i) accept (by written notice given to the Calling Member) the Fair Market Value proposed by the Calling Member, or (ii) engage a second Qualified Appraiser (the “Second Call Appraiser”) to determine the Fair Market Value of the Call Interest. If the Called Member does not object to the Calling Member’s proposed Fair Market Value within such thirty (30) day period and/or does not engage a Second Call Appraiser, then the Called Member will be deemed to have accepted the Calling Member’s proposed Fair Market Value of the Call Interests.

(e)        If the Calling Member and the Call Member cannot agree on the Fair Market Value of the Call Interests pursuant to Section 11.11(d), then the appraisal procedures set forth in this Section 11.11(e) shall be used to determine such Fair Market Value:

(i)        The First Call Appraiser and the Second Call Appraiser shall each determine the Fair Market Value of the Call Interests within 30 days after the engagement of the Second Call Appraiser. If the Fair Market Value determinations of the First Call Appraiser and the Second Call Appraiser differ by an amount equal to or less than 10% of the higher of the two determinations of the Fair Market Value, then the Fair Market Value shall equal the arithmetic average of the two determinations (which shall be binding on the Calling Member and the Called Member).

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(ii)        If the Fair Market Value determinations of the First Call Appraiser and the Second Call Appraiser differ by an amount that is more than 10% of the higher of the two determinations of the Fair Market Value, then each of the First Call Appraiser and the Second Call Appraiser shall promptly submit a list of three other Qualified Appraisers to each other.

(A)        If the name of one Qualified Appraiser appears on both the list submitted by the First Call Appraiser and the list submitted by the Second Call Appraiser, then such Qualified Appraiser shall be selected to determine the Fair Market Value of the Call Interests (the Qualified Appraiser selected pursuant to this Section 11.11(e)(ii) to determine the Fair Market Value of the Call Interests shall be referred to as the “Third Call Appraiser”).

(B)        If the name of more than one Qualified Appraiser appears on both the list submitted by the First Call Appraiser and the list submitted by the Second Call Appraiser, then the Qualified Appraiser who appears on both such lists and whose surname is first in an alphabetical list of the Qualified Appraisers who appear on both such lists shall be selected as the Third Call Appraiser.

(C)        If the name of no Qualified Appraisers appears on both the list submitted by the First Call Appraiser and the list submitted by the Second Call Appraiser, then one Qualified Appraiser shall be drawn by lot from the six Qualified Appraisers by a representative of the Called Member in the presence of a representative of the Calling Member, and the Qualified Appraiser whose name is so drawn shall be the Third Call Appraiser.

(D)        If either of the First Call Appraiser or the Second Call Appraiser fails to submit the names of any Qualified Appraisers, then the First Call Appraiser or the Second Call Appraiser, as the case may be, who submitted the names of one or more Qualified Appraisers shall select the Third Call Appraiser from the names submitted by such First Call Appraiser or Second Call Appraiser, as the case may be.

(E)        The Third Call Appraiser shall determine the Fair Market Value of the Call Interests within 30 days after the engagement of such Third Call Appraiser. After the Third Call Appraiser has completed its appraisal of the Call Interests, the Fair Market Value of the Call Interests shall then equal the arithmetic average of the two appraisals that are closest together. Such Fair Market Value determination shall be binding on the Called Member and the Calling Member.

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(iii)        To the extent applicable, the costs of the First Call Appraiser shall be borne by the Calling Member, the costs of the Second Call Appraiser shall be borne by the Called Member, and the costs of the Third Call Appraiser, if any, shall be shared equally by the Calling Member and the Called Member.

(f)        The purchase price (the “Call Price”) for the Call Interest shall be: (i) with respect to a Call Event that results from the Bankruptcy of a Member, an amount equal to the Fair Market Value of the Call Interest as determined pursuant to Section 11.11(d) or Section 11.11(e); and (ii) with respect to any other Call Event, an amount equal to the product of: (A) 0.80; multiplied by (B) the Fair Market Value of the applicable Call Interest as determined pursuant to Section 11.11(d) or Section 11.11(e). The Call Price shall be paid in cash or other immediately available funds on the Call Closing Date.

(g)        The closing of the sale of the Call Interests pursuant to this Section 11.11 shall occur within 15 days after the Fair Market Value of the Call Interests has been determined pursuant to Section 11.11(d) or Section 11.11(e), as applicable (the “Call Closing Date”). At such closing, the Called Member shall deliver such documents as the Calling Member may reasonably request to transfer good and indefeasible title to the Call Interests. The Called Member shall transfer its Membership Interest free and clear of all liens, security interests, claims, and encumbrances.

11.12    HW Put Option.

(a)        At any time after a Call Event has occurred with respect to TNHC, HW shall have the right (the “Put Right”) to cause the Company to purchase all but not less than all of the Membership Interest of HW and its Affiliates in the manner described in this Section 11.12.

(b)        If HW desires to sell the Membership Interest of HW and its Affiliates to the Company pursuant to this Section 11.12, then HW shall deliver a written notice (the “Put Notice”) to the Managing Member.

(c)        The Put Notice shall contain: (i) a written statement that HW desires to exercise the Put Right under this Section 11.12; (ii) HW’s proposed determination of the Fair Market Value of the Membership Interest of HW (the “HW Interest FMV”); (iii) HW’s proposed determination of the Fair Market Value of the Membership Interest of TNHC and its Affiliates (the “TNHC Interest FMV”) and (iv) the name of the Qualified Appraiser (the “First Put Appraiser”) to be engaged by HW to determine the HW Interest FMV and the TNHC Interest FMV if TNHC, on behalf of the Company, and HW cannot otherwise agree on the HW Interest FMV and the TNHC Interest FMV. For purposes of this Section 11.12, the HW Interest FMV and the TNHC Interest FMW shall exclude any value attributable to Section 7.15 and the Foster City Opportunity.

(d)        Within thirty (30) days after the Company’s receipt of the Put Notice, TNHC shall take either of the following actions: (i) accept (by written notice given to HW) the HW Interest FMV and the TNHC Interest FMV proposed by HW, or (ii) engage a second Qualified Appraiser (the “Second Put Appraiser”) to determine the HW Interest

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FMV and the TNHC FMV. If TNHC does not object to HW’s proposed HW Interest FMV and the TNHC FMV within such thirty (30) day period and/or does not engage a Second Put Appraiser, then TNHC will be deemed to have accepted HW’s proposed HW Interest FMV and TNHC Interest FMV.

(e)        If TNHC and HW cannot agree on the HW Interest FMV and the TNHC Interest FMV pursuant to Section 11.12(d), then the appraisal procedures set forth in this Section 11.12(e) shall be used to determine the HW Interest FMV and the TNHC Interest FMV:

(i)        The First Put Appraiser and the Second Put Appraiser shall each determine the HW Interest FMV and the TNHC Interest FMV within 30 days after the engagement of the Second Put Appraiser. If the HW Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount equal to or less than 10% of the higher of the two determinations of the HW Interest FMV, and if the TNHC Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount equal to or less than 10% of the higher of the two determinations of the TNHC Interest FMV, then the HW Interest FMV and the TNHC Interest FMV shall equal the arithmetic average of the applicable two determinations (which shall be binding on HW and the Company).

(ii)        If: (A) the HW Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount that is more than 10% of the higher of the two determinations of the HW Interest FMV; or (B) if the TNHC Interest FMV determinations of the First Put Appraiser and the Second Put Appraiser differ by an amount that is more than 10% of the higher of the two determinations of the TNHC Interest FMV, then each of the First Put Appraiser and the Second Put Appraiser shall promptly submit a list of three other Qualified Appraisers to each other.

(A)        If the name of one Qualified Appraiser appears on both the list submitted by the First Put Appraiser and the list submitted by the Second Put Appraiser, then such Qualified Appraiser shall be selected to determine the HW Interest FMV and the TNHC Interest FMV (the Qualified Appraiser selected pursuant to this Section 11.12(e)(ii) to determine the HW Interest FMV and the TNHC Interest FMV shall be referred to as the “Third Put Appraiser”).

(B)        If the name of more than one Qualified Appraiser appears on both the list submitted by the First Put Appraiser and the list submitted by the Second Put Appraiser, then the Qualified Appraiser who appears on both such lists and whose surname is first in an alphabetical list of the Qualified Appraisers who appear on both such lists shall be selected as the Third Put Appraiser.

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(C)        If the name of no Qualified Appraisers appears on both the list submitted by the First Put Appraiser and the list submitted by the Second Put Appraiser, then one Qualified Appraiser shall be drawn by lot from the six Qualified Appraisers by a representative of HW in the presence of a representative of TNHC, and the Qualified Appraiser whose name is so drawn shall be the Third Put Appraiser.

(D)        If either of the First Put Appraiser or the Second Put Appraiser fails to submit the names of any Qualified Appraisers, then the First Put Appraiser or the Second Put Appraiser, as the case may be, who submitted the names of one or more Qualified Appraisers shall select the Third Put Appraiser from the names submitted by such First Put Appraiser or Second Put Appraiser, as the case may be.

(E)        The Third Put Appraiser shall determine the HW Interest FMV and the TNHC Interest FMV within 30 days after the engagement of such Third Put Appraiser. After the Third Put Appraiser has completed its determination of the HW Interest FMV and the TNHC Interest FMV, the HW Interest FMV shall be the arithmetic average of the two appraisals of the HW Interest FMV that are closest together and the TNHC Interest FMV shall be the arithmetic average of the two appraisals of the TNHC Interest FMV that are closest together. Such HW Interest FMV and the TNHC Interest FMV determination shall be binding on HW and the Company.

(iii)        To the extent applicable, the costs of the First Put Appraiser shall be borne by HW, the costs of the Second Put Appraiser shall be borne by TNHC, and the costs of the Third Put Appraiser, if any, shall be shared equally by HW and TNHC.

(f)        The purchase price (the “Put Price”) for HW’s Membership Interest, as determined pursuant to Section 11.12(d) or Section 11.12(e), shall be an amount equal to the sum of: (i) the HW Interest FMV; plus (ii) the product of: (A) 0.20; multiplied by (B) 90% of the TNHC Interest FMV (with no further allowance for avoided transaction costs). The Put Price shall be paid in cash or other immediately available funds on the Put Closing Date.

(g)        The closing of the sale of the Membership Interest pursuant to this Section 11.12 shall occur within 15 days after the HW Interest FMV and the TNHC Interest FMV has been determined pursuant to Section 11.12(d) or Section 11.12(e), as applicable (the “Put Closing Date”). At such closing, HW shall deliver such documents as the Company may reasonably request to transfer good and indefeasible title to HW’s Membership Interest. HW shall transfer its Membership Interest free and clear of all liens, security interests, claims, and encumbrances.

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ARTICLE XII

REMOVAL OF MANAGING MEMBER

12.1      Removal Events. If one of the events described in this Section 12.1 occurs (any such event is referred to as a “Removal Event”), then any representative on the Executive Committee that has been designated by HW, may, in its sole discretion, elect to remove TNHC as the Managing Member in the manner described in this Article XII and, if removed, TNHC will suffer certain other consequences set forth in Section 12.3. A Removal Event for these purposes occurs if TNHC has engaged in Bad Conduct or Uncured Bad Conduct, has committed a Material Breach, has committed a Material Monetary Default, has become a Defaulting Purchaser under this Agreement, or has suffered a Bankruptcy or if TNHC Realty has engaged in TNHC Realty Bad Conduct.

12.2      Removal of Managing Member. Upon the occurrence of a Removal Event, any representative on the Executive Committee designated by HW may, in its sole discretion, elect to remove TNHC by delivering a written notice (the “Removal Notice”) to TNHC at any time after the occurrence of such Removal Event. The removal of TNHC shall be effective immediately after the delivery of the Removal Notice to TNHC. A Person designated by the representatives on the Executive Committee appointed by HW shall replace TNHC as the sole Managing Member upon any such removal.

12.3      Consequences of Removal. If TNHC is removed as the Managing Member pursuant to a Removal Event described in Section 12.1, then in addition to the rights of the other Members under Section 4.3 and applicable law, the following remedies and/or consequences shall take effect (to the extent applicable) immediately after the Removal Notice is delivered to TNHC:

(a)        TNHC’s representative to the Executive Committee shall automatically be removed and TNHC shall have no right to participate in the management of the Company or to appoint representatives to the Executive Committee;

(b)        TNHC’s Percentage Interest shall be reduced by 15 “whole” percentage points (i.e., if TNHC had a 30% Percentage Interest prior to the occurrence of the Removal Event, then after TNHC had been removed, TNHC’s Percentage Interest would be reduced from 30% to 15%). The Members acknowledge and agree that the Percentage Interest of the new Managing Member shall be increased by the same 15% that was forfeited by TNHC.

(c)        TNHC shall no longer have the right to receive the TNHC Management Fee pursuant to Section 7.8(b), the Construction Contract and the Sales and Marketing Agreement shall immediately be terminated on the delivery of the Removal Notice, and TNHC, its Affiliates, TNHC Realty, and all other Project Employees shall be released of all duties accruing thereafter with respect to the Project (other than any obligation TNHC may have under this Agreement to contribute capital to the Company and the obligation of TNHC and TNHC Realty to assist (and to cause its Affiliates to assist) in all reasonable respects for 60 days following such termination with a transition in management and a transfer of all applicable books and records to the Person designated as the new Managing Member);

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(d)        In connection with the termination of any agreements between TNHC (and/or its Affiliates) and the Company (including the Construction Contract and the Sales and Marketing Agreement), the Company may offset payment of all reimbursements to TNHC and/or to its Affiliates pursuant to any such agreements and/or pursuant to Section 7.5 hereof against amounts that TNHC or its Affiliates may owe the Company.

12.4      Cooperation. TNHC shall fully cooperate with the other Member by executing all documents, providing all information, and taking or refraining from taking such other action as may be necessary or appropriate to evidence its removal as the Managing Member, and the substitution of a Person designated by the representatives on the Executive Committee appointed by HW as the new Managing Member. If, however, TNHC fails or refuses to execute any such instruments, TNHC shall be deemed to have constituted and appointed the representatives on the Executive Committee appointed by HW as its true and lawful agent and attorney-in-fact with full power of substitution and with full power and authority to execute such instruments as such other Person deems necessary or desirable to effectuate the removal of TNHC and the substitution of such other Person as the new Managing Member. The foregoing power of attorney is hereby declared to be irrevocable and coupled with an interest, and it shall survive the dissolution or liquidation of TNHC, and upon the transfer of its Membership Interest, shall extend to the successors and assigns of TNHC.

12.5      Consent to Remedies. The Members acknowledge and agree that the remedies set forth in this Article XII are not the exclusive remedies available to a Member if TNHC commits or is alleged to have committed a Removal Event. In addition to the remedies described herein, a Member shall continue to have all other legal and equitable remedies available against TNHC or an Affiliate of TNHC (including a suit for damages and/or if applicable, a suit for specific performance) if TNHC (and/or any Person that is an Affiliate of TNHC) commits or is alleged to have committed a Removal Event.

ARTICLE XIII

DISSOLUTION AND LIQUIDATION

13.1      Dissolution.

(a)        Except as set forth in this Agreement, no Member shall have the right to terminate this Agreement or to dissolve the Company by its express will or by withdrawal without the consent of the other Members.

(b)        The Company shall be dissolved upon the first to occur of any of the following events and/or on the following dates (each such event is referred to as a “Dissolution Event”):

(i)        the entry of a decree of judicial dissolution under section 18-802 of the Delaware Act;

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(ii)        an election to dissolve the Company is approved in writing by the Executive Committee (as a Supermajority Majority Decision);

(iii)        The sale or other disposition by the Company of all or substantially all of the Company’s assets and the collection by the Company and distribution to the Members of the proceeds from such sale (whether proceeds shall be cash, notes, or other property) pursuant to this Agreement; or

(iv)        Any other event causing a dissolution of the Company as described in section 18-801 of the Delaware Act (it being recognized that an event causing a dissolution of the Company as described in section 18-801 of the Delaware Act that can be altered or eliminated by an agreement of the Members, shall be deemed to be altered or eliminated and not included in this Section 13.1(b)(iv).

(c)        Upon the occurrence of a Dissolution Event, the Company shall conduct only those activities necessary to wind up its affairs.

13.2      Liquidation.

(a)        Upon dissolution of the Company, a Person selected by the Executive Committee shall serve as the liquidator (the “Liquidator”) of the Company.

(b)        Upon dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by the Executive Committee. The right to appoint a successor or substitute Liquidator in the manner provided herein shall be recurring and continuing for so long as the functions and services of the Liquidator are authorized to continue under the provisions hereof, and every reference herein to the Liquidator will be deemed to refer also to any such successor or substitute Liquidator appointed in the manner herein provided.

(c)        Except as expressly provided in this Article XIII, the Liquidator appointed in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Managing Member under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, including the limitations set forth in Section 7.3) to the extent necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding up and liquidation of the Company as provided for herein.

(d)        The Liquidator, with the approval of the Executive Committee, shall liquidate the assets of the Company, and, after making all allocations and distributions otherwise required by this Agreement and approved by the Executive Committee, shall apply and distribute the net proceeds of such liquidation in the following order of priority:

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(i)        to the creditors of the Company, including Members, in the order of priority provided by applicable law; and

(ii)        to the Members in the same manner and order of priority as provided for distributions under Section 6.1; provided, however, that the Liquidator may place in escrow a reserve of cash or other assets of the Company for contingent liabilities in an amount determined by the Executive Committee to be appropriate for such purposes.

13.3      Reserves. After all of the assets of the Company have been distributed, the Company shall terminate. If at any time thereafter any funds in any cash reserve fund referred to in Section 13.2(d) are released because the need for such cash reserve fund has ended, such funds shall be distributed to the Members in the same manner as if such distribution had been made pursuant to Section 13.2(d) .

13.4      Distribution in Kind. Notwithstanding the provisions of Section 13.2, which require the liquidation of the assets of the Company, but subject to the order of priorities set forth therein, if upon the dissolution of the Company the Executive Committee determines that an immediate sale of part or all of the Company’s assets would be impractical or would cause undue loss to the Members, the Liquidator may, in good faith, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Company (other than those to Members). The Liquidator may distribute to the Members, in lieu of cash, such Company assets as the Liquidator and the Executive Committee deem not suitable for liquidation. Any distributions in kind shall be subject to such conditions relating to the disposition and management thereof as the Liquidator and the Executive Committee deem reasonable and equitable. The Liquidator shall value any property distributed in kind based upon such property’s fair market value as determined by the Liquidator and the Executive Committee using such reasonable method of valuation as it may adopt.

13.5      Disposition of Documents and Records. All documents and records of the Company, including, without limitation, all financial records, vouchers, canceled checks and bank statements, shall be delivered to the Managing Member upon termination of the Company. Any Member may at any time exercise its rights to audit the Company’s books and records after the liquidation and dissolution of the Company. Any such audit shall commence immediately after such notice is delivered to the Managing Member. Unless otherwise approved by the Executive Committee, the Managing Member shall retain such documents and records for a period of not less than seven (7) years and shall make such documents and records available after reasonable notice during normal business hours to any other Member for inspection and copying at the other Member’s cost and expense.

13.6      Cancellation of Certificate of Formation. Upon the completion of the distribution of Company property as provided in Sections 13.2, 13.3, and 13.4, the Company shall be terminated, and the Liquidator (or the Members if necessary) shall cause the cancellation of the Certificate of Formation in the State of Delaware and shall take such other actions as may be necessary to terminate the Company.

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13.7      Return of Capital. No Member shall be personally liable for the return of the Capital Contributions of any other Member, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.

13.8      Waiver of Partition. Each Member hereby waives any rights to partition of the Company property.

ARTICLE XIV

AMENDMENT OF AGREEMENT

14.1      Amendment Procedures.

(a)        Amendments to this Agreement may be proposed by any Member, which shall give written notice to all Members of the text of such amendment, together with a statement of the purpose of such amendment.

(b)        Proposed amendments to this Agreement shall be adopted only if they have been approved in writing by each Member. The Managing Member shall, within a reasonable time after the adoption of any amendment to this Agreement, make official filings or publications required or desirable to reflect such amendment, including any required filing for recordation of any parallel amendment to the Certificate of Formation.

ARTICLE XV

GENERAL PROVISIONS

15.1      Addresses and Notices. Any notice provided in or permitted under this Agreement shall be made in writing and may be given or served by: (a) delivering the same in person to the party to be notified; (b) depositing the same in the mail, postage prepaid, registered or certified with return receipt requested, and addressed to the party to be notified at the address herein specified; (c) delivering the same on a prepaid basis via a nationally recognized courier service, such as FedEx; or (d) sending the same by facsimile transmission, followed by delivery of a hard copy via a nationally recognized courier service, such as FedEx. If notice is deposited in the mail pursuant to this Section 15.1, it will be deemed received on the fourth (4^th) Business Day after it is so deposited. Notice given in any other manner shall be deemed received only if and when actually received by the party to be notified. For the purpose of notice, the address of the parties shall be, until changed as hereinafter provided for, as follows:

If to HW:	HW San Jose, LLC
	3090 Olive Street, Suite 300
	Dallas, Texas 75219-7640
	Attn: Scott Norman
	Fax No.: 972.201.2889
With a copy to:	Hillwood West
	6-B Liberty, Suite 140
	Aliso Viejo, California 92656
	Attn: L.M. Cummings
	Fax No.: 972.201.2889

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With a copy to:	Haynes and Boone, LLP
	2323 Victory Ave., Suite 700
	Dallas, Texas 75219
	Attn: Scott Drablos
	Fax No.: 214.200.0759
If to TNHC:	The New Home Company Northern California LLC
	2220 Douglas Boulevard, Suite 240
	Roseville, CA 95661
	Attn: Kevin Carson
	Fax No.: 916.771.4199
With a copy to:	The New Home Company LLC
	95 Enterprise, Suite 325
	Aliso Viejo, CA 92656
	Attn: Wayne Stelmar
	Attn: Joe Davis
	Fax No.: 949.382.7801
With a copy to:	Dzida, Carey & Steinman
	3 Park Plaza, Suite 750
	Irvine, California 92614
	Attn: Steven J. Dzida
	Fax No.: 949.399.0363

The parties shall have the right from time to time and at any time to change their respective addresses and each shall have the right to specify as its address any other address by at least 15 days’ prior written notice to the other parties. Each party shall have the right from time to time to specify additional parties to whom notice hereunder must be given by delivering to the other party 15 days’ prior written notice thereof, setting forth the address of such additional parties. Notice required to be delivered hereunder to any party shall not be deemed to be effective until the additional parties, if any, designated by such party have been given notice in a manner deemed effective pursuant to the terms of this Section 15.1.

15.2      Titles and Captions. All article and section titles and captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” and “Sections” are to Articles and Sections of this Agreement.

15.3      Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The locative adverbs “hereof,” “herein,” “hereafter,” etc. refer to this Agreement as a whole.

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15.4      Further Action. The parties shall execute all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

15.5      Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

15.6      Integration. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

15.7      No Third Party Beneficiary. This Agreement is made solely and specifically between and for the benefit of the parties hereto, and their respective successors and assigns subject to the express provisions hereof relating to successors and assigns, and no other Person whatsoever shall have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. It is expressly understood that the right of the Company or the Members to require any additional Capital Contributions under the terms of this Agreement shall not be construed as conferring any rights or benefits to or upon any Person not a party to this Agreement, including but not limited to, the holder of any obligations secured by a mortgage, deed of trust, security interest or other lien or encumbrance upon or affecting the Company or any interest of a Member therein.

15.8      Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

15.9      Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or, in the case of a transferee, upon executing and delivering such documents as required by the Executive Committee.

15.10    Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.

15.11    Invalidity of Provisions. If any provision of this Agreement is declared or found to be illegal, unenforceable or void, in whole or in part, then the parties shall be relieved of all obligations arising under such provision, but only to extent that it is illegal, unenforceable or void, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to make it legal and enforceable while preserving its intent or, if that is not possible, by substituting therefore another provision that is legal and enforceable and achieves the same objectives.

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15.12    Attorneys Fees. The prevailing party in any legal proceeding regarding this Agreement shall be entitled to recover from the other party all reasonable attorneys’ fees and costs incurred in connection with such proceeding.

15.13    Computation of Time. The time periods provided for in this Agreement shall be computed by excluding the first day and including the last day. All periods of time referred to in this Agreement shall include all Saturdays, Sundays and national holidays unless the period of time specified is Business Days; provided, however, that if the date of the last day to perform any act or to give any notice with respect to this Agreement shall fall on a Saturday, a Sunday, or a national holiday, then such act or notice may be timely performed or given on the next succeeding day which is not a Saturday, Sunday, or national holiday.

15.14    Representations and Warranties. Each of the Members severally and not jointly represents and warrants to the Company and each other Member as follows (which representations and warranties shall survive the Effective Date):

(a)        Such Member has full power and authority to enter into and to perform this Agreement in accordance with its terms.

(b)        This Agreement has been duly executed and delivered by such Member and constitutes the valid and binding obligation of such Member, enforceable against such Member in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights, or by general equity principles).

(c)        Such Member is an “accredited investor,” as such term is defined in Regulation D promulgated under the Securities Act and has executed and delivered such documents in evidence thereof as the Company has reasonably requested.

(d)        Such Member has been furnished access to the business and financial records of the Company and such additional information and documents as such Member has requested, and has been afforded an opportunity to ask questions of, and receive answers from, representatives of the Company concerning the terms and conditions of this Agreement, the Membership Interests, the Project Documents, operations, capitalization, financial condition, and prospects of the Company, and all other matters deemed relevant to Members.

(e)        Such Member is acquiring Membership Interests for its own account for investment purposes only, and not with a view to resale or distribution. Such Member has no present intention to distribute or sell the Membership Interests. Such Member has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness, or commitment providing for the Transfer of any of the Membership Interests and understands that the same are prohibited or restricted by this Agreement.

(f)        Such Member understands that the Membership Interests have not been registered under the Securities Act or the laws of any state, and that the Membership Interests may not be Transferred without compliance with the provisions of this Agreement, the Securities Act, and applicable state securities laws.

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(g)        Such Member has sufficient knowledge and experience in financial or business matters to evaluate the merits and risks of an investment in the Membership Interests. Such Member can afford to bear the economic risk of holding the Membership Interests for an indefinite period of time and can afford to suffer the complete loss of the investment in the Membership Interests. Such Member understands that due to the substantial restrictions on the transferability of the Membership Interests and the lack of a public market, it may not be possible for such Member to liquidate the investment in the Membership Interests in the case of emergency, if at all.

(h)        Such Member has no knowledge that amounts paid or contributed to such Member were directly or indirectly derived from, or related to, any activity that is deemed criminal under the laws of any applicable jurisdiction, including, without limitation, anti-money laundering laws.

(i)        Such Member does not have any knowledge that such Member is: (i) a country, territory, person or entity named on the list provided by the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”) or its website at www.treas.gov/ofac; or (ii) a foreign political figure or an immediate family member or close associate of a senior foreign political figure (a “High Risk Person”).

(j)        Such Member is in compliance with all applicable laws and regulations relating to the prevention of money-laundering, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, the regulations thereunder, and other applicable anti-money laundering laws and regulations of any applicable jurisdiction.

(k)        Such Member does not transact with entities or individuals that are subject to economic sanctions administered by OFAC, High Risk Persons or Prohibited Investors.

15.15    Confidentiality.

(a)        The Members acknowledge and agree that the Company is a private investment company. No Member shall disclose the terms of this Agreement to any other Person without first obtaining the consent of the representative(s) on the Executive Committee of the other Member. The Members also agree that they shall not disclose, via public announcements, press releases, interviews, or otherwise, any financial statements or financial information, any business, financial, or operational plans, any financial or other analysis, or any summaries, strategies, pro formas, valuations, agreements, plans, or projections of or pertaining to the Company or any other proprietary information of the Company (defined to include all information not previously publicly disclosed by the Company) unless such Member first obtains the consent of the representative(s) on the Executive Committee of the other Member, which consent shall not unreasonably be withheld and except: (i) as may be required by applicable law; or (ii) as may be required in connection with a judicial proceeding. Notwithstanding anything to the contrary in this Section 15.15(a), a Member may disclose (without the consent of any Member) the terms of this Agreement, any financial

76

statements, or financial information, any business, financial, or operational plans, any financial or other analysis, or any summaries, strategies, pro formas, valuations, agreements, plans, or projections of or pertaining to the Company or any other proprietary information of the Company to the employees, Affiliates and legal, accounting, financial, and business advisors of such Member.

(b)        Any documents provided by one party to another party pursuant to this Agreement shall be kept confidential and shall not be disclosed to any Person except: (i) as may be required by applicable law; (ii) as may be required in connection with a judicial proceeding; (iii) as may be required or permitted under Section 15.15(a) above; or (iv) with the consent of the party that provided such documents to the other party.

(c)        Subject to Section 15.15(a) above, each Member covenants and agrees that it will not, during the term of its ownership of a Membership Interest and thereafter, make any disparaging remarks in public about the Company, any Member, and/or any Affiliate of a Member, unless made as part of a public court filing in connection with a judicial proceeding.

15.16    Waiver of Jury Trial. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE COMPANY, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS AGREEMENT; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF THE PARTIES HERETO FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, EACH OF THE PARTIES HERETO HEREBY CERTIFIES THAT NONE OF ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OR RIGHT OF JURY TRIAL PROVISION. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION 15.16 ARE A MATERIAL INDUCEMENT TO THE ACCEPTANCE OF THIS AGREEMENT BY THE OTHER PARTIES HERETO.

[REMAINING PORTION OF PAGE LEFT INTENTIONALLY BLANK.]

77

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed this Agreement as of the day and year first above written.

HW:	HW SAN JOSE, LLC, a Delaware limited liability company
	By:
	Name:	Todd L. Platt
	Title:	Exec. Vice President
TNHC:	THE NEW HOME COMPANY NORTHERN CALIFORNIA, a Delaware limited liability company
	By:
	Name:	Wayne J. Stelmar
	Title:	Chief Financial Officer
	By:
	Name:	Joseph D. Davis
	Title:	Exec. V. P.

Signature Page

EXHIBIT A

LEGAL DESCRIPTION OF PROJECT SITE

Real property in the City of San Jose, County of Santa Clara, State of California, described as follows:

THE NEW PARCEL 3 PURSUANT TO THAT CERTAIN LOT LINE ADJUSTMENT PERMIT, FILE NO. AT10-032, RECORDED DECEMBER 17, 2010 AS INSTRUMENT NO. 21009516 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

PARCEL 4 AS SHOWN ON THAT CERTAIN PARCEL MAP FILED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON APRIL 3, 1985 IN BOOK 541 OF MAPS, PAGES 12 AND 13.

EXCEPTING THEREFROM THE FOLLOWING:

BEGINNING AT A POINT ON THE NORTHEASTERLY LINE OF SAID PARCEL 4 AT THE INTERSECTION OF SAID NORTHEASTERLY LINE AND THE LINE COMMON TO PARCELS 2 AND 3, AS SHOWN ON SAID PARCEL MAP;

THENCE SOUTH 67° 09' 10" EAST 14.81 FEET ALONG SAID NORTHEASTERLY LINE;

THENCE SOUTH 20° 27' 36" WEST 81.75 FEET;

THENCE WESTERLY ALONG A NON-TANGENT CURVE TO THE LEFT WITH A RADIUS OF 440.00 FEET, FROM WHICH A RADIAL LINE BEARS NORTH 22° 57' 39" EAST, THROUGH A CENTRAL ANGLE OF 22° 43' 49" FOR AN ARC LENGTH OF 174.56 FEET TO A POINT OF REVERSE CURVATURE;

THENCE NORTHWESTERLY ALONG SAID REVERSE CURVE WITH A RADIUS OF 374.00 FEET, THROUGH A CENTRAL ANGLE OF 74° 43' 14" FOR AN ARC LENGTH OF 487.74 FEET TO A POINT ON SAID NORTHEASTERLY LINE OF PARCEL 4;

THENCE SOUTH 67° 09' 10" EAST 590.77 FEET ALONG SAID NORTHEASTERLY LINE TO THE POINT OF BEGINNING.

PURSUANT TO THAT CERTAIN LOT LINE ADJUSTMENT RECORDED APRIL 30, 1999 AS DOCUMENT NO. 14785927 OF OFFICIAL RECORDS.

AND ALSO EXCEPTING THE FOLLOWING PARCEL (TRANSFER PARCEL 2):

A PORTION OF PARCEL 4 AS SHOWN ON THAT CERTAIN PARCEL MAP FILED ON THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, ON APRIL 3, 1985 IN BOOK 541 OF MAPS AT PAGES 12 AND 13 AND FURTHER DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHWESTERLY CORNER OF PARCEL 1 OF SAID PARCEL MAP; THENCE ALONG THE SOUTHERLY BOUNDARY SOUTH 67° 09' 10" EAST 14.06 FEET TO THE BEGINNING OF A NON-TANGENT CURVE; THENCE ON A CURVE TO LEFT WITH A RADIUS OF 374.00 FEET, THE RADIAL POINT OF WHICH BEARS NORTH 74° 57' 03" EAST , THROUGH A CENTRAL ANGLE OF 74° 43' 13", FOR AN ARC LENGTH OF 487.74 FEET; THENCE SOUTH 11° 22' 29" EAST 81.45 FEET; THENCE NORTH 88° 08' 31" WEST 368.34 FEET TO A POINT ON THE WESTERLY BOUNDARY OF SAID PARCEL 4; THENCE ALONG SAID WESTERLY BOUNDARY NORTH 3° 21" 23" WEST 350.86 FEET TO THE POINT OF BEGINNING.

AND ALSO EXCEPTING THE FOLLOWING PARCEL (TRANSFER PARCEL 3):

A PORTION OF PARCEL 4 AS SHOWN ON THAT CERTAIN PARCEL MAP FILED ON THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, ON APRIL 3, 1985 IN BOOK 541 OF MAPS AT PAGES 12 AND 13 AND FURTHER DESCRIBED AS FOLLOWS:

COMMENCING AT THE SOUTHEASTERLY CORNER OF PARCEL 1 OF SAID PARCEL MAP; THENCE ALONG THE EASTERLY BOUNDARY OF SAID PARCEL 1 NORTH 22° 50' 50" EAST 48.00 FEET TO AN ANGLE POINT THEREIN; THENCE LEAVING SAID EASTERLY BOUNDARY SOUTH 11° 22' 29" EAST 197.75 FEET TO THE POINT OF BEGINNING, SAID POINT BEING A POINT REVERSE CURVATURE ON THE SOUTHERLY BOUNDARY OF THAT CERTAIN PARCEL DESCRIBED BY DEED RECORDED ON APRIL 20, 1999 AS DOCUMENT NO. 14785926; THENCE ALONG A NON-TANGENT CURVE TO THE RIGHT WITH A RADIUS OF 440.00 FEET, THE RADIAL POINT OF WHICH BEARS SOUTH 0° 13' 50" WEST, THROUGH A CENTRAL ANGLE OF 22° 43' 49" FOR AN ARC LENGTH OF 174.56 FEET; THENCE NORTH 20° 27' 36" EAST 81.75 FEET TO A POINT ON THE SOUTHERLY BOUNDARY OF PARCEL 3 OF SAID PARCEL MAP; THENCE ALONG SAID SOUTHERLY BOUNDARY SOUTH 67° 09' 10" EAST 355.76 FEET; THENCE LEAVING SAID SOUTHERLY BOUNDARY NORTH 88° 08' 31" WEST 510.51 FEET; THENCE NORTH 11° 21' 37" WEST 81.45 FEET TO THE POINT OF BAGINNING.

TOGETHER WITH THE FOLLOWING DESCRIBED PARCEL (TRANSFER PARCEL 4):

A PORTION OF PARCEL 3 AS SHOWN ON THAT CERTAIN PARCEL MAP FILED ON THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, ON APRIL 3, 1985 IN BOOK 541 OF MAPS AT PAGES 12 AND 13 AND FURTHER DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHEASTERLY CORNER OF SAID PARCEL 3; THENCE ALONG THE SOUTHERLY BOUNDARY OF SAID PARCEL NORTH 67° 09' 10" WEST 47.19 FEET; THENCE SOUTH 88° 08' 31" EAST 44.76 FEET TO A POINT ON THE EASTERLY BOUNDARY OF SAID PARCEL; THENCE ALONG SAID EASTERLY BOUNDARY ON A NON-TANGENT CURVE TO THE RIGHT WITH A RADIUS OF 1435.00 FEET, THE RADIAL POINT OF WHICH BEARS NORTH 84° 04' 43" WEST, THROUGH A CENTRAL ANGLE OF 0° 40' 32" FOR AN ARC LENGTH OF 16.92 FEET TO THE POINT OF BEGINNING.

A-2

EXHIBIT B

INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS

MEMBER	INITIAL CAPITAL CONTRIBUTION
TNHC	$ 4,856,100.00
HW	$27,517,900.00

EXHIBIT C

APPROVED COSTS INCURRED BY TNHC

The New Home Company Nothern California LLC

San Jose / Berryessa Site Preacquisition Costs

As of May 16, 2012

Major   Code	Major Description	Supplier Name	Ref No.	Line Item Description	Post Date	Amount
1145	Mktg Consult	Anderson Marketing Group, LLC	00000340, 0001	FOX Anderson Mktg costs, initial study during 2011	1/2/2012	$	6,500.00
1130	Other Engr/Arch	JZMK Partners	00000340, 0001	concept site plan study	1/2/2012		10,335.00
0104	Land Deposits	FATCO	00000345, 0001	FOX property wire out initial deposit	2/10/2012		250,000.00
0130	Preacq Other/Closing	FATCO	00000345, 0001	FOX property wire out independent consideration	2/10/2012		100.00
1150	Finance Consult	Developers Research	91396	Inv: 91396: Developers Research Determine the finished lot costs and prepare takeoff	3/27/2012		11,500.00
5005	Architecture	Robert Hidey Architects Inc.	1117	Inv: 1117: Robert Hidey Architects Inc. Brokaw Road San Jose - Site plan	3/27/2012		19,997.50
5005	Architecture	Robert Hidey Architects Inc.	1120	Inv: 1120: Robert Hidey Architects Inc. Brokaw Road San Jose - Product 1	3/27/2012		4,437.50
5005	Architecture	Robert Hidey Architects Inc.	1121	Inv: 1121: Robert Hidey Architects Inc. Brokaw Road San Jose - product 2	3/27/2012		3,925.00
5005	Architecture	Robert Hidey Architects Inc.	1122	Inv: 1122: Robert Hidey Architects Inc. Brokaw Road San Jose - product 3	3/27/2012		2,450.00
1160	Reprograph/Reimb	FedEx	7-824-58634	Inv: 7-824-58634: FedEx Charge 3/12	3/30/2012		19.16
1150	Finance Consult	Karin Asset Mgmt Services, LLC	00001152, 0001	Jan-Feb ‘12 Project financial modeling	3/30/2012		3,200.00
1150	Finance Consult	Karin Asset Mgmt Services, LLC	015	Mar ‘12 Project Financial modeling	3/31/2012		1,600.00
0110	Feasibility Costs	Anderson Marketing Group, LLC	300999, 000002	Fox Property Market Analysis retainer	4/13/2012		3,250.00
0110	Feasibility Costs	Anderson Marketing Group, LLC	300999, 000002	Fox Property Market Analysis final pmt	4/13/2012		3,250.00
0115	Feasibility Legal	Cox Castle Nicholson	300999, 000006	Review environmental reports during Feb ‘12	4/13/2012		1,720.50
1160	Reprograph/Reimb	ARC	6308227	Inv: 6308227: ARC Reprographics for Board Package to San Jose	4/23/2012		958.13
0104	Land Deposits	FATCO	00001551, 0003	Fox property 2nd deposit, wire out	4/30/2012		500,000.00
1150	Finance Consult	Karin Asset Mgmt Services, LLC	016	Apr ‘12 Project financial modeling	5/3/2012		4,000.00
0110	Feasibility Costs	ARC	300999, 000009	Reprographics - Fox	5/10/2012		3.86
1120	Environ Consult	Cox Castle Nicholson	300999, 000011	Review Phase 1 assessment Mar ‘12	5/10/2012		1,998.00
0115	Feasibility Legal	Dzida, Carey & Steinman	300999, 000010	Acquisition legal during Feb ‘12, Sale Agreement	5/10/2012		8,979.25
0115	Feasibility Legal	Dzida, Carey & Steinman	300999, 000010	Acquisition legal during Mar ‘12, Sale Agreement	5/10/2012		8,807.50
0130	Preacq Other/Closing	Feeney, Ashley	Exp Rep 2/1-4/30	Expense report 2/1-4/30 Mileage reimb Fox	5/11/2012		300.30
0130	Preacq Other/Closing	Feeney, Ashley	Exp Rep 2/1-4/30	Expense report 2/1-4/30 Lunch w/ AJ & Market Cons Fox	5/11/2012		14.26
0130	Preacq Other/Closing	Feeney, Ashley	Exp Rep 2/1-4/30	Expense report 2/1-4/30 Toll- 2/22 & 3/15 to Fox	5/11/2012		10.00
5005	Architecture	Robert Hidey Architects Inc.	1172	Inv: 1172: Robert Hidey Architects Inc. Brokaw Road San Jose - Product 1	5/11/2012		6,850.00
5005	Architecture	Robert Hidey Architects Inc.	1173	Inv: 1173: Robert Hidey Architects Inc. Brokaw Road San Jose - Product 2	5/11/2012		5,475.00
5005	Architecture	Robert Hidey Architects Inc.	1180	Inv: 1173: Robert Hidey Architects Inc. Brokaw Road San Jose - Site plan	5/11/2012		12,507.07
0110	Feasibility Costs	Anderson Marketing Group. LLC	300999, 000014	Fox Property Market Analysis Report Revisions	5/16/2012		750.00
0115	Feasibility Legal	Dzida, Carey & Steinman	300999, 000015	Acquisition legal during Apr ‘12, Sale Agreement	5/16/2012		3,732.75
0110	Feasibility Costs	Engeo Incorporated	300999, 000013	Geotechnical Peer Review & Phase 1 ESA	5/16/2012		6,800.00
1135	Science Consult	WRA Inc	300999, 000016	Biological Reconnaissance Update	5/16/2012		2,295.25
30099901 - Prospect Proj - San Jose Berryessa Site						$	885,766.03

EXHIBIT D

FORM OF CONSTRUCTION CONTRACT

[Attached]

OWNER-CONTRACTOR GENERAL CONTRACT

PROJECT DESCRIPTION:

Project Name:                                

Tract(s)                      (“Project”)

This Owner-Contractor General Contract (“Contract”), is entered into on                         , 20        (“Effective Date”) by TNHC-HW SAN JOSE, LLC, a Delaware limited liability company (“Owner”), and TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation (“Contractor”). Owner and Contractor are collectively referred to as the “parties” and individually as a “party”.

ARTICLE 1

DURATION OF CONTRACT

The obligations of the parties under this Contract shall commence on the Effective Date. It is understood that Owner shall have the right but not the obligation to request Contractor to perform all or a part of the “Work” (as defined below) called for according to the terms of this Contract. Owner shall not be required to request such Work to be done and Contractor shall be obligated to perform the Work only if Owner requests that Contractor perform all or a part of the Work. Contractor shall at all times be ready, willing and able to commence prosecution of the Work in accordance with time frames required by Owner. Contractor acknowledges that it has received valuable consideration for entering into this Contract.

ARTICLE 2

SCOPE OF WORK

(a)        Contractor shall furnish all supervision, coordination, scheduling, bidding, estimating, labor, tools, equipment, materials, licenses, permits, inspections and all things necessary to fulfill the construction objectives of Owner as said objectives have been described to Contractor in the drawings and specifications (“Drawings and Specifications”) and all addenda (hereinafter “Addenda”) issued by Owner and all changes (“Changes”) issued by Owner after execution of this Contract, (the “Work”).

(b)        The above description of the Work is intended solely as a general summary and does not eliminate any requirements in this Contract or any items required for completion of the Project intended by this Contract or otherwise required by Owner. The Project generally consists of                                 .

(c)        Owner shall provide to Contractor all exhibits, the Drawings and Specifications, any Addenda, Changes and other materials regarding the Work comprising the contract documents, (collectively the “Contract Documents”) and the Work shall be completed in accordance with the Contract Documents.

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(d)        Contractor’s authority is expressly limited to the provisions provided herein or as may be amended in writing from time to time by Owner and mutually agreed to and accepted by Contractor in writing.

(e)        Prior to the execution of this Contract, The New Home Company Northern California LLC, a Delaware limited liability company (“TNHC”), as managing member, and HW San Jose, LLC, a Delaware limited liability company, as a member, entered into that certain Limited Liability Company Agreement of TNHC-HW San Jose, LLC (as it may be amended and restated, the “Company Agreement”). TNHC is an affiliate of Contractor. Notwithstanding anything to the contrary contained herein, after the Company Agreement is executed, Contractor shall have no right or authority, express or implied, under this Contract to take any action or expend any funds with respect to the services that Contractor has been engaged to perform under this Contract to the extent that, if such action were undertaken or such expenditure were made by TNHC, in its capacity as “managing member” of the Owner, such action or expenditure would require the approval of the Executive Committee (as defined in the Company Agreement), unless TNHC first obtains the prior approval of the Executive Committee in accordance with the Company Agreement.

ARTICLE 3

PAYMENT

Subject to the Company Agreement, all obligations of Contractor under this Agreement shall be performed at the cost of Owner. Owner shall pay Contractor for performance of this Contract in accordance with the terms of the “Payment Procedure and Schedule” attached hereto as Attachment “A.” As a condition precedent to Owner’s obligation to make any payment to Contractor, Owner will require that a partial waiver of liens, or a final waiver of liens, whichever is appropriate to the circumstances, be executed by Contractor and all subcontractors and material suppliers. In addition, if Owner has reason to believe that Contractor is not paying (or may not be able to pay) any of its subcontractors, Owner reserves the right to make payments jointly to Contractor and such subcontractors to the extent necessary to pay fully such subcontractors. If Contractor has received payment from Owner for subcontract work and Contractor withholds payment to the subcontractor for any reason, Contractor will notify Owner of its decision and the reason for withholding payment to the subcontractor; Owner may then deduct such amount from the next payment due Contractor and until such time as Contractor releases the funds to the subcontractor.

ARTICLE 4

CHANGES

Owner may make Changes in the Work to be performed and materials to be furnished under this Contract at any time by written order (“Change Order”). Contractor shall promptly comply with any such changes.

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ARTICLE 5

PROSECUTION OF THE WORK

(a)        All Work shall be done under the general supervision and direction of Owner; Contractor shall at all times furnish adequate, qualified job site supervision to direct the Work. The decision of Owner about the meaning the Contract Documents shall be final. Notwithstanding the foregoing, Contractor represents and warrants that it is technically, financially, and legally ready, willing, and able to perform the Work hereunder and that it is familiar with and knowledgeable about the applicable laws and regulations, and government agency policy documents to the extent necessary to carry out its duties in a professional, complete, and compliant manner. Contractor further represents and warrants that Work performed by or delivered through Contractor shall be in accordance with the generally accepted standards of the profession at the time of performance and shall conform to the provisions of this Contract. Contractor shall replace any part of the Work that fails to comply with this Contract.

(b)        Contractor shall commence the purchase of materials, retaining of subcontractors, and construction of the Project within a time period reasonably designated by Owner after receipt from Owner of a “Notice to Proceed.” For purposes of this Contract, the Notice to Proceed shall be a written notice from Owner to Contractor, directing Contractor to proceed with construction of the Project described in this Contract, provided that the Notice to Proceed is delivered to Contractor only after each of the following conditions have been fully performed and satisfied:

(i)        Contractor and Owner have agreed upon all the terms and conditions of this Contract, including particulars relating to the Drawings, Specifications and construction of the Project;

(ii)       All entitlements have been issued by necessary public agencies as required to fully commence and complete that portion of the Project subject to the Notice to Proceed;

(iii)      Contractor and Owner have executed all documents necessary to evidence their agreement relating to the Project described in this Contract, except Changes as needed in the future;

(iv)      Contractor has provided Owner with duplicate copies of the insurance policies which Contractor is to procure, or cause to be procured, under the provisions of the Insurance Section of this Contract.

ARTICLE 6

LABOR AND MATERIAL

(a)        Contractor shall furnish enough properly skilled workmen to diligently prosecute the Work.

(b)        Contractor acknowledges that all employees comply with current immigration laws.

(c)        Contractor shall not employ or contract with any person or entity whose employment is objected to by Owner.

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ARTICLE 7

SUBCONTRACTORS

Contractor shall be responsible for hiring, coordinating and supervising the various subcontractors, suppliers and materialmen (“Subcontractors”) necessary to complete the Project. Contractor shall contract solely in its own name and behalf, and not in the name or behalf of Owner with the selected Subcontractors. Nothing contained herein shall create any contractual relationship between Owner and any Subcontractors. By its subcontracts, Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to Contractor by the terms of this Contract, and to assume toward Contractor all the obligations and responsibilities which Contractor, by this Contract, assumes toward Owner. The subcontracts shall preserve and protect the rights of Owner under this Contract with respect to the Work to be performed by the Subcontractors so that the subcontracting thereof will not prejudice such rights. Where appropriate, Contractor shall require each Subcontractor to enter into similar agreements with its sub-subcontractor.

ARTICLE 8

CLEAN-UP

Contractor shall ensure the Project remains clean and orderly and shall cause all rubbish, debris and surplus materials to be removed from the Project site on a regular basis. On completion of the Project, Contractor will remove debris and surplus material from the Project site, and will thoroughly clean the Project, leaving it in a neat and broom-clean condition.

ARTICLE 9

SAFETY

Contractor shall provide safe and sufficient facilities at all times. Contractor shall take all safety measures necessary to ensure the safety of the public and of workers on the job, and to prevent accidents or injury to any persons on, about, or adjacent to the premises where the Work is being performed. Contractor shall give all notices and comply with all codes relative to safety of persons or property and their protection from damage, injury or loss and the prevention of accidents including, without limitation, the California Occupational Safety and Health Act of 1973 and all rules and regulations promulgated by the California Department of Industrial Relations pursuant to said act.

ARTICLE 10

PROTECTION OF WORK

Contractor shall be responsible for the protection of the Work until final completion and acceptance by Owner.

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ARTICLE 11

INSURANCE

The Contractor shall provide, and shall require its subcontractors to provide, insurance of the type and on the terms and conditions as required by Owner.

ARTICLE 12

COMPLIANCE WITH LAW

(a)        Contractor shall keep and have available all records and make all payments, reports, collections, deductions and otherwise do all things to comply with all federal, state, and local laws, ordinances and regulations as they affect its performance of this Contract including, but not limited to, those relating to production, purchase and sale, furnishing and delivering, pricing and use or consumption of materials, supplies and equipment hire, tenure or conditions of employment of employees and their hours of work and rates of and the payment of their wages, and payment, collection, and deduction of federal, state and local taxes and contributions.

(b)        Contractor shall obtain all permits, licenses and official inspections for the Work.

ARTICLE 13

RELEASE OF LIENS

Contractor shall deliver the Work and materials to Owner free of all claims, security agreements, levies, encumbrances or liens, including providing all lien releases as required by Owner.

ARTICLE 14

ASSIGNMENT

Contractor shall not assign this Contract in whole or in part, or the proceeds of it, without written consent of Owner.

ARTICLE 15

ATTORNEYS FEES

If Owner or Contractor becomes involved in arbitration or litigation arising out of this Contract, or the performance of it, the court or tribunal in such arbitration or litigation, or in a separate suit, shall award reasonable costs and expenses of arbitration and litigation, including, but not limited to, expert witness fees and attorneys fees, to the prevailing party or parties.

ARTICLE 16

INDEPENDENT CONTRACTOR

Contractor hereby declares that it is engaged in an independent business, and agrees to perform the Work described in this Contract as an independent contractor, and not as an agent, employee, or servant of Owner. Contractor has, and hereby retains, the right to exercise full control and supervision of the work, and full control over the employment, direction, compensation, and discharge of all persons assisting in the work. Except as otherwise provided

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in the Company Agreement, Contractor agrees to be solely responsible all matters relating to payment of its employees, including compliance with social security, withholding, and all other regulations governing such matters. Contractor agrees to be responsible for its own acts and those of its subordinates, employees, and subcontractors during the life of this Contract.

ARTICLE 17

ENTIRE AGREEMENT

This Contract contains the entire agreement between the parties and no prior written or oral proposals, agreements, representations or statements made by Owner before execution of this Contract are valid unless the representation or statement is contained in this Contract. Captions of articles are for convenience and are not part of this Contract.

ARTICLE 18

THIRD PARTY BENEFICIARY

This Contract, or any part of it, shall not give third parties other than Owner any claim, demand or right of action against Owner or Contractor beyond those that exist in the absence of this Contract.

ARTICLE 19

CALIFORNIA MECHANIC’S LIEN LAW

Owner shall have the right to treat Contractor as a general contractor in regard to Contractor’s compliance with the California Mechanic’s Lien Law.

ARTICLE 20

GOVERNING LAW

This Contract is governed by California law.

ARTICLE 21

VENUE

Any legal proceedings arising from this Contract shall be brought only in a court of competent jurisdiction in the County in which the Project is located.

ARTICLE 22

INVALIDITY OF ANY PROVISION

If any term or other provision of this Contract is determined to be invalid, illegal or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Contract shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Contract so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

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ARTICLE 23

BINDING EFFECT

This Contract shall be binding upon and inure to the benefit of the parties hereto, their partners, members, directors, heirs, personal representatives, successors and duly approved assignees. If there is any conflict between the this Contract and the Company Agreement, the Company Agreement shall control.

ARTICLE 24

NOTICE

When this Contract provides for notice it shall be given by: (a) registered or certified mail, addressed to the place designated in this Article; (b) a writing delivered to the place designated in this Article, or to Contractor’s representative at the Project site; or (c) orally to Contractor’s representative at the Project site in an emergency; or (d) telephone to Contractor at the place designated in this Article if Contractor is in default. Such oral notice shall be promptly confirmed in writing in accordance with either sub-articles (a) or (b). Notice to the other side shall be given at the address set forth on the first page of this Contract. Unless otherwise specifically provided, forty-eight (48) hours’ notice shall be given. Notice time shall run from the time it is given, and under subdivision (d) from the time of telephone notice.

ARTICLE 25

JOINDER OF PARTIES

In the event there exists an agreement between either party and a third party that provides for arbitration, judicial reference or other alternative dispute resolution proceeding as the forum for the resolution of disputes, and a claim, dispute or other controversy exists between either party and such third party which may involve claims between the parties hereto, both parties expressly agree to be joined as an additional party in any and all such arbitration or other proceedings, or if a separate arbitration or other proceeding already exists or is separately initiated, both parties expressly agree to the consolidation of all such arbitration or other proceedings, it being the intent of the parties hereto to resolve all of the rights and obligations of all interested parties at one time in one forum rather than in multiple proceedings.

ARTICLE 26

ATTACHMENTS

All of the provisions set forth in the Attachment(s) attached hereto are hereby incorporated into this Contract.

-7-

The following statement is required by California law. Nothing in this statement shall modify the provisions of this Contract:

Contractors are required by law to be licensed and regulated by the Contractors’ State License Board which has jurisdiction to investigate complaints against contractors if a complaint regarding a patent act or omission is filed within four years of the date of the alleged violation. A complaint regarding a latent act or omission pertaining to structural defects must be filed within 10 years of the date of the alleged violation. Any questions concerning a contractor may be referred to the Registrar, Contractors’ State License Board, P.O. Box 26000, Sacramento, California 95826.

Signatures on this Contract, as well as any document identification herein, may be by facsimile or electronic signature, unless prohibited by law or required to be in a particular form for purposes of recordation, notarization, etc. This provision shall also apply to any documents to be signed by subcontractors, suppliers and materialmen of Contractor.

CONTRACTOR:		OWNER:
TNHC REALTY AND CONSTRUCTION,		TNHC-HW SAN JOSE, LLC,
INC., a Delaware corporation		a Delaware limited liability company
		By: THE NEW HOME COMPANY
By:		NORTHERN CALIFORNIA LLC, a Delaware
		limited liability company
	Its:	Its: Managing Member
		By:
			Its:

-8-

ATTACHMENT “A”

Payment Procedure

Contractor shall be paid by Owner for the Work undertaken at the Project in accordance with the following terms:

1. Owner shall pay Contractor from loan proceeds draws for the Project, at such times as those draws may occur.

2. The total amount payable to Contractor shall be equal to the actual costs incurred by Contractor (with no markup whatsoever) in connection with constructing the Project.

Contractor shall be paid by Owner for warranty and customer service work undertaken at the Project in accordance with the following terms:

1. Owner shall pay Contractor from those funds reserved by Owner for warranty and customer service work at the Project, as reflected in Owner’s financials.

2. It is anticipated that the total warranty and customer service work reserves accruals and/or charges for the Project will be one percent (1%) of gross sales revenues for the Project.

3. Contractor shall submit warranty and customer service work payment requests to Owner, which reflect time and materials, overhead, insurance, and such other ordinary and customary costs (with no markup whatsoever) which are incurred by Contractor in effectuating the warranty and customer service work at the Project.

EXHIBIT E

FORM OF SALES AND MARKETING AGREEMENT

[Attached]

SALES AND MARKETING CONTRACT

This Sales and Marketing Contract (“Agreement”) is entered into on                     , 20     (“Effective Date”), by TNHC-HW SAN JOSE LLC, a Delaware limited liability company (“Owner”) and TNHC REALTY AND CONSTRUCTION, INC., a Delaware corporation (“Broker”). Broker and Owner may be collectively referred to as the “parties” and individually as a “party”.

RECITALS

A.      Owner is the owner and developer of the                     residential development located in San Jose, California (“Project”).

B.      Broker is a licensed California Real Estate Broker.

C.      Owner desires to engage Broker to provide brokerage services for the sale of homes in the Project (“Residences”).

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:

1.      Broker’s License. Broker represents that it is duly licensed as a real estate broker by the State of California as follows: License Identification No.                     , Expiration Date:                     , 20    . During the term of this Agreement, Broker shall remain continuously licensed as a real estate broker by the State of California. To that end, Broker shall fulfill all continuing educational and other requirements and pay all required renewal and education fees, all at Broker’s sole cost.

2.      Broker Sales Office. Owner shall, at its sole cost and expense, provide a sales office and model home complex for the Project to be used by Broker.

3.      Salespersons. Broker shall engage real estate sales people for the sale of Residences all of whom will be real estate sales agents duly licensed as such by the State of California. Salespersons shall be employees or agents of Broker and not Owner. Broker shall supervise all salespersons and insure that all salespersons work in a professional manner to assist Broker in performing its obligations under this Agreement. The cost of salary, commission and benefits for such salespersons shall be reimbursed to Broker by Owner.

4.      Owner Obligations.

(a)      Office Equipment. Owner shall, at Owners cost and expense, provide Broker with all office equipment and supplies necessary, as determined sales offices, including, without limitation, displays, computers and software, desks, telephones, signs, business cards and stationery.

(b)      Sales Documents and Materials. Owner, at its sole cost and expense, shall promptly provide Broker with copies of all documents of any kind in its possession related to the Project and/or marketing activities for the Project, including, without limitation, marketing materials, financing documents and programs, homeowner warranty, standard, upgrade and option lists and ordering procedures, sales agreements and addenda, covenants, conditions, restrictions and all other homeowners association documents, association budget and Project disclosures. Owner shall, at its sole cost and expense, obtain all preliminary, conditional and final subdivision public reports issued by the California Department of Real Estate for the Project.

(c)      Marketing. Owner, at its sole cost and expense, shall provide (i) all advertising, public relations and other marketing support as may be required by Owner with respect to the Project, and (ii) all model and sales office furnishings and supplies of all types.

(d)      Project Costs. Owner shall be responsible for all Project costs of any kind. Except as provided in Section 5(a) below, Broker shall have no responsibility for any costs of ownership, entitlement, development, marketing or sale of the Project. (e) Prior to the execution of this Agreement, The New Home Company Northern California LLC, a Delaware limited liability company (“TNHC”), as managing member, and HW San Jose, LLC, a Delaware limited liability company, as a member, entered into that certain Limited Liability Company Agreement of TNHC-HW San Jose, LLC (as it may be amended and restated, the “Company Agreement”). TNHC is an affiliate of Broker. Notwithstanding anything to the contrary contained herein, after the Company Agreement is executed, Broker shall have no right or authority, express or implied, under this Agreement to take any action or expend any funds with respect to the services that Broker has been engaged to perform under this Agreement to the extent that, if such action were undertaken or such expenditure were made by TNHC, in its capacity as “managing member” of the Owner, such action or expenditure would require the approval of the Executive Committee (as defined in the Company Agreement), unless TNHC first obtains the prior approval of the Executive Committee in accordance with the Company Agreement. If there are an conflicts between this Agreement and the Company Agreement the Company Agreement shall control.

5.      Broker’s Duties and Obligations. Broker agrees that Broker shall at all times faithfully, industriously and to the best of Broker’s ability, experience and talents perform and/or comply with all the following duties and obligations:

(a)      Governmental Licenses . Broker shall obtain at its sole cost all governmental permits and authorizations of whatever nature that are personal to Broker and required for Broker to perform its obligations under this Agreement (other than such items that are required for the Project, including public reports from the California Department of Real Estate), provided that if Broker obligated to obtain a branch office license for the Project, such cost shall be reimbursed Broker by Owner.

(b)      Goodwill. Broker shall conduct its activities and regulate its habits so as to maintain and to increase, rather than diminish, the goodwill and reputation of Owner and the Project.

(c)      Compliance with Law. Broker shall comply with all applicable rules, regulations and laws applying solely to Broker, including, without limitation, all rules and regulations of the California Department of Real Estate and any other public agency having jurisdiction over the sale of Residences.

(d)      Owner Rules. Broker shall comply with all rules and policies established from time to time by Owner that relate to the Project and the activities related to the sale of Residences.

(e)      Correspondence. All letters and electronic mail received and copies of all letters and electronic mail written by Broker or any person employed by Broker pertaining to the Project or the business of Owner shall be the property of Owner and be turned over to Owner for its records.

(f)      Deposits. All money, documents or property received by Broker in connection with any transaction related to the sale of Residences shall be immediately delivered to escrow; provided that such delivery is in compliance with California real estate law. All checks or money orders shall be made payable to Owner or the escrow holder approved by Owner. Broker shall promptly make a complete and accurate accounting to Owner of all transactions.

(g)      Sales Process. Broker shall manage the contract execution and escrow process including coordination of all necessary signatures and documents for finance and escrow.

(h)      Salespersons. Broker shall insure that sales agents employed by Broker comply with all terms and provisions of this Agreement as they apply to Sales Agent.

(i)      Purchaser Assistance. Broker shall assist purchasers in the execution and delivery of all sales, Residence escrow, lender and related documentation and in the delivery and deposit of all funds.

(j)      Selection of Optional Items. Broker shall coordinate the selection of Residence optional items and upgrades by Residence purchases based on upgrade and option lists and procedures, including selection and deposit schedules, provided or approved by Owner.

(k)      Inspections and Move Ins. Broker shall coordinate the walk through inspection and move-ins for all Residences with purchases based on procedures and schedules provided or approved by Owner.

6.      Intentionally Omitted.

7.      Broker Authority.

(a)      Agent for Soliciting Offers. Broker is only the agent of Owner for purposes of soliciting offers for the purchase of Residences in accordance with this Agreement. Broker is not an agent for Owner for any other purpose.

(b)      No Authority to Bind. Except as authorized in writing by Owner, Broker shall not have the authority to bind Owner or any third parties in connection with any matter, including, without limitation, the purchase or sale of Residences, materials or services or in any other way obligate Owner or expose Owner to liability, without first obtaining the prior written consent of Owner.

(c)      Independent Contractor. Neither Broker nor any employee or agent of Broker shall be an employee of Owner for any purpose, including, without limitation tax purposes, and Broker shall be solely an independent contractor under this Agreement. Any amounts paid Broker under this Agreement shall constitute earnings from self-employment income, and Owner shall not withhold any amount therefrom for tax, insurance or any other withholding purpose. Broker shall not be entitled to any benefits normally provided by Owner to its employees, including, without limitation, health insurance, profit sharing, life insurance, vacation benefits or otherwise.

8.      Broker’s Insurance. Broker shall maintain insurance in form and coverage as required by Owner.

9.      Term. The term of this Agreement shall commence on the date this Agreement is executed and shall expire on the date which is sixty (60) days following the close of escrow for the sale of the final residence in the Project.

10.    Miscellaneous.

(a)      No Assignment. This Agreement and the right to receive payment hereunder is personal to Broker and any attempted assignment in whole or in part without the prior written consent of Owner, which consent may be withheld in Owner sole discretion, shall be ineffective and shall constitute a breach of this Agreement.

(b)      Amendments. This Agreement may not be amended or modified in any respect whatsoever except in writing duly executed by the parties.

(c)      No Third Party Beneficiaries. This Agreement is between the parties hereto only and is not intended to be, nor shall it be construed as being, for the benefit of any third party or parties except the parties.

(d)      Governing Law. This Agreement shall be governed by and construed under the laws of the State of California.

(e)      Invalidity of Provision. If any provision of this Agreement shall be held under any law or rule to be invalid or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement, the application of such provision under different circumstances or the validity or enforceability of the Agreement as a whole.

(f)      Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but which together shall constitute but one and the same instrument.

(g)      Notices. All notices or other communications between the parties required or permitted hereunder shall be in writing and personally delivered or sent by certified mail, return receipt requested and prepaid, or sent by reputable overnight courier (such as Federal Express, UPS ), or transmitted by electronic facsimile transmission (with electronic confirmation of receipt) to the addresses set forth on the signature page. A notice shall be effective on the date of personal delivery if personally delivered before 5:00 p.m., otherwise on the day following personal delivery, or on the date of receipt, if transmitted by electronic facsimile transmission (with electronic confirmation of receipt) prior to 5:00 p.m. or otherwise on the next business day, or two (2) business days following the date the notice is postmarked, if mailed, or on the day following delivery to the applicable overnight courier, if sent by overnight courier. Either party may change the address to which notices are to be given to it by giving notice of such change of address in the manner set forth above for giving notice.

(h)      Waiver. No waiver by Owner of any breach or default of any of the provisions of this Agreement by Broker and no failure to enforce any of the provisions hereof shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other provision. No waiver of any breach or default of Broker hereunder shall be implied from any delay or failure by Owner to take any action on account of such breach or default, whether or not such breach or default persists or is repeated, and no express waiver shall affect a breach or default other than as specified in said waiver. The consent or approval by Owner to or of any act by Broker shall not be deemed to be the consent or approval by Owner to or of any subsequent similar acts by Broker.

(i)      Construction. Each party has reviewed and revised this Agreement and any rule of construction that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement.

(j)      Entire Agreement. This Agreement is the entire Agreement between the parties with respect to the subject matter hereof, and neither party has relied upon any other communication whatsoever in entering into this Agreement. Any agreements, understandings, promises or representations not expressly contained herein shall in no way bind either party.

Signatures on following page

The parties have executed this Agreement as of the Effective Date.

“Owner”

TNHC-HW SAN JOSE, LLC, a Delaware

limited liability company

By: THE NEW HOME COMPANY, a

Delaware limited liability company

Title: Managing Member

By:

Name:

Title:

By:

Name:

Title:

Address:

95 Enterprise, Suite 325

Aliso Viejo, CA 92656

Fax: (949) 382-7801

“Broker”

TNHC REALTY AND CONSTRUCTION,

INC., a Delaware corporation

By:

Name:

Title:

By:

Name:

Title:

Address:

95 Enterprise, Suite 325

Aliso Viejo, CA 92656

Fax: (949) 382-7801

EXHIBIT F

INITIAL ANNUAL BUDGET

[Attached]

TNHC-HW San Jose LLC

Initial Annual Budget

5/29/12

		Original Budget May 2012			Approved Adj		PRIOR BUDGET		Proposed Adj			PROPOSED BUDGET						Activity Summary
																		Actuals thru xx/xx/12		Remaining
REVENUE	du														per du	%
Row Towns	92		55,781,900					55,781,900					55,781,900		606,325	36.1	%		-		55,781,900
Court Towns	80		48,468,200					48,468,200					48,468,200		605,853	31.3	%		-		48,468,200
Condo Flats	76		43,853,800					43,853,800					43,853,800		577,024	28.4	%		-		43,853,800
Subtotal	248		148,103,900			-		148,103,900		-			148,103,900		597,193	95.8	%		-		148,103,900
Lot Premiums			1,549,900					1,549,900					1,549,900		6,250	1.0	%		-		1,549,900
Upgrade Revenue			4,278,300					4,278,300					4,278,300		17,251	2.8	%		-		4,278,300
Model Recovery			738,000					738,000					738,000		2,976	0.5	%		-		738,000
TOTAL REVENUE			154,670,100			-		154,670,100		-			154,670,100		623,670	100	%		-		154,670,100
PROJECT COSTS
Land			32,000,000			-		32,000,000		-			32,000,000		129,032	20.7	%		-		32,000,000
Pre-acq Costs			177,500			-		177,500		-			177,500		716	0.1	%		-		177,500
Site Consultants			1,542,100			-		1,542,100		-			1,542,100		6,218	1.0	%		-		1,542,100
Site Fees			924,700			-		924,700		-			924,700		3,729	0.6	%		-		924,700
CFD Reimb			-			-		-		-			-		-				-		-
Site Improvements			8,173,000			-		8,173,000		-			8,173,000		32,956	5.3	%		-		8,173,000
Common Area			3,809,500			-		3,809,500		-			3,809,500		15,361	2.5	%		-		3,809,500
Other Site Costs			-			-		-		-			-		-				-		-
Development Costs			14,626,800			-		14,626,800		-			14,626,800		58,979	9.5	%		-		14,626,800
Directs - Rows			13,680,800			-		13,680,800		-			13,680,800		55,165	8.8	%		-		13,680,800
Directs - Courts			12,540,200			-		12,540,200		-			12,540,200		50,565	8.1	%		-		12,540,200
Directs - Flats			13,630,200			-		13,630,200		-			13,630,200		54,960	8.8	%		-		13,630,200
Upgrade Costs			3,169,900			-		3,169,900		-			3,169,900		12,782	2.0	%		-		3,169,900
Bldg Permits & Fees			10,654,000			-		10,654,000		-			10,654,000		42,960	6.9	%		-		10,654,000
House Consultants			1,983,700			-		1,983,700		-			1,983,700		7,999	1.3	%		-		1,983,700
Phased Site Costs			731,300			-		731,300		-			731,300		2,949	0.5	%		-		731,300
Indirects			3,635,600			-		3,635,600		-			3,635,600		14,660	2.4	%		-		3,635,600
Warranty			1,546,700			-		1,546,700		-			1,546,700		6,237	1.0	%		-		1,546,700
Model/Sales Ofc Startup			1,874,500			-		1,874,500		-			1,874,500		7,558	1.2	%		-		1,874,500
Prop Tax / HOA / Other			824,400			-		824,400		-			824,400		3,324	0.5	%		-		824,400
Insurance			2,165,400			-		2,165,400		-			2,165,400		8,731	1.4	%		-		2,165,400
Interest / Fees			3,101,400			-		3,101,400		-			3,101,400		12,506	2.0	%		-		3,101,400
Mgmt Fee - Hillwood			1,546,700			-		1,546,700		-			1,546,700		6,237	1.0	%		-		1,546,700
Mgmt Fee - TNHC			4,640,100			-		4,640,100		-			4,640,100		18,710	3.0	%		-		4,640,100
House Costs			75,724,900			-		75,724,900		-			75,724,900		305,342	49.0	%		-		75,724,900
GROSS PROFIT			32,318,400			-		32,318,400		-			32,318,400		130,316	20.9	%
OTHER COSTS
Commissions			1,277,700			-		1,277,700		-			1,277,700		5,152	0.8	%		-		-
Closing Costs			232,000			-		232,000		-			232,000		935	0.1	%		-		-
DMB Fee			1,000,000			-		1,000,000		-			1,000,000		4,032	0.6	%		-		-
Mktg & Advertising			700,900			-		700,900		-			700,900		2,826	0.5	%		-		-
Sales Personnel			925,500			-		925,500		-			925,500		3,732	0.6	%		-		-
Model / Sales Ofc Ops			728,400			-		728,400		-			728,400		2,937	0.5	%		-		-
Sales & Mktg Expenses			4,864,500					4,864,500		-			4,864,500		19,615	3.1	%		-		-
Other (Income) Expense			-					-		-			-		-				-
TOTAL COSTS			127,216,200			-		127,216,200		-			127,216,200		512,969	82.3	%		-		122,351,700
NET INCOME			27,453,900			-		27,453,900		-			27,453,900		110,701	17.7	%
			ok										ok
INVESTMENT SUMMARY
Hillwood Contributions			(32,555,255	)		-		-		1,004,275			(31,550,980	)		85	%		-		(31,550,980)
Hillwood Distributions			53,380,239			-		-		(1,054,100	)		52,326,139						-		52,326,139
Hillwood Return			20,824,984			-		-		(49,825	)		20,775,159			76	%		-		20,775,159
													25.1% IRR ; 1.7x
TNHC Contributions			(5,745,045	)		-		-		177,225			(5,567,820	)		15	%		-		(5,567,820)
TNHC Distributions			12,373,961			-		-		(127,400	)		12,246,561						-		12,246,561
TNHC Return			6,628,916			-		-		49,825			6,678,741			24	%		-		6,678,741
													38.1% IRR ; 2.2x
Total Contributions			(38,300,300	)		-		-		1,181,500			(37,118,800	)					-		(37,118,800)
Total Distributions			65,754,200			-		-		(1,181,500	)		64,572,700						-		64,572,700
Total Return			27,453,900			-		-		-			27,453,900						-		27,453,900
													27.3% IRR ; 1.7x

TNHC-HW San Jose LLC

Job Cost Master

5/29/12

							PRIOR				PROPOSED		COMMITMENTS					ESTIMATE
Description		Code	ORIGINAL BUDGET		Approved Adj		BUDGET xx/xx/12		Proposed Adj		BUDGET xx/xx/12		Contract/ PO’s		Incurred			Open Commited		Total Actuals xx/xx/12		Future Provision		TOTAL		Surplus (Deficit)		Notes
LAND
0102	Land	LND		32,000,000		-		32,000,000		-		32,000,000		-		-	0%		-		-		32,000,000		32,000,000		-
0110	Feasibility Costs	PA		177,500		-		177,500		-		177,500		-		-	0%		-		-		177,500		177,500		-
	Sub-Total			32,177,500		-		32,177,500		-		32,177,500		-		-			-		-		32,177,500		32,177,500		-
SITE CONSULTANTS
1105	Site Planning	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1110	Civil Engineering	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1115	Soils & Geology	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1120	Environ Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1125	Landscape Arch	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1130	Other Engr/Arch	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1135	Science Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1140	Gov’t Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1145	Mktg Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1150	Finance Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1155	Other Site Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1160	Reprographics	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
1195	Conting - Site Consult	SC		-		-		-		-		-		-		-	0%		-		-		-		-		-
	Sub-Total			1,542,100		-		1,542,100		-		1,542,100		-		-			-		-		1,542,100		1,542,100		-
SITE FEES
1305	Entitlement Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1310	Review,Permit,Inspect Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1315	Other Municipal Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1320	Local Agency Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1325	State Agency Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1330	Federal Agency Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1335	Environ Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1340	Private Fees/Permits	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1345	Utility Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1350	Impact Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1355	Bonds/LC’s	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1360	Reimb-Private	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1362	Reimb-Utility	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1364	Reimb-Public	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1366	Reimb-Recovery	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
1395	Conting - Site Fees	SFE		-		-		-		-		-		-		-	0%		-		-		-		-		-
	Sub-Total			924,700		-		924,700		-		924,700		-		-			-		-		924,700		924,700		-
SITE IMPROVEMENTS
1504	Demo/Clearing	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1508	Dirt Import/Export	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1510	Rough Grading	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1540	Sanitary Sewer	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1542	Storm Drainage	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1544	Water - Domestic	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1546	Water - Reclaimed	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1548	Communication Utilities	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1550	Joint Trench	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1552	Concrete Improv	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1554	Paving Improv	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1556	Street Lights/Signals	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1558	Signs & Striping	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1560	Retaining Walls	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1562	Walls & Gates Site	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1564	R&R/Bond Exon	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
1595	Contingency - Site	IMP		-		-		-		-		-		-		-	0%		-		-		-		-		-
	Sub-Total			8,173,000		-		8,173,000		-		8,173,000		-		-			-		-		8,173,000		8,173,000		-
COMMON AREA
1705	Hardscape & Trails	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1710	Entry & Monuments	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1715	Rec Structures/Rooms	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1720	Rec Furniture/Equip	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1725	Pools & Fountains	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1735	Landscaping CA	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1740	Mailboxes CA	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1745	Walls & Gates CA	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
1795	Contingency - CA	CA		-		-		-		-		-		-		-	0%		-		-		-		-		-
	Sub-Total			3,809,500		-		3,809,500		-		3,809,500		-		-			-		-		3,809,500		3,809,500		-
DIRECTS
	Directs - Rows	ROW		13,680,800		-		13,680,800		-		13,680,800		-		-	0%		-		-		13,680,800		13,680,800		-
	Directs - Courts	CRT		12,540,200		-		12,540,200		-		12,540,200		-		-	0%		-		-		12,540,200		12,540,200		-
	Directs - Flats	FLAT		13,630,200		-		13,630,200		-		13,630,200		-		-	0%		-		-		13,630,200		13,630,200		-
	Sub-Total			39,851,200		-		39,851,200		-		39,851,200		-		-			-		-		39,851,200		39,851,200		-
HOUSE CONSULTANTS
5005	Architecture	ARCH		-		-		-		-		-		-		-	0%		-		-		-		-		-
5010	House Engr	ARCH		-		-		-		-		-		-		-	0%		-		-		-		-		-

TNHC-HW San Jose LLC

Job Cost Master

5/29/12

							PRIOR				PROPOSED		COMMITMENTS					ESTIMATE
Description		Code	ORIGINAL BUDGET		Approved Adj		BUDGET xx/xx/12		Proposed Adj		BUDGET xx/xx/12		Contract/ PO’s		Incurred			Open Commited		Total Actuals xx/xx/12		Future Provision		TOTAL		Surplus (Deficit)		Notes
5015	DRE/HOA	ARCH		-		-		-		-		-		-		-	0%		-		-		-		-		-
5020	Processing Consult	ARCH		-		-		-		-		-		-		-	0%		-		-		-		-		-
5025	Other House Consult	ARCH		-		-		-		-		-		-		-	0%		-		-		-		-		-
5095	Conting - Hse Consult	ARCH		-		-		-		-		-		-		-	0%		-		-		-		-		-
	Sub-Total			1,983,700		-		1,983,700		-		1,983,700		-		-			-		-		1,983,700		1,983,700		-
HOUSE FEES
5205	Bldg Permits	BP		-		-		-		-		-		-		-	0%		-		-		-		-		-
5210	Connection Fees	BP		-		-		-		-		-		-		-	0%		-		-		-		-		-
5215	Impact/Facility Fees	BP		-		-		-		-		-		-		-	0%		-		-		-		-		-
5220	Other House Fees	BP		-		-		-		-		-		-		-	0%		-		-		-		-		-
5295	Conting - Hse Fees	BP		-		-		-		-		-		-		-	0%		-		-		-		-		-
	Sub-Total			10,654,000		-		10,654,000		-		10,654,000		-		-			-		-		10,654,000		10,654,000		-
GENERAL CONDITIONS
5405	GC Salaries & Burden	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5410	GC Temp Labor	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5415	GC PDA/Phones	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5420	GC Mileage/Travel	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5425	GC Misc People Costs	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5430	GC Field Office	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5435	GC Temp Utilities	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5440	GC Utilities Inventory	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5445	GC Temp Toilets	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5450	GC Temp Trash/Cleanup	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5455	GC Signage	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5460	GC Temp Fence/Storage	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5465	Site Security	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5470	SWPPP’s	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5475	Inspections	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5480	Vandalism/Theft/Repair	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5485	Other Site Controls	GC		-		-		-		-		-		-		-	0%		-		-		-		-		-
5495	Conting - GC	GC		-		-		-		-		-		-		-	0%		-				-		-		-
	Sub-Total			2,928,800		-		2,928,800		-		2,928,800		-		-			-		-		2,928,800		2,928,800		-
OTHER HOUSE COSTS
	Options	OPT		3,169,900		-		3,169,900		-		3,169,900		-		-	0%		-		-		3,169,900		3,169,900		-
	House Lot Costs	PSITE		731,300		-		731,300		-		731,300		-		-	0%		-		-		731,300		731,300		-
	Customer Care	GC		706,800		-		706,800		-		706,800		-		-	0%		-		-		706,800		706,800		-
	Warranty	WAR		1,546,700		-		1,546,700		-		1,546,700		-		-	0%		-		-		1,546,700		1,546,700		-
	Sub-Total			6,154,700		-		6,154,700		-		6,154,700		-		-			-		-		6,154,700		6,154,700		-
SALES & MKTG
6005	Model Design	MOD		883,800		-		883,800		-		883,800		-		-	0%		-		-		883,800		883,800		-
6010	Model Upgrades	MOD		526,100		-		526,100		-		526,100		-		-	0%		-		-		526,100		526,100		-
6020	Model Recovery	MOD		-		-		-		-		-		-		-	0%		-		-		-		-		-
6025	Sales Ofc Setup	MOD		78,600		-		78,600		-		78,600		-		-	0%		-		-		78,600		78,600		-
6030	Mktg Setup	MOD		236,000		-		236,000		-		236,000		-		-	0%		-		-		236,000		236,000		-
6105	Design Studio Setup	MOD		150,000		-		150,000		-		150,000		-		-	0%		-		-		150,000		150,000		-
6202	Commissions-House	COMM		376,000		-		376,000		-		376,000		-		-	0%		-		-		376,000		376,000		-
6204	Commissions-Design	COMM		128,300		-		128,300		-		128,300		-		-	0%		-		-		128,300		128,300		-
6206	Broker Co-op	COMM		773,400		-		773,400		-		773,400		-		-	0%		-		-		773,400		773,400		-
6208	Incentives	DISC		-		-		-		-		-		-		-	0%		-		-		-		-		-
6210	Closing Costs	CLO		232,000		-		232,000		-		232,000		-		-	0%		-		-		232,000		232,000		-
	DMB Fee	DMB		1,000,000		-		1,000,000		-		1,000,000		-		-	0%		-		-		1,000,000		1,000,000		-
	Exp Mktg & Adv	ADV		700,900		-		700,900		-		700,900		-		-	0%		-		-		700,900		700,900		-
	Exp Sales Personnel	SLS		925,500		-		925,500		-		925,500		-		-	0%		-		-		925,500		925,500		-
	Exp DS Personnel	SLS		-		-		-		-		-		-		-	0%		-		-		-		-		-
6705	Exp Model/SO Ops	MOPS		146,100		-		146,100		-		146,100		-		-	0%		-		-		146,100		146,100		-
6930	Exp DS Ops	MOPS		582,300		-		582,300		-		582,300		-		-	0%		-		-		582,300		582,300		-
	Sub-Total			6,739,000		-		6,739,000		-		6,739,000		-		-			-		-		6,739,000		6,739,000		-
FINANCE COSTS
5805	Interest	INT		2,730,400		-		2,730,400		-		2,730,400		-		-	0%		-		-		2,730,400		2,730,400		-
5810	Loan Fees	INT		371,000		-		371,000		-		371,000		-		-	0%		-		-		371,000		371,000		-
5815	Prop Tax / HOA	TAX		663,900		-		663,900		-		663,900		-		-	0%		-		-		663,900		663,900		-
5820	Insurance	INS		2,165,400		-		2,165,400		-		2,165,400		-		-	0%		-		-		2,165,400		2,165,400		-
5825	Finance Other / Legal	TAX		160,500		-		160,500		-		160,500		-		-	0%		-		-		160,500		160,500		-
5835	Mgmt Fees - TNHC	MGTT		4,640,100		-		4,640,100		-		4,640,100		-		-	0%		-		-		4,640,100		4,640,100		-
5840	Mgmt Fees - PTR	MGTP		1,546,700		-		1,546,700		-		1,546,700		-		-	0%		-		-		1,546,700		1,546,700		-
	Sub-Total			12,278,000		-		12,278,000		-		12,278,000		-		-	0%		-		-		12,278,000		12,278,000		-
	TOTAL			127,216,200		-		127,216,200		-		127,216,200		-		-			-		-		127,216,200		127,216,200		-		-
				127,216,195		Orig PF								-							-		Job Cost Detail
				(5)		rounding								-		Check					-		Check

TNHC-HW San Jose LLC

Budget Change Order Log

xx/xx/12

CO   #	Date	Acct Name		Cost     Code	Description	Budget Changes
						Approved Adj		Proposed
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
	xx/xx/12
			TOTAL				-		-

MEMBER’S APPROVAL
The Members hereby approve the budget changes listed above.
	Hillwood Entity
	The New Home Company Northern California LLC

EXHIBIT G

INSURANCE REQUIREMENT

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 on a close of escrow basis. Company agrees to maintain this coverage for the greater of ten (10) years following close of escrow or until all statutes of limitations expire.

Company further agrees to continue naming HW and TNHC and their respective members and any other parties in interest as Named Insured(s) for such coverage period.

c. Modification or deletion of the Alienated Premises Exclusion.

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

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.” This will not be needed if entities are listed as additional name insureds.

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

h. Third party coverage for mold property damage shall be included.

2.      Umbrella/Excess Coverage. Umbrella/Excess Liability coverage minimum limit shall be Ten Million Dollars ($10,000,000) each occurrence and shall be at least as “broad as primary.”

3.      Builder’s Risk. The Company shall purchase and maintain Builders’ Risk property insurance for all buildings under construction at 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 4 below. Policy shall-include the interests of the lender, if any, the Company, subcontractors and sub-subcontractors. Company 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 $10,000.00 per occurrence, if such losses or damages arise out of any operations by or on behalf of the Company. Any loss covered by such Builders’ Risk policy shall be adjusted and made payable to the Company as trustee for all insureds, as their interests may appear, subject to any lender’s requirements.

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.

4.      Flood and Wind. If any Company 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. If any Company 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 3%.

5.      Environmental. In the event the Company acquires a project requiring environmental remediation for which a “no further action” letter is obtained, then environmental liability coverage for such project shall be obtained with coverage limits approved by the Executive Committee.

6.      Worker’s Comp; Auto Liability. If the Company should have any employees or own any motor vehicles, then the Company, at its sole cost and expense, shall also purchase and maintain, as applicable: (a) Workers’ Compensation (statutory limits) and Employers’ Liability coverage with not less than $1,000,000 in coverage limits including a Waiver of Subrogation in favor of IHP and Watt; (b) Commercial Automobile liability covering owned, hired, and non-owned autos with not less than $1,000,000 in coverage limits; and (c) Umbrella liability coverage with not less than $10,000,000 in coverage limits, listing all policies and coverages under clauses 5.(a) and (b) hereof.

7.      Professional Liability. Unless real estate sales are outsourced to a third party, Company shall, at its sole cost and expense carry Real Estate Professional Liability (Errors and Omissions) with limits of $2,000,000 per occurrence and annual aggregate and a deductible of not more than $1,000.

G-2

8.      Comprehensive Crime Coverage. The Company, at its sole cost and expense shall purchase and maintain Comprehensive Crime coverage in a limit of $500,000 per claim, with a deductible of no more than $50,000.

9.      Policies referenced in 1 through 8 above must contain the following provisions:

a.      All policies must contain an endorsement affording a thirty (30) days notice of cancellation on an “endeavor to” basis in the event of cancellation, non-renewal or material reduction 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.

c.      Certificates of Insurance with the required endorsements evidencing the required coverages must be delivered to each Member as soon as practicable after the Effective Date. The Company further agrees to continue naming TNHC and HW and any other parties in interest as Named Insured(s) for applicable coverage period. All certificates shall show the amount of any self-insured retention or deductible.

10.    Design Professionals. The Company 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 $1,000,000.

11.    Further Company Obligations. If the Company fails to secure and maintain the required insurance absent unanimous approval by the Executive Committee, HW 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 Company shall pay the costs thereof and furnish upon demand all information that may be required in connection therewith.

G-3

COVER

	SIDLEY AUSTIN LLP 787 SEVENTH AVENUE NEW YORK, NY 10019 (212) 839 5300 (212) 839 5599 FAX	BEIJING BOSTON BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA	HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO	SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C.
	jcummins@sidley.com (212) 839-5374	FOUNDED 1866