<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996
REGISTRATION STATEMENT NO. 333-2820
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------
FLORDECO, LTD.
(Exact name of registrant as specified in its governing instruments)
3591 FOWLER STREET
FORT MYERS, FLORIDA 33911
(Address of principal executive offices)
--------------------------------
THOMAS R. CRONIN, CHAIRMAN
INVESTORS TRUST, INC.
3591 FOWLER STREET
FORT MYERS, FLORIDA 33901
(941) 936-8888
(Name and address of agent for service)
--------------------------------
COPIES TO:
RICHARD A. DENMON
CARLTON, FIELDS, WARD, EMMANUEL,
SMITH & CUTLER, P.A
ONE HARBOUR PLACE
TAMPA, FLORIDA 33602
--------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 of
1933, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration 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 number of the earlier effective registration statement for the
same offering. [ ] _______________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
--------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF PROPOSED
SECURITIES AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units of Limited Partnership
Interests . . . . . . . . . 1,000 Units $12,000 (2) $12,000,000 $4,137.93
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(2) Payment for each Unit shall consist of $2,000 in cash and $10,000 in a full
recourse promissory note of the purchaser.
===============================================================================
THIS REGISTRATION STATEMENT, INCLUDING EXHIBITS (SEE EXHIBIT INDEX ON PAGE ___),
CONSISTS OF ____ SEQUENTIALLY NUMBERED PAGES.
<PAGE> 2
FLORDECO, LTD.
---------------
CROSS REFERENCE SHEET
Pursuant to Rule 404(a) and Regulation S-K Item 501(b) Showing Location in
Prospectus of Information Required by Items of Form S-11
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
- ----------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . . . Facing Page; Cross Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages of Prospectus;
Table of Contents
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . . . . . . . . . Outside Front and Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Compensation of
General Partner and Its Affiliates; Partnership
Distributions and Allocations; Plan of Distribution
4. Determination of Offering Price . . . . . . . . . . . . Risk Factors - Arbitrary Offering Price
5. Dilution . . . . . . . . . . . . . . . . . . . . . . . *
6. Selling Security Holders . . . . . . . . . . . . . . . *
7. Plan of Distribution . . . . . . . . . . . . . . . . . Outside Front Cover Page; Prospectus Summary; Plan of
Distribution
8. Use of Proceeds . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Estimated Use of Proceeds
9. Selected Financial Data . . . . . . . . . . . . . . . . *
10. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . Management's Discussion and Analysis of Financial
Condition and Results of Operations
11. General Information as to Registrant . . . . . . . . . Prospectus Summary; Partnership Distributions and
Allocations; Management; Investment Objectives and
Polices; The Partnership; Summary of the Partnership
Agreement
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
12. Policy With Respect to Certain Activities . . . . . . . Inside Front Cover Page of Prospectus; Investment
Objectives and Policies; Reports to Prospectus
13. Investment Policies of Registrant . . . . . . . . . . . Investment Objectives and Policies
14. Description of Real Estate . . . . . . . . . . . . . . Risk Factors; Investment Objectives and Policies
15. Operating Data . . . . . . . . . . . . . . . . . . . . *
16. Tax Treatment of Registrant and Its
Security Holders . . . . . . . . . . . . . . . . . . Federal Income Tax Considerations; ERISA Considerations
17. Market Price of and Dividends on Registrant's
Common Equity and Related Stockholder Matters . . . Risk Factors; Partnership Distributions and Allocations;
Summary of the Partnership Agreement
18. Description of Registrant's Securities . . . . . . . . Prospectus Summary; Summary of Partnership Agreement;
Plan of Distribution
19. Legal Proceedings . . . . . . . . . . . . . . . . . . . The Partnership - Litigation
20. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Management; Plan
of Distribution
21. Directors and Executive Officers . . . . . . . . . . . Management
22. Executive Compensation . . . . . . . . . . . . . . . . Compensation to General Partner and Its Affiliates;
Management
23. Certain Relationships and Related Transactions . . . . Conflicts of Interest
24. Selection, Management and Custody of
Registrant's Investments . . . . . . . . . . . . . . Prospectus Summary; Estimated Use of Proceeds;
Compensation to General Partner and Its Affiliates;
Management; Investment Objectives and Policies
25. Policies With Respect to Certain Transactions . . . . . Conflicts of Interest; Investment Objectives and
Policies
26. Limitations of Liability . . . . . . . . . . . . . . . Fiduciary Responsibility of General Partner; Summary of
Partnership Agreement
27. Financial Statements and Information . . . . . . . . . Financial Statements
28. Interests of Named Experts and Counsel . . . . . . . . Legal Matters; Experts
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
29. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities . . . . . . . . . . . Fiduciary Responsibility of General Partner
</TABLE>
- ------------------------
* Omitted from Registration Statement because Item is not applicable.
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 6, 1996
$1,200,000 - MINIMUM
FLORDECO, LTD.
UP TO 1,000 UNITS OF LIMITED PARTNERSHIP INTERESTS
$ 12,000 PER UNIT
MINIMUM INVESTMENT -- FIVE UNITS
-------------------------
Flordeco, Ltd., a newly organized Florida limited partnership (the
"Partnership"), is hereby offering a minimum of $1,200,000 and a maximum of
$12,000,000 of its limited partnership interests ("Units") on a "best efforts"
basis. The Partnership has been formed primarily for the purpose of making
equity investments in a diversified portfolio of income producing real
properties located primarily in Southwest Florida. The sole corporate general
partner of the Partnership is Investors Trust, Inc., a newly-formed Florida
corporation (the "General Partner"). The Partnership's primary investment
objectives are to invest in properties that offer the potential to (i) preserve
and protect the Partnership's capital; (ii) provide for cash distributions from
operations commencing on or about the year 2000; and (iii) provide long-term
capital appreciation through the potential increase in value of such
properties. THERE IS NO ASSURANCE THAT ANY OR ALL OF SUCH OBJECTIVES WILL
ACTUALLY BE OBTAINED. See "Investment Objectives and Policies."
This offering involves a number of risks, including but not limited to the
following:
- - A substantial portion of the subscription price consists of a full recourse
noninterest bearing promissory note that will be collateralized by such
Units. The failure to pay any installment due under such notes may result
in not only a loss of the Unit, but an investor's personal assets may be
assessed for any remaining deficiency upon foreclosure of the note.
Investors will be obligated to repay such notes regardless of the
Partnership's results of operations. See "Plan of Distribution - Promissory
Notes".
- - Due to the limited amount of the purchase price payable in cash, to the
extent that the General Partner is unable to secure additional financing
collateralized by the notes the Partnership may be limited in the number of
investments that it can make during the initial years of the Partnership.
- - The Partnership does not have any operating history, does not presently own
any real property investments, and has not identified any investments that
it intends to acquire. See "Investment Objectives and Policies".
- - Neither the General Partner nor its affiliates have any prior experience in
operating a public real estate limited partnership and only limited
experience in operating a privately held real estate limited partnership.
See "Management."
- - Investors must place total reliance on the General Partner and its
affiliates to acquire and operate real property investments.
- - The Partnership will likely incur substantial indebtedness in connection
with the purchase of property investments and there are no restrictions on
the type or amount of leverage that the Partnership may incur on a single
property.
- - The Partnership will pay certain fees to the General Partner and its
affiliates, including real estate and lease commissions. See "Compensation
of General Partner and Its Affiliates."
- - The General Partner will be subject to various conflicts of interest with
limited partners. See "Conflicts of Interest."
- - Property investments are expected to be located primarily in Southwest
Florida and may lack geographic diversification.
- - The lack of a public market for the Units and the unlikelihood that a market
will develop, together with the restrictions on the transferability of the
Units, under both the Partnership Agreement and the terms of the Notes, and
the potential adverse federal income tax consequences of a sale, may prevent
an investor from liquidating its investment in the event of an emergency or
for any other reason. See "Summary of the Partnership Agreement".
- - There are tax risks associated with an investment in the Units. See
"Federal Income Tax Considerations" and "ERISA Considerations".
SEE "RISK FACTORS" AT PAGE 15, FOR A MORE DETAILED DISCUSSION OF THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE PARTNERSHIP.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC(1) COMMISSIONS(2) PARTNERSHIP(1)(3)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit . . . . . . . . . . . . . . . . . . . . . . . . $ 12,000 -0- $ 12,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Minimum(4) . . . . . . . . . . . . . . . . . . . . $ 1,200,000 -0- $ 1,200,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Maximum(4) . . . . . . . . . . . . . . . . . . . . $ 12,000,000 -0- $ 12,000,000
============================================================================================================================
</TABLE>
(Footnotes on Following Page)
THE DATE OF THIS PROSPECTUS IS AUGUST ___, 1996.
<PAGE> 6
(Cover Page Continued)
(Footnotes From Cover Page)
- -----------------
The purchase price for the Units are payable through the tender of a
$2,000 cash payment and the issuance of a full recourse noninterest
bearing promissory note to the Partnership in the amount of $10,000. The
cash portion may not exceed $2,000 at the time of subscription. The
promissory note, which will be collateralized by (and subject to set-off
against) each purchaser's Unit or Units, will be payable in ten equal
annual installments. The minimum purchase is five Units. See "Plan of
Distribution".
The Partnership shall offer the Units for sale exclusively through
specified officers and directors of the General Partner. No commissions
will be paid, directly or indirectly, on account of such sales efforts.
See "Plan of Distribution."
(3) Before deducting certain organizational and offering expenses payable by
the Partnership for legal, accounting, printing, and certain other costs
incurred in connection with the offering, estimated at $50,000. All such
expenses will be advanced by the General Partner and its affiliates on
behalf of the Partnership during the term of this offering, and the
Partnership will reimburse them for such expenses from the gross proceeds
of this offering. See "Estimated Use of Proceeds."
(4) The General Partner and its affiliates may purchase, for investment
purposes only, Units offered hereby, on the same terms and conditions as
other investors. Any Units purchased by these persons will be included
in determining whether the Minimum Offering has been obtained. The
General Partner currently intends to purchase at least five Units if the
Minimum Offering is sold (ten Units if the Maximum Offering is sold).
See "Plan of Distribution".
-------------------------
The Partnership is offering for sale, through specified officers and
directors of the General Partner, a minimum of 100 Units (the "Minimum
Offering") and a maximum of 1,000 Units (the "Maximum Offering"). Units are
being offered hereby at a price of $12,000 per Unit payable $2,000 in cash and
$10,000 in a full recourse noninterest bearing promissory note ("Note")
collateralized by (and subject to set-off against) such Unit. The minimum
subscription is five Units ($60,000). The General Partner reserves the right,
in its sole discretion, to waive the minimum subscription requirements. Once
submitted, a subscription cannot be withdrawn by the subscriber. Cash
subscription proceeds will be deposited into a noninterest bearing escrow
account at First National Bank of Southwest Florida (the "Escrow Agent"). If
the Minimum Offering has been subscribed and paid for on or before December 31,
1996, unless extended by the General Partner in its sole discretion to a date
no later than January 31, 1997 (the "Initial Termination Date"), the offering
will terminate and all subscription proceeds will be refunded promptly to
subscribers without interest or reduction. If the Minimum Offering is
subscribed and paid for prior to the Initial Termination Date, then the cash
proceeds will be released from escrow and the offering, unless earlier
terminated by the Partnership, shall continue until the earlier of: (i) the
sale of all Units offered hereby, or (ii) March 31, 1997, unless extended by
the General Partner in its sole discretion to a date no later than April 30,
1997 (the "Final Termination Date"). If a subscription is rejected or if it is
not accepted on or before the Final Termination Date, then such subscription
proceeds will be refunded promptly to such subscriber without interest or
reduction. See "Plan of Distribution."
The Prospectus describes an investment in Units of the Partnership
which will use the investors' money to make equity investments in income
producing real properties. After deduction of organizational and offering
expenses and fees, the General Partner estimates that approximately 75.0% (if
the Minimum Offering is sold) of the cash proceeds of this offering will be
used to acquire such investments for the Partnership.
The Units are offered subject to prior sale, receipt, and acceptance
of any offer to purchase, and subject to withdrawal or cancellation of the
offering prior to the admission of investors as limited partners without
notice. The Partnership reserves the right to reject any offer or
subscription, in whole or in part, and return subscription funds, without
interest or reduction, for any reason whatsoever. See "Plan of Distribution."
The General Partner will provide audited financial statements for its
first calendar year to Unitholders within 120 days after the Partnership's
first calendar year, and will furnish unaudited reports each year subsequent
thereto. Additionally, within 75 days after the end of each calendar year,
each Unitholder will be provided a report indicating the Partnership
information necessary for federal income tax purposes. The Partnership may
distribute quarterly reports for the first three quarters of each fiscal year
containing unaudited summary financial information, and other interim reports
to the Unitholders as it deems appropriate. See "Reports to Limited Partners".
-------------------------
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO
THE AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX
CONSEQUENCE WHICH MAY FLOW FROM AN INVESTMENT IN THIS PARTNERSHIP IS
PROHIBITED.
-------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE THE OFFER OR SOLICITATIONS IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED.
-------------------------
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Offering and Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Tax Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ESTIMATED USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
COMPENSATION OF GENERAL PARTNER AND ITS AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FIDUCIARY RESPONSIBILITIES OF THE GENERAL PARTNER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Partnership Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Distributions Upon Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PRIOR PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Management of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
The General Partner and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Management of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Management Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Management Company and Flordeco Realty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Principal Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Types of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Selection of Property Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Property Management and Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Borrowing Policies and Other Financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Improvements to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Possible Joint Venture Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Sale and Refinancing; Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Information About Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Temporary Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Policies with Respect to Certain Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Partnership Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Partnership Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Partnership Tax Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Partnership Taxation in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Partnership Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Allocations of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Depreciation Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Valuation of Partnership Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Contributing Appreciated Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Limitations on Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Contribution of Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Deductibility of Certain Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Characterization of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Entity-Level Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Sale or Other Disposition of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 754 Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Sale or Foreclosure of Partnership's Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Alternative Minimum Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Termination of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Capital Gains and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Publicly Traded Partnerships ("PTP") Treated as Corporations . . . . . . . . . . . . . . . . . . . . . . . . 66
Retirement Plan Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Tax Shelter Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Consequences of Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Penalties on Underpayment of Tax; Interest on Deficiencies . . . . . . . . . . . . . . . . . . . . . . . . . 70
State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Tax Considerations for Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Possible Changes in Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SUMMARY OF THE PARTNERSHIP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Organization and Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Responsibilities of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Restrictions on General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
General Partner Removal and Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Liability of General Partner to Partnership and Partners; Indemnification of the General Partner . . . . . . 74
Transactions with Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Amendment of the Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Meetings and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Termination, Dissolution, and Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Restrictions on Transferability of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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REPORTS TO LIMITED PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Terms of the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Method of Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
How to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Investors' Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SALES MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
EXHIBITS
Amended and Restated Limited Partnership Agreement Exhibit A
Form of Subscription Agreement Exhibit B
Form of Promissory Note Exhibit C
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and, where applicable, to the
exhibits forming a part hereof. The complete Prospectus and all exhibits hereto
should be carefully read and fully understood by each prospective investor prior
to subscribing for the Units.
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THE PARTNERSHIP . . . . . . . Flordeco, Ltd. (the "Partnership") is a limited partnership formed
pursuant to the Florida Revised Uniform Limited Partnership Act on
March 19, 1996, with its principal place of business located at 3591
Fowler Street, Fort Myers, Florida, 33901, telephone (941)936-8888.
GENERAL PARTNER . . . . . . . The sole General Partner of the Partnership is Investors Trust, Inc., a
newly formed Florida corporation wholly owned by Thomas R. Cronin, Sr.,
Dr. Gerald Laboda, Allan Fox, and Thomas R. Cronin, Jr. The principal
place of business of the General Partner is located at 3591 Fowler
Street, Fort Myers, Florida, 33901, telephone (941) 936-8888.
MANAGEMENT . . . . . . . . . The General Partner will have the sole responsibility and authority to
manage and control the affairs of the Partnership. Limited Partners
will not be permitted to participate in the management of the
Partnership, although certain limited voting rights are provided to
Limited Partners. See "Summary of the Partnership Agreement - Voting
Rights".
An affiliate of the General Partner, Flordeco, Inc., a Florida
corporation formed in 1973 (the "Management Company"), will provide
certain management services to the Partnership and its real property
investments. Pursuant to the Management Agreement, the Management
Company will locate and evaluate prospective real estate investments on
behalf of the Partnership, present investment recommendations to the
General Partner, negotiate the terms of investments on behalf of the
Partnership, establish a business plan for the properties, advise the
General Partner on the financing, refinancing or eventual sale of
Partnership investments, and oversee the provision of certain
administrative services to the Partnership in connection with its day-
to-day operations.
Mr. Cronin and Dr. Laboda, shareholders of the General Partner,
together own a controlling interest in the Management Company. Since
its inception, the Management Company has been engaged in similar
property management services. The General Partner, however, reserves
the right, in the future, to assume such property management duties or
to engage the services of another entity, including another affiliate.
See "Management".
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RISK FACTORS . . . . . . . . Prospective investors should carefully consider the matters discussed in
the "Risk Factors" section prior to making an investment decision
regarding the Units offered hereby, including risks associated with an
investment in real estate investments generally, risks associated with an
investment in a limited partnership, and tax risks. These risks include,
among others:
- The Partnership has no operating history, does not presently own any
real property investments, and has not identified any investments that
it intends to acquire.
- Risks associated with the failure to repay the full recourse Notes
furnished as partial payment for the Units offered hereby and the
possibility that the investor's personal assets may be assessed
therefor to the extent of any deficiency upon foreclosure of a Note.
- Neither the General Partner nor its affiliates have any prior
experience in operating a public real estate limited partnership and
only very limited experience with a private real estate limited
partnership.
- Investors must rely totally and exclusively on the General Partner and
its affiliates, including the Management Company, to identify, select,
acquire and operate the real property investments of the Partnership
and who will have full responsibility for the day-to-day management of
the Partnership.
- No assurance can be made as to when or whether any cash distributions
will be made to Unitholders, or the amount thereof if made, and the
possibility that the Partnership will never be able to make annual or
other cash distributions to investors, including the return of their
initial capital.
- The intended use of a significant amount of leverage in the acquisition
of the Partnership's investments, which leverage is expected to be
between 70-100% of the purchase price of such real property
investments, and which may result in a debt service obligation that
could adversely affect the amount of proceeds available for
distributions and may increase the possible risk that the Partnership's
may default on its obligations.
- The lack of any restrictions on the type or amount of leverage that the
Partnership may incur with respect to any single property or the
Partnership as a whole.
- Risks relating to the fact that the General Partner and its affiliates,
including the Management Company, who will perform services for the
Partnership, will receive substantial compensation, including real
estate and lease commissions and monthly management fees from the
Partnership in consideration for these services, which fees were not
the subject of arm's-length negotiations.
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- Conflicts of interest involving the General Partner and its affiliates in
connection with the operation and management of the Partnership, including
conflicts regarding business decisions which may result in a benefit to
the General Partner or its affiliates not shared by other investors.
- The risks associated with real estate investments generally, including the
potential lease defaults, the inability to lease premises on acceptable
terms, general economic conditions, and other circumstances over which the
Partnership has little or no control, such as natural disasters and
governmental regulatory policies.
- The anticipated lack of geographical diversity of the Partnership's real
property investments which are expected to be located primarily in
Southwest Florida resulting in the Partnership's prospects becoming
directly impacted by the economic conditions of that region alone.
- Competition with entities having substantially greater resources than the
Partnership in the purchase of real property investments.
- The risk that an investor who needs to sell its Units will be unable to
sell them quickly, if at all, due to the lack of a public market for the
Units and other restrictions related to their transfer.
TAX RISKS . . . . . . . . . . . An investment in the Partnership also involves certain tax risks,
including, among others:
- The possible taxation of the Partnership as a corporation if it fails
to qualify as a Partnership entity for tax purposes and the resulting
taxation of its distributions to Unitholders as dividends.
- The potential that the tax liabilities associated with a Unitholder's
share of allocable income from the Partnership for any year may exceed
the amount of cash distributed, if any, by the Partnership to the
Unitholders for that year, thereby requiring such Unitholder to make
out-of-pocket payments or such tax liability.
- Risk to tax-exempt investors that part or all of the income may
constitute unrelated business taxable income ("UBTI") which may be
taxable to such investors and require the filing of a federal income
tax return.
- Risk that an investment in the Units may not be appropriate for
retirement plan investors under ERISA.
ESTIMATED USE The Partnership does not own any real property investments and has
OF PROCEEDS not yet identified any real property investments that it intends to
purchase. See "Risk Factors - Risk of Unspecified Properties." The
Partnership primarily intends to make equity investments in, among
other things, a diversified portfolio of income producing residential
and commercial real properties located primarily in Southwest Florida.
After deduction of organizational and offering fees and expenses, the
General Partner estimates that approximately 75.0% (if the 100 Units
are sold) to 97.5% (if 1,000 Units are sold)
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of the cash proceeds of this offering will be used to acquire such
investments for the Partnership. The Partnership expects to operate
certain of the properties and to refurbish and make certain improvements
to the Partnership's real property assets in an effort to improve
occupancy, rental income, and the potential for capital appreciation of
such properties. See "Estimated Use of Proceeds" and "Investment
Objectives and Policies".
COMPENSATION OF THE . . . . . Affiliates of the General Partner will receive fees and compensation in
GENERAL PARTNER AND consideration for various services to be performed by them in connection
ITS AFFILIATES with the investment of the proceeds from this offering, and the
management, improvement, and disposition of the Partnership's assets. The
General Partner will not be paid any compensation or receive any front-end
fees for its services to the Partnership. Instead, except as described
herein, the General Partner, through its ownership of the Units offered
hereby, will receive only its pro rata share of the Partnership's
distributions and allocations as are made to all other Unitholders. The
Management Company will receive a monthly management fee equal to 5% of
Gross Operating Receipts from Rents of the Partnership for managing the
Partnership's assets and investments, and certain other affiliates may
receive real estate sales and leasing commissions. The General Partner
and its affiliates also may receive reimbursement for out-of-pocket
expenses that they incur on behalf of the Partnership. See "Compensation
of General Partner and Its Affiliates".
CONFLICTS OF INTEREST . . . . The General Partner and its affiliates will be subject to various
conflicts of interest with Limited Partners in connection with the
operation and management of the Partnership. These conflicts arise
primarily from their involvement in other activities that may conflict
with those of the Partnership. Although certain provisions of the
Partnership Agreement are designed to protect the interests of the Limited
Partners, the agreements and arrangements among the Partnership, the
General Partner and their affiliates are not the result of arm's-length
negotiations. For a more detailed discussion of significant potential
conflicts of interest, as well as the procedures established to resolve
certain of such potential conflicts, see "Conflicts of Interest".
PARTNERSHIP . . . . . . . . Profits, losses, and distributions of cash or property by the Partnership
DISTRIBUTIONS AND generally will be made to the Unitholders (including the General
ALLOCATIONS Partner) in proportion to the Units held by each of them. It is
anticipated that distributions of cash, if any, will be made annually from
adjusted cash flow commencing in the year 2000. Cash distributions shall
be made from the cash flow generated by the Partnership's operations that
the General Partner, in its sole discretion, determines is not required to
support the Partnership's current operations or future needs. The amount
of cash available for distributions will be reduced by the payment of
Partnership expenses (including management fees and commissions paid to
the General Partner and its affiliates, as well as any reimbursement of
expenses paid by them on behalf of the Partnership), the Partnership's
debt
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service requirements, and other liabilities as they become due. In
addition, in its sole discretion, the General Partner also may use or set
aside any portion of the distributable cash for working capital purposes,
repayment of borrowings, purchase of new assets, contingent liabilities,
taxes and other purposes. In this regard, it is anticipated that a
substantial portion of any proceeds received from any sale or refinancing
of the Partnership's properties will be reinvested in new property
investments until the Partnership's liquidation or termination.
Accordingly, the distribution of cash to Unitholders will be subject, in
large part, to the General Partner's discretion. Upon liquidation of the
Partnership, the cash and property of the Partnership (not otherwise sold
or retained by the Partnership to meet certain contingent or unforeseen
liabilities or obligations of the Partnership or of the General Partner)
will be distributed in accordance with the positive Capital Account
balances of its Unitholders. One exception to the general allocation of
income and loss is that Partnership losses in excess of those that may be
allocated to the Unitholders for federal income tax purposes will be
allocated to the General Partner. Likewise, the General Partner is
allocated the first profits of the Partnership in an amount up to the
excess losses previously allocated to the General Partner. See "Risk
Factors - The Offering and Investment Risks -- No Assurance of Cash
Distributions", "Partnership Distributions and Allocations", "Investment
Objectives and Policies - Partnership Distributions" and "- Sale and
Refinancing; Liquidation", and "Summary of the Partnership Agreement".
PRIOR PERFORMANCE . . . . . . Neither the General Partner nor its affiliates, including the Management
OF THE GENERAL PARTNER Company, have sponsored any other public or private real estate
AND AFFILIATES limited partnerships during the past ten years. Mr. Cronin and
Dr. Laboda, however, previously were sponsors of a Florida registered real
estate limited partnership that offered units to Florida residents in
1971, which partnership is currently being managed by the Management
Company. See "Prior Performance".
PARTNERSHIP OBJECTIVES . . . The Partnership's principal investment objectives are:
(a) The preservation and protection of the Partnerships capital;
(b) To provide cash distributions from operations commencing on or
about the year 2000 to Unitholders; and
(c) To provide long-term capital appreciation through the potential
appreciation in the value of the Partnership's properties.
THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP WILL ATTAIN ALL OR ANY OF
THESE INVESTMENT OBJECTIVES. See "Investment Objectives and Policies".
PARTNERSHIP BUSINESS . . . . The Partnership primarily intends to make equity investments in, among
other things, a diversified portfolio of income producing residential and
commercial real properties located primarily in
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Southwest Florida. The Partnership, however, is not restricted
geographically with respect to the location of its investments.
In selecting real property investments, the General Partner will
consider such factors as (i) the Partnership's acquisition costs in
relation to the General Partner's assessment of its value and the
replacement cost of the property, current rentals, expenses and cash
flow, and the ability to increase cash flow during the anticipated
holding period; (ii) long-term appreciation potential; (iii) location,
condition, and design of the property, including competition and
potential competition from other properties in the area; (iv) prospects
for long-range liquidity through sale or refinancing; (v) nature of the
community in which the property is located; (vi) type of property in
light of the Partnership's diversification objectives; and (vii)
applicable rent control and condominium conversion restrictions.
LEVERAGE . . . . . . . . . . The Partnership anticipates that it will incur substantial indebtedness
in connection with its real property investments. Under the terms of
the Partnership Agreement, there are no restrictions on the type of
debt that the Partnership may incur and there is no maximum leverage
limitation with respect to any single property investment. Generally,
the maximum indebtedness which may be incurred by the Partnership shall
not exceed 100% of the aggregate purchase price of all property
investments. In connection with its real property investments, the
General Partner anticipates that the Partnership will incur aggregate
borrowings of approximately 75-100% of the total purchase price of all
such investments. See "Risk Factors - Use of Leverage" and "Investment
Objectives and Policies - Borrowing Policies and Other Financings".
DEPRECIATION METHODS . . . . To the extent available, for tax purposes the Partnership will use
accelerated methods of depreciation under the accelerated cost recovery
system for the type of properties (residential, commercial, industrial,
or special use, as the case may be) in which the Partnership invests.
For financial statement purposes, depreciation will be computed in
accordance with generally accepted accounting principles. See "Federal
Income Tax Considerations - Depreciation Method".
RESTRICTIONS ON . . . . . . . There is no public market for the Units and none is likely to
TRANSFERABILITY AND develop. In addition, holders of the Units are subject to substantial
REPURCHASE restrictions on the transfer of the Units under the Partnership
Agreement and certain securities laws. Although the Partnership
reserves the right to repurchase Units under certain limited
circumstances, the Partnership is not obligated to do so and the
decision as to whether to repurchase the Units will be subject to the
General Partner's sole discretion and the availability of sufficient
funds therefor. In view of the very limited circumstances under which
repurchase may be considered, as well as the uncertainty of the General
Partner's approval of any specific purchase, investors should be
prepare
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to hold the Units indefinitely. See "Risk Factors - No Market for
Units; Lack of Liquidity", "Investment Objective and Policies -
Policies with respect to Certain Activities", and "Summary of the
Partnership Agreement - Restrictions on Transferability of Units".
TERMINATION OF THE . . . . . The Partnership Agreement provides that the existence of the
PARTNERSHIP Partnership shall continue until December 31, 2016, unless sooner
terminated by the Partners or otherwise pursuant to the Partnership
Agreement. Although the Partnership does not have any current plans to
dispose of its investments and liquidate prior to its termination date,
it reserves the right to do so.
FISCAL YEAR . . . . . . . . . Unless otherwise determined by the General Partner in the future, the
fiscal year of the Partnership will be the calendar year.
TERMS OF THE OFFERING . . . . The Partnership is offering a minimum of 100 Units (the "Minimum
Offering") and a maximum of 1,000 Units (the "Maximum Offering") on a
"best efforts" basis, which means that no one is guaranteeing any
minimum number of Units will be sold. Such Units are being offered for
sale through specified officers and directors of the General Partner at
a purchase price of $12,000 per Unit payable $2,000 in cash and a
$10,000 full recourse noninterest bearing promissory note ("Note").
The cash portion of the purchase price may not exceed $2,000 at the
time of the subscription. The minimum subscription is five Units. See
"Plan of Distribution".
ESCROW ARRANGEMENTS . . . . . Until subscriptions for the Minimum Offering have been obtained, cash
subscription payments from investors will be deposited into a special
noninterest bearing escrow account at First National Bank of Southwest
Florida ("Escrow Agent"). Once submitted, subscriptions may not be
withdrawn by subscribers. If the Minimum Offering has not been
subscribed and paid for on or before December 31, 1996, unless extended
to a date no later than January 31, 1997 (the "Initial Termination
Date"), all subscription payments will be refunded in full, without
interest or reduction. If the Minimum Offering is subscribed and paid
for on or before the Initial Termination Date, the cash proceeds held
in escrow will be paid to the Partnership and the escrow arrangements
will terminate. After reaching the Minimum Offering, unless earlier
terminated by the Partnership, the offering may continue until the
earlier of: (i) the sale of all Units offered hereby, or (ii) March 31,
1997, unless extended by the General Partner in its sole discretion to
a date no later than April 30, 1997 ("Final Termination Date"). The
General Partner and its affiliates may purchase, for investment
purposes only, Units offered hereby on the same terms and conditions as
other investors, and the Units purchased will be included in
determining whether the Minimum Offering has been achieved. All
offering proceeds received after the Minimum Offering has been obtained
will be paid directly to, and applied by, the Partnership. Until
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the cash proceeds of the offering are invested, after their release
from escrow, Partnership funds may be temporarily invested in
short-term, highly liquid investments with appropriate safety of
principal, including certificates of deposit, short-term securities or
money market funds which invest in short-term funds directly or
indirectly issued or guaranteed by the United States or its government
agencies, U.S. Treasury bonds, notes and bills, and federally insured
time and demand deposits in state or national banks.
FULL RECOURSE NOTES . . . . . A portion of the purchase price for the Units is payable by the
investor through the tender of a full recourse Note to the Partnership
in the amount of $10,000 per Unit. The Note will be collateralized by,
among other things, the purchaser's Unit or Units. No interest will
accrue on the Note and it shall be paid in ten annual installments of
$1,000. Since the Notes are full recourse obligations of the
borrowers, the failure of an investor to pay any installment may result
not only in a loss of his Unit, but his personal assets may be assessed
for any remaining deficiency on the Note. In this regard, the Notes
will provide the Partnership with the right to set-off distributions
payable with respect to Units against any unpaid installments due under
the Notes. After acceptance of investors' subscriptions, the General
Partner may cause the Partnership to borrow and obtain credit against
the security of the Notes, which will then be pledged to the lending
institution. Accordingly, Unitholders can expect such lending
institution to strictly enforce the payment provisions of the Notes.
See "Risk Factors - The Offering and Investment Risks -- Risks
Associated with Notes."
GLOSSARY . . . . . . . . . . Generally, this Prospectus contains simplified terms and definitions to
make the Prospectus easier to understand. However certain other terms
in use this Prospectus (generally capitalized) are defined in the
section entitled "Glossary" and Section 1.10 of the Amended and
Restated Agreement Limited Partnership of the Partnership included in
this Prospectus as Exhibit A.
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RISK FACTORS
The purchase of the Units offered hereby involve a high degree of
risk, including the possible loss of the entire investment, and is suitable
only for persons of adequate financial means who have no need for liquidity in
this investment. Prospective investors should consider carefully the risks
described below in addition to factors set forth elsewhere in this Prospectus
prior to making an investment in the Units.
THE OFFERING AND INVESTMENT RISKS
Risks Associated with Notes. Pursuant to the terms of this offering,
investors may purchase Units with a payment of $2,000 in cash and a $10,000
full recourse promissory note ("Note") payable over the next ten years. No
interest will accrue or otherwise be payable with respect to the Notes. At
such time as the Minimum Offering has been subscribed for and all other
conditions to the release of proceeds from escrow has been satisfied,
notwithstanding the tender of the Notes as partial payment therefor, investors
whose subscriptions are accepted will become the legal and beneficial owner of
such Units with all the benefits and burdens inherent in such ownership. The
Notes, however, are full recourse obligations of the borrowers and are
collateralized by, among other things, each purchaser's Unit or Units so
acquired. The Notes represent the promise of the investor to make certain
Capital Contributions to the Partnership on an annual installment basis, and an
investor will be required to make such payments regardless of the Partnership's
results of operations. In the event that an investor fails to make his
required installment, he may not only lose his investment in the Units, but
his personal assets may be assessed for any remaining deficiency on such Note.
If an investor fails to make an installment payment on the Note when due, the
Partnership may seek enforcement of the payment obligation through any
appropriate legal action, including the foreclosure of the Note, attachment of
personal assets, and/or the exercise of a right of set-off against any
distributions accruing on the Units. Accordingly the investor must make the
required principal payments on the Notes when due, whether or not distributions
have been made to Unitholders sufficient to pay the amount of the annual
installment, or risk the loss of the Unit or other legal actions to enforce the
payment obligation. If the Partnership should decide to foreclose on the Unit
and resell it, the proceeds of such sale and shall be applied first to the
costs and expenses of such foreclosure and sale and the excess amounts, if any,
will then be applied to any outstanding principal obligation under the Note.
To the extent that the proceeds are insufficient to pay the outstanding
principal obligation, the Partnership may attempt to assess the former Limited
Partner's personal assets for the amounts due.
In addition, the Partnership may use the Notes to collateralize
borrowings of the Partnership from third party lenders, such as banks and other
institutional lenders ("Partnership Loan"). In order to obtain such financing,
the General Partner would likely pledge the security of the Notes to the
lending institution. The Partnership Loan may be due and payable upon demand.
To the extent that such financing is obtained, Unitholders can expect lenders
holding the Notes as collateral to strictly enforce the payment provisions of
the Notes since funds are likely to serve as the primary source of their
repayment. Accordingly, prior holders of the Notes, including the Partnership
and the General Partner may be obligated to collect the amounts due under the
Notes and may be required to accrue and demand payment of interest on an
overdue payment (or the acceleration of principal upon default) of a Note.
See "Investment Objectives and Policies - Borrowing Policies and Other
Financings" and "Plan of Distribution - Promissory Notes".
No Assurance of Cash Distributions. No assurance can be given as to
when or whether cash distributions will be made to Unitholders, or as to the
amount thereof, since the Partnership's ability to make distributions is
dependent upon its cash flow, financial condition and other factors. Such
factors include the ability to generate sufficient cash from operations to pay
the Partnership's expenses, service its debt and to satisfy other liabilities
as they come due. In this regard, the cash available for distributions will be
reduced by the payment of Partnership expenses (including management fees and
commissions paid to affiliates of the General Partner as well as any
reimbursement of expenses paid by them on behalf of the Partnership). See
"Compensation of the General Partner and its Affiliates" and "Conflicts of
Interest." Under the Partnership Agreement, all such payments and
reimbursements shall reduce the amount of cash available for distribution to
Unitholders. Generally, cash distributions shall be made from the cash flow
generated by the Partnership's
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<PAGE> 19
operations that the General Partner determines is not required to support the
Partnership's current operations or future needs. Furthermore, the General
Partner, in its sole discretion, has the authority to use or set aside any
portion of the distributable cash for working capital purposes, to repay
Partnership debt, for the purchase of new assets, and for the funding of
present or future contingent liabilities, taxes and other purposes. In this
regard, it is anticipated that a substantial portion of the proceeds from the
sale or refinancing of the Partnership's properties will be reinvested in new
property investments until the termination or liquidation of the Partnership.
Accordingly, the payment of cash distributions is subject in large part to the
General Partner's discretion.
Distributions to Unitholders will be made only if, as and when
declared by the Partnership. Although the General Partner currently intends to
provide annual cash distributions to Unitholders from cash flows generated from
Partnership operations commencing on or about March 2000, there can be no
assurance that such distributions will be made or, if made, that they will
continue to be made thereafter. Distributions to Unitholders may become
subject to certain restrictions under the terms any future borrowings by the
Partnership or affected by future issuances of Units. There can be no
assurance that cash will be available for distribution at any specific time.
Neither the General Partner nor any of its affiliates is obligated to support
or guarantee any level of distributions. See "Partnership Distributions and
Allocations" and "Summary of the Partnership Agreement".
No Market for Units; Lack of Liquidity. No public market exists for
the Units and none is expected to develop as a result of this offering.
Several states securities laws may impose certain minimum purchase and
retention requirements and investor suitability standards in connection with
any such sales. The Partnership Agreement also places certain restrictions on
the transfer of Units. Pursuant to the Partnership Agreement, transfers of
Units to persons other than current partners are subject to the prior approval
of the General Partner. In view of these restrictions, an investor may not be
able to liquidate his investment in the event of an emergency and the Units may
not be readily accepted as collateral for a loan. Moreover, if an investor is
able to liquidate his interest, it is likely that such Unit would have to be
sold at a significant discount from the original purchase price. Although the
Partnership Agreement does permit the Partnership to repurchase the Units
offered hereby under certain limited circumstances, the Partnership is not
obligated to do so. Furthermore, even in those instances when a repurchase may
be considered, the decision of whether to purchase the Units will be subject to
the sole discretion of the General Partner and its determination of the
availability of sufficient funds therefor, as determined by the General
Partner's overall plans for the use of the Partnership's liquid assets. To the
extent that the General Partner does agree to repurchase a Unit, the purchase
price will be determined on a case-by-case basis through negotiations with the
seller, which price may be less than the original purchase price and which may
result in adverse tax consequences to the seller. Accordingly, a purchase of
Units should be only made as a long-term investment. See "Summary of
Partnership Agreement" and "Investment Objectives and Policies".
No Assurance of Capital Appreciation or Partnership Profits. There is
no assurance that any property acquired by the Partnership will operate at a
profit or will appreciate in value or can ever be sold at a profit. The
marketability and value of any such property investment will depend upon many
factors beyond the control of the General Partner, and there is no assurance
that there will be a ready market for the properties owned by the Partnership
since investments in real property are generally non-liquid. Furthermore, in
the event of a dissolution or termination of the Partnership, the proceeds
realized from the liquidation of assets, if any, will be distributed to the
Unitholders, but only after the satisfaction of claims of creditors.
Accordingly, the ability a Unitholder to recover all or any portion of his
investment under such circumstances will depend on the amount of funds so
realized and claims to be satisfied therefrom. See "Partnership Distributions
and Allocations" and "Investment Objectives and Policies".
Risks for Retirement Plan Investors. The Partnership has not
requested an opinion of counsel regarding whether or not the assets of the
Partnership would constitute "plan assets" under ERISA. The assets of the
Partnership will not constitute plan assets if, for example, the Units qualify
as "public offered" securities within the meaning of U.S. Department of Labor
Regulations, or if the Partnership is deemed to be an "operating company" under
such regulations. If the assets of the Partnership were deemed to be "plan
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<PAGE> 20
assets" under ERISA, (i) it is not clear that the exemptions from the
"prohibitive transaction" rules under ERISA would be available for the
Partnership's transactions, and (ii) the prudence standards of ERISA would
apply to investment made by the Partnership (and might not be met). ERISA
makes plan fiduciaries personally liable for any losses resulting to the plan
from any breach of fiduciary duty and the Code imposes nondeductible excise
taxes on prohibited transactions. Since the Partnership has not yet identified
any investments, there can be no assurance that the Partnership's assets will
not constitute "plan assets" under ERISA. Accordingly, such investors should
consult with their own professional advisers with reference to their own
particular situation to determine whether an investment in the Units are
suitable for them and/or their plan. See "Federal Income Tax Considerations -
Retirement Plan Investors" and "ERISA Considerations".
Conflicts of Interest. The Partnership is subject to various
conflicts of interest arising out of its relationship with the General Partner
and its affiliates. For example, (a) under certain circumstances, the General
Partner, in its sole discretion will determine whether to cause the Partnership
to borrow funds from lenders; (b) management of the General Partner is required
only to devote such of its time to the Partnership's affairs as may be
reasonably required to manage the Partnership's business; (c) the General
Partner in the future may act, directly or indirectly, as general partner of
other business ventures of every nature and description, independent or with
others; (d) certain affiliates of the General Partner will receive compensation
and fees for services rendered to the Partnership; and (e) liabilities incurred
by the General Partner when acting in additional capacities could adversely
affect its ability to manage the Partnership. Although the General Partner is
obligated to deal fairly and in good faith with the Partnership and the Limited
Partners, such conflicts may not always be resolved to the maximum advantage of
the Partnership or the limited partners. See "Conflicts of Interest" and
"Fiduciary Responsibilities of the General Partner".
Potential Lack of Available Financing. Fluctuations in interest rates
and loan fees may have an adverse effect on the availability and cost of
borrowed funds. The General Partner is unable to predict the money market
conditions that will exist when the Partnership seeks to obtain financing.
Because of then current money market conditions, the Partnership may be forced
to finance the purchase of its investments using the cash proceeds of the
offering, with little or no borrowings. This would make it more difficult for
the Partnership to achieve the diversification of properties which it is
seeking and would hinder its ability to spread the risk of all such
investments. Market conditions also may adversely affect the ability of the
Partnership to sell property investments and may affect the terms of any such
sale. The General Partner is unable to predict the effect, if any, which the
money market or the federal government's fiscal, monetary and administrative
policies will have on the ability of the Partnership to meet its objectives.
See "Estimated Use of Proceeds" and "Investment Objectives".
Liability of Limited Partners; Repayment of Certain Distributions.
Under Florida law, a limited partner may not receive a distribution from the
Partnership to the extent that, at the time of and after giving effect to such
distribution, the outstanding liabilities of the Partnership (other than
liabilities to other partners on account of their interests in the Partnership)
exceed the fair value of the Partnership assets. In addition, to the extent
that a distribution to a Limited Partner constitutes a return of all or a
portion of such Limited Partner's contribution and such distribution is made
without violation of the Partnership Agreement or Florida law, such limited
partner will be liable to the Partnership for the amount of the returned
contribution to the extent necessary to discharge the Partnership's liabilities
to creditors who extended credit to the Partnership during the period the
contribution was held by the Partnership. A limited partner will remain liable
for the return of its contribution under such circumstances for a period of one
year after such return (unless such return was made in violation of the
Partnership Agreement or Florida law, in which case the Limited Partner will
remain liable to the Partnership for a period of six years thereafter for the
amount of the contribution wrongfully returned). A limited partner will not be
obligated for prior distributions or liabilities that were unknown to him at
the time he became a limited partner and that could not have been ascertained
from the Partnership Agreement. A transfer of a Unit will not relieve the
transferor from any potential liability to the Partnership or creditors thereof
for return of previously distributed capital contributions. See "Partnership
Distributions and Allocations".
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<PAGE> 21
No Obligation of the General Partner or Affiliates to Provide Funds.
Neither the General Partner nor its affiliates have any obligation to make
loans or advances to the Partnership, or to contribute any funds in excess of
the Capital Contributions already made by them, if any, even if the failure to
do so would result in a default in one or more of the Partnership's
obligations. See "Summary of the Partnership Agreement".
Risks Associated with Potential Lack of Diversification. The
Partnership will be funded with contributions of not less then $1,200,000 (of
which $200,000 will be in cash) nor more than $12,000,000 (of which $2,000,000
will be in cash). The potential profitability of the Partnership could be
affected by the amount of funds at its disposal. Depending on the number of
Units sold and the amount of leverage used, the Partnership expects to invest
in 5 to 20 real property investments. In the event the Partnership receives
only the Minimum Offering proceeds, it will not be able to obtain the same
degree of diversification as it could if it obtains the Maximum Offering
proceeds, and the impact on the Partnership's profitability from any marginal
property investment may be greater. The Partnership, however, is not limited
in the amount that it may invest in any single property investment. If only
the Minimum Offering is sold, it is possible that the entire proceeds of the
offering will be invested in a single real property investment. It also is
possible that even if the substantially more than the Minimum Offering is sold,
the Partnership still might invest the entire proceeds in a single property
investment. See "Estimated Use of Proceeds" and "Plan of Distribution." It
should be noted that investments in more expensive properties and the
corresponding reduction in the number of property investments purchased would
lessen the ability of the Partnership to diversity its portfolio of investments
and would therefore spread the risk of loss to fewer property investments. In
addition, there is a more limited market for resale of more expensive property
investments since fewer buyers can afford such properties. See also "Risk
Factors - The Partnership -- Lack of Geographic Diversification" and
"Investment Objectives and Policies".
Purchase of Units by General Partners and Affiliates. The General
Partners and their affiliates will purchase Units in this offering. The
General Partner shall purchase five Units offered hereby if the Minimum
Offering is sold (ten Units if the Maximum Offering is sold) on the same terms
as other investors pursuant to this offering. Any purchases by these persons
will apply for purposes of determining whether the Minimum Offering has been
achieved. There is no limitation on the number of Units which may be so
purchased, and although it is not expected that such purchases will be
significant, such persons could hold a controlling interest in the Partnership
as a result of their purchases. See "Conflicts of Interest", "Summary of the
Partnership Agreement", and "Plan of Distribution".
Arbitrary Offering Price. Since the Partnership has no operating
history or public market for its Units, the offering price has been determined
without particular reference to asset or book value, historical or projected
earnings, or other customary evaluation criteria and, accordingly, should not
be considered an indication of the actual value of the Partnership. In
determining the offering price, the Partnership and the General Partner
considered such factors as the Partnership's limited financial resources,
management estimates of the financial requirements of the Partnership, and the
prospects for the Partnership's proposed business.
Risks Inherent in Self-Underwriting. Since there are no underwriters
involved in this offering, the Partnership will not have the benefit of the
independent due diligence examination normally performed by an underwriter to
insure that the disclosures are accurate and the Partnership may, because it is
not a securities broker, have difficulty selling the Units. See "Plan of
Distribution".
Indemnification of the General Partner. The Partnership Agreement
provides for indemnification of the General Partner and its officers and
directors by the Partnership, and limits the liability of the General Partner
and its affiliates to Limited Partners. As a result of these provisions,
Limited Partners will have more limited rights against the General Partner than
they would have absent such limitations in the Partnership Agreement. To the
extent that the Partnership is required to take action on such indemnity, the
funds available for operations and cash distributions may be adversely
affected. See "Fiduciary Responsibilities of the General Partner" and "Summary
of the Partnership Agreement - Liability of the General Partner to the
Partnership and Partners; Indemnification of the General Partner".
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<PAGE> 22
Risk of Changes in the Terms of the Investment. Investors may be
bound by vote of the holders of a majority in interest of the outstanding
Units, which vote could substantially change the terms of an investment in the
Partnership, such as amending the Partnership Agreement, approving the sale of
all or substantially all of the assets of the Partnership, or the dissolution
of the Partnership. See "Summary of the Partnership Agreement".
No Interest on Subscription Funds. Cash subscription proceeds
received for the purchase of Units pursuant to this offering will be held in a
non-interest bearing bank escrow account. These funds will remain in the
escrow account until subscriptions and payments for the Minimum Offering has
been received or the Initial Termination Date, whichever occurs first. Once a
subscription has been submitted, it cannot be withdrawn during the offering
period by the subscriber and the subscriber will not receive interest on such
funds. In the event that the General Partner determines to extend the offering
period to January 31, 1997, a subscriber would not earn interest on the funds
for a maximum of _____ days from the date of this Prospectus. If the Minimum
Offer is reached prior to the Initial Termination Date, the funds will be
released from escrow and applied in the manner described in the Section
"Estimated Use of Proceeds." Further, the General Partner reserves the right to
reject subscriptions in whole or in part. If the General Partner rejects a
subscription, in whole or in part, the subscription funds submitted to the
Partnership will be returned to the subscriber in full without payment of
interest. See "Plan of Distribution."
THE PARTNERSHIP
Risks of Unspecified Investments. The Partnership does not presently
own and has not identified any real property investments that it intends to
purchase. Therefore, prospective investors do not have information as to the
identification or location of specific properties, financing terms, or other
economic and financial data with respect to the properties or other investments
to assist them in evaluating the Partnership. The purchasers of Units must
depend upon the ability of the General Partner and the Flordeco, Inc., an
affiliated Florida corporation (the "Management Company") with respect to the
selection of the Partnership's property investments. See "Management" and
"Prior Performance" for a description of the prior experience of the General
Partner and its affiliates. There can be no assurance that any property or
other investment which may be acquired or made by the Partnership will be
desirable investments which meet the Partnership's investment objectives or
that desirable investments can be acquired on financially attractive terms.
Accordingly, there can be no assurance as to when the proceeds of the offering
may be fully invested. See "Investment Objectives and Policies."
Prior to the purchase of real property investments, the Partnership's
funds released from escrow will be invested in short-term, money market types
of instruments. See "Estimated Use of Proceeds" and "Plan of Distribution" for
a description of eligible interim investments. The yield to the Unitholders
during the period prior to full investment of the net proceeds of this offering
may be either higher or lower than the yield anticipated from real estate
investments.
Risks of Leverage. The Partnership intends to incur substantial
indebtedness in connection with the purchase, capital improvement, and
operation of its real property investments. The Partnership is permitted to
incur indebtedness in an amount equal to up to 100% of the aggregate purchase
price paid for all property investments, without any limit on the amount of
financing which may be incurred in connection with the acquisition of any
particular property investment. Based on current market conditions, the
Partnership currently expects to incur indebtedness in an amount equal to
between approximately 75% and 100% of the purchase price of all of its
properties investments on a combined basis. See "Investment Objectives and
Policies - Borrowing Policies and Other Financings". Borrowing funds permits
the acquisition of properties of greater aggregate cost than could be financed
solely from Partnership capital (thereby also increasing the Acquisition Fees
payable to the affiliates), but also increases the Partnership's exposure to
losses. Principal and interest payments on indebtedness will generally have to
be made regardless of rental income generated by the Partnership's properties.
Although it is anticipated that recourse on most of the Partnership's
indebtedness will be limited to the assets securing such borrowings, if
payments are not made when due, the Partnership may sustain a loss on its
investment as a result of foreclosure. Such a foreclosure may also result in
adverse federal income tax consequences to the Unitholders. See "Federal
Income Tax Considerations."
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<PAGE> 23
Moreover, the cost of borrowing, in the form of interest charges and financing
fees imposed by lenders, might significantly reduce profits or increase losses
resulting from Partnership operations.
The General Partners anticipate that some of the indebtedness incurred
by the Partnership will provide for balloon payments at maturity. See
"Investment Objectives and Policies - Borrowing Policies and Other Financings".
Loans requiring balloon payments involve greater risk than loans in which the
principal amount is fully amortized over the term of the loan because the
ability of the Partnership to pay the amount at maturity will depend upon the
Partnership's ability to obtain adequate refinancing or to sell the property.
The ability of the Partnership to refinance or sell a property is likely to
depend upon economic conditions in general and the value of the underlying
investment or property in particular.
Permanent financing of Partnership properties ordinarily will prohibit
principal prepayments for varying periods and will require prepayment penalties
thereafter. Lenders' approvals for sales or refinancings also may be required.
The Partnership will not generally obtain permanent financing which provides
for lenders to obtain equity participation in the properties being purchased.
Partnership indebtedness incurred in connection with its acquisitions
will normally be on a nonrecourse basis, that is, limited to the particular
Partnership property which collateralizes the indebtedness. In some cases,
recourse on such loans may include all Partnership assets or those of the
General Partner. Should the Partnership enter into such financing, a
foreclosure could adversely affect other Partnership assets. In addition, to
the extent that recourse on Partnership indebtedness extends to the assets of
the General Partner, the tax basis of Unitholders would be reduced. See
"Investment Objectives and Policies - Borrowing Policies and Other Financings"
and "Federal Income Tax Considerations - Limitations on Deductions."
Financing involving floating interest rates involves greater risks
than financing where the interest rate is fixed, since such interest rates
could rise substantially. Although the Partnership may enter into financing
arrangements involving floating rates, the Partnership will attempt to obtain
mortgage or other financing and to assume existing mortgage or other financing
which either do not provide for floating interest rates or provide for
contractual limitations on such rates. See "Investment Objectives and Policies
- - Borrowing Policies and Other Financings."
Reliance on General Partner. All decisions with respect to the
management of the Partnership, including the determination as to which real
property investments to acquire or sell, will be made exclusively by, or under
the direct supervision of, the General Partner. Limited Partners have no right
or power to take part in or direct the management of the Partnership, except
for certain voting rights which may arise under certain extraordinary
circumstances. See "Summary of the Partnership Agreement - Meeting and
Voting". The success of the Partnership, to a large extent, will depend on the
quality of the management of the Partnership, particularly as it relates to the
borrowing, disposition and management of the property investments.
Accordingly, no person should purchase Units unless he or she is willing to
entrust all aspects of the Partnership to the General Partner and the
Management Company. See "Management".
No Prior Operating History or Revenues of General Partner. The
General Partner was formed on October 24, 1995, and has no prior operating
history. To date, the General Partner's activities have been limited to
organizational and start-up matters. As a start-up company, the General
Partner has no history of operations or track record for investors to analyze
in order to aid them in making a decision regarding the ability of the General
Partner to successfully operate a public real estate limited partnership.
However, both Messrs. Cronin and Laboda, directors of the General Partner and
the Management Company, have engaged in various phases of real property
acquisitions, financing, management, capital improvement and disposition, and
the principals of the General Partner and certain of its affiliates have
previously sponsored and organized, and are currently operating, and managing a
Florida registered real estate syndication and investment program. In order to
discharge its management responsibilities, the General Partner has engaged the
services of the Management Company to manage the Partnership's assets. See
"Prior Performance" and "Management".
Risks of Real Property Investments Generally. The Partnership will be
subject to all of the risks inherent in owning real property investments. One
of the major risks of owning income-producing properties
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<PAGE> 24
is the possibility that the properties will not generate income sufficient to
meet operating expenses and debt service requirements, and to fund adequate
reserves. The income from properties may be affected by many factors,
including (i) inability to lease the premises on acceptable terms, cancellation
of existing leases, financial ability of tenants of an adverse change in
interest rates, (ii) adverse changes in general economic conditions and adverse
local conditions, such as competitive over-building, a decrease in employment,
or adverse changes in real estate zoning laws, which may reduce the
desirability of real estate in the area, or (iii) other circumstances over
which the Partnership may have little or no control, such as fires, earthquakes
and floods. With respect to residential properties, there also is the risk
that rent control legislation will be adopted which does not permit the full
amount of increased costs to be passed on to tenants in the form of rent
increases. Other inherent risks include the possibility of changes in the
investment climate for real estate, changes in real estate tax rates, and the
possibility of unanticipated expenses associated with the operation of the
property.
Rental income from properties will fluctuate from time to time based
upon occupancy and rental levels. In contrast, certain expenses related to
real estate, such as property taxes, utility costs, maintenance costs and
insurance, tend to move upward but not downward, and mortgage payments usually
are fixed over specified periods. Thus the cost of operating a property may
exceed the rental income earned thereon, and the Partnership may have to
advance funds in order to protect its investment or may be required to dispose
of the property at a loss. Furthermore, decreases in actual rental income from
expected amounts, or increases in operating expenses, among other factors,
could result in the Partnership's inability to meeting all of its cash
obligations. Any decrease in rental income received by the Partnership may
reduce, and possibly eliminate, the amount of cash available for distribution
to the investors or, by itself or in combination with other economic
conditions, may adversely affect the value of property investments owned by the
Partnership. Accordingly, there can be no assurance that the Partnership's
operations will be profitable or that cash distributions will be made to
investors, nor can there be any assurance that the values of the properties
will appreciate in value.
If the Partnership acquires commercial or office buildings, the
financial failure of any major retail or office tenant resulting in the
termination of the tenant's lease would likely cause at least a temporary
reduction in cash flow from the property and might result in a decrease in the
market value of the property. In the event of termination, there can be no
assurance that the Partnership will be able to find a new tenant for the
property at the rental previously received or to sell the property without
incurring a loss. In addition, if the Partnership acquires commercial
buildings with retail tenants, the Partnership's cash flow will be dependant
upon the success achieved by such tenants to the extent that rental income
under the leases to such tenants is based on a percentage of the gross receipts
of the tenant. See "Investment Objectives and Policies - Types of
Investments."
High interest rates and shortages of mortgage funds in the future may
make refinancing disadvantageous and may render the sale of Partnership
properties to others difficult or require the Partnership to incur credit risks
if it becomes necessary to extend mortgage financing to buyers. If the
Partnership provides financing to buyers, the termination of the Partnership,
and the distribution to the Partners of the net cash proceeds from property
sales, may be delayed until the loans are repaid or otherwise liquidated. See
"Investment Objectives and Policies - Sale and Refinancing; Liquidation".
Risk of Construction Delays. If the Partnership acquires undeveloped
properties or properties that are under construction or requires capital
improvements, it may be subject to the risk of construction delays and the risk
that the seller will be unable to complete construction at the projected costs
and unable to fund any excess construction costs. In instances where the
Partnership does not have sufficient funds available therefor, such excess
would have to be funded from other sources. There is no assurance that such
sources will be available or, if available, would be available on terms
favorable to the Partnership. Generally, the price to be paid for a property
upon which improvements are to be constructed or completed, which price is
normally agreed upon at the time of acquisition, must, of necessity, be based
on projections of rental income and expenses of the property after completion
of construction. In the event that the Partnership should acquire and
thereafter expand, rehabilitate, or otherwise improve a property, the
Partnership would likely incur a delay in receipt of rental income from such
property during the period that such improvements are in progress.
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<PAGE> 25
Accordingly, whether a property will operate at the projected income and
expenses levels cannot be known in most cases until after construction has been
completed and at least a year of actual operations after or sustained occupancy
is achieved. To minimize the risks inherent in any such improvement of the
property, the Partnership intends to have such improvements performed by a
qualified independent contractor under a guaranteed price contract covered by a
completion bond or other security arrangement satisfactory the General Partner.
The Partnership also may obtain personal guarantees from sellers of properties
with respect to construction completion and levels of cash flows. It also may
make payments due sellers during the construction period directly to
construction lenders on the sellers' behalf. While the General Partner
believes that such arrangements should be satisfactory to protect the interests
of the partnership, there can be no assurances that in all cases they will
protect the Partnership against financial loss. Such properties and properties
requiring additional leasing activity will normally be operating at a cash
deficit during the lease-up period. See "Investment Objectives - Improvements
to Properties".
Risks of Joint Ventures. One or more of the Partnership's property
investments may be owned by joint venture partnerships between the Partnership
and the seller thereof, or with an independent party. It also is possible that
the Partnership may enter into a joint venture with a partnership subsequently
sponsored by the General Partner or its affiliates. See "Conflicts of Interest
- - Possible Joint Venture with Affiliates." There is no limit on the proportion
of net proceeds that the Partnership may invest in joint ventures. The
investment by the Partnership in joint venture partnerships which own property
investments may under certain circumstances involve risks which would not
otherwise be present. For example, the Partnership's joint venture partner may
experience financial difficulties, such partner may at any time have economic
or business interests or goals which are inconsistent with the business
interests or goals of the Partnership, or such partner may be in a position to
take action contrary to the instructions or the requests of the Partnership or
contrary to the Partnership's policies or objectives. Actions by (or
litigation involving) such a partner might have the result of subjecting the
property investments owned by the joint venture to liabilities in excess of
those contemplated by the terms of the joint venture agreement. In addition,
there is a risk of impasse between the parties since either party may disagree
with the proposed transaction involving the property investments owned by the
joint venture and impede any proposed action. See "Investment Objectives -
Borrowing Polices and Other Financings".
Lack of Geographic Diversification. Although the Partnership is not
limited as to the geographic area in which its might operate or invest, it is
presently anticipated that substantially all of the property investments of the
Partnership will be located in Southwest Florida and, as a result, the
Partnership's property investments will likely lack a broad based geographical
diversification. Accordingly, the Partnership's prospects may be directly
impacted by the local economic conditions in Southwest Florida and will not be
offset by investments located elsewhere. See "Investment Objectives and
Policies".
Competition for Property Investments. The Partnership will be
competing with established companies, financial institutions, other limited
partnerships, individuals, and other entities engaged in real estate investment
activities for the acquisition of real property investments, the borrowing of
substantial sums on favorable terms, and the leasing of such properties. Many
of these competitors may have substantially greater financial resources than
that Partnership and broader experience in real estate acquisition and
management than the General Partner. The number of entities and the amount of
funds available for investment in properties of a type suitable for investment
by the Partnership may increase, resulting in increased competition for such
investments. See "Conflicts of Interest" and "The Partnership - Competition".
Potential Difficulties in the Resale of Property Investments. It may
be difficult for the Partnership to find purchasers for its property
investments at the time it wishes to sell them. Due to market and other
conditions existing at the time the General Partner determines to sell any of
the Partnership's property investments, the General Partner may not be able to
control the timing or price of such sales. Accordingly, there can be no
assurance that the Partnership will be able to sell its property investments so
as to return a Limited Partner's original Capital Contribution or to generate a
profit for the Limited Partners. In addition, it may be necessary or desirable
for the Partnership to provide secondary financing to purchasers thereof. In
the event the Partnership does provide such secondary financing upon the resale
of the Partnership properties or other investments, a liquidation of the
Partnership may be delayed beyond the time of disposition
22
<PAGE> 26
of its assets until any such loan is repaid or otherwise liquidated. See
"Investment Objectives and Policies - Sale and Refinancing; Liquidation".
Delay in Investment of Proceeds. There may be a delay between the
time investors' subscriptions for Units are accepted and the time the net
proceeds of the offering are invested by the Partnership. If this should
occur, there will be a corresponding delay in the benefits expected to result
from ownership of Units. See "Plan of Distribution".
Uninsured Losses. The Partnership will arrange for comprehensive
insurance on Partnership property investments, including liability, malicious
mischief and vandalism, fire and extended coverage, and rent loss insurance
which is customarily obtained for similar properties. However, there are
certain types of losses (generally of a catastrophic nature, such as
hurricanes, earthquakes, floods and wars) which are either uninsurable or not
economically insurable. Should such a disaster occur and cause the destruction
of Partnership property investments, the Partnership could lose both its
investment and anticipated profits in such properties. In this regard, since
the primary focus of the Partnership's investments will be located in Southwest
Florida, the Partnership may risk losses due to hurricanes or high waters. It
has become more difficult and expensive to obtain insurance coverage for such
occurrences in Southwest Florida, thereby increasing the likelihood that such
property investments may not be insured and, if insured that such insurance
benefits will not be adequate to replace any losses experienced from such
occurrences. Should the Partnership obtain financing on any Partnership
investments on a recourse basis, the Partnership itself and General Partner may
be liable for losses in relation to such investments. The General Partner has
indicated, however, that recourse loans would be obtained only in unusual
situations. To the extent that the cost of insurance on non-real property
investments may be excessive or otherwise prohibitive, the Partnership may
forego insurance and expose itself to the loss of its entire investment.
Potential Environmental Liability. Under the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), an owner of
real property found to contain hazardous substances may be liable for the full
amount of all clean-up and costs and damage to natural resources. The
Partnership's investment in real properties will be subject to various risks
under environmental laws resulting from prior uses or other causes. Such risks
include potential liability and potential loss of value as a result of certain
environmental matters, including matters that may arise in the future as a
result of conditions emanating from a property or from nearby properties owned
by owners, changes in law, and other conditions beyond the control of the
Partnership. The General Partner in its discretion may, but is not required
to, commission an asbestos audit report to ascertain whether or not exposed and
hazardous asbestos is present at property prior to its acquisition. There can
be no assurances that the Partnership will not incur liabilities or reductions
in the value of the properties as a result of environmental matters.
TAX RISKS
An investment in the Units and the Partnership involves significant
federal income tax risks, some of which are summarized below. This discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
effective and proposed administrative regulations, judicial decisions,
published and private rulings, and procedural announcements issued by the
Treasury Department. All these authorities are subject to amendment or change
that may be applied retroactively and in a manner that is adverse to the
Partnership and the Limited Partners. The Partnership will not seek any
rulings from the Internal Revenue Services (the "IRS") regarding any of the tax
issues discussed herein, but will instead rely on opinions of counsel, which
are not binding on the IRS or the courts and are based upon the representations
and assumptions referred to therein and are conditioned upon the existence of
certain facts. Currently, counsel for the Partnership is Carlton, Fields,
Ward, Emmanuel, Smith & Cutler, P.A. For a more complete discussion of the tax
risks and tax consequences associated with an investment in the Units,
prospective investors should carefully review and consider the more detailed
discussion provided in the "Federal Income Tax Considerations" section of this
Prospectus. In this regard, investors shall consult their own tax advisors
concerning the federal, state, and local tax consequences associated with an
investment in the Units in light of their personal tax situations. Due to the
factual nature of the issues, some of which are not presently ascertainable,
counsel is not rendering an opinion regarding the deductibility of the fees
payable to the General
23
<PAGE> 27
Partner and its affiliates or the allocation of tax basis among depreciable and
nondepreciable assets. See "Federal Income Tax Considerations - Opinion of
Counsel".
Partnership Classification. The tax and economic benefits anticipated
to be derived from an investment in the Partnership depend, in part, upon the
Partnership being treated as a partnership for federal income tax purposes.
Counsel has opined that it is more likely than not that the Partnership will be
classified as a partnership rather than as an association taxable as a
corporation for federal income tax purposes. Such opinion is conditioned upon
the continued compliance by the Partnership and the General Partner with
certain conditions described under "Federal Income Tax Considerations -
Partnership Status". Although the General Partner intends to take all
necessary steps to assure that partnership status will continue, there is no
assurance that the Partnership will continue to qualify as a Partnership for
federal income tax purposes.
Unlike a ruling from the IRS, an opinion of counsel has no binding
effect on the IRS, and no assurance can be given that the conclusions reached
in any such opinion will not be contested by the IRS or, if contested, will not
be sustained by a court. If the Partnership is classified as an association
taxable as a corporation, its income would be subject to state and federal
corporate taxes. There would be no flow through of income, gain, loss,
deduction, or credit to the partners, and distributions would be treated as
dividends to the extent made out of current or accumulated earnings and
profits. It is anticipated that the General Partner would contest any adverse
decision by the IRS as to the Partnership's status as a partnership. The cost
incurred by the Partnership in challenging such a decision could be substantial
and could adversely affect cash distributions. See "Federal Income Tax
Considerations - Partnership Status."
Risk of Classification as a Publicly Traded Partnership. Based on
representations by the General Partner regarding its compliance with certain
safe harbors provided by the IRS, Counsel has opined that it is more likely
than not that the Partnership will not be treated as a "publicly traded
partnership" for federal income tax purposes. Classification of the
Partnership as a "publicly traded partnership" (a "PTP") could result in (i)
taxation of the Partnership as a corporation and (ii) application of the
passive actively loss rules in a manner that could more adversely affect the
Unitholders. See "Federal Income Tax Considerations - Publicly Traded
Partnership ("PTP") Treated as Corporation" and "Federal Income Tax
Considerations - Retirement Plan Investors".
Passive Loss Limitations. It is more likely than not that an
acquisition of Units will be treated as an investment in a "passive activity"
for purposes of Section 469 of the Code. Generally, Section 469 limits the
amount of losses from passive activities that individual taxpayers may deduct
in a given year (other than the year in which the interest in the activity is
disposed of in a fully taxable transaction) to the amount of income received
from other passive activities during the year. Losses arising from a passive
activity cannot be used to offset income received from nonpassive activities
such as wages, salaries, active business income, and "portfolio income" (i.e.,
interest, dividends, capital gains, royalties). Any income or loss generated
by the Partnership will likely be considered from a passive activity generally,
and specifically with respect to rental activity of the Partnership. Any
passive losses not allowable as a deduction in a given year may be carried
forward indefinitely and deducted in future years to the extent of net passive
income in those years and may be deducted in full in the year the taxpayer
disposes of his or its interest in the passive activity generating the original
loss in a fully taxable transaction regardless of the amount of passive income
a taxpayer may have in such year. Special rules are provided in the case of a
partnership that meets the definition of a PTP. See "Federal Income Tax
Considerations - Limitations on Deductions."
Tax Liabilities Exceeding Cash Distributions. No assurance can be
given that the tax liability associated with a partner's share of income from
the operations of the Partnership for any year will not exceed the amount of
cash distributed to the partner for that year. In the early years of an
investment in the Partnership, a Unitholder should realize passive losses due
primarily to the Partnership's anticipated leverage position, its expected
method of cost recovery, the interest expenses of the Partnership, and the
payment of certain fees to the General Partner and its affiliates (the majority
of which fees the Partnership intends either to deduct as expenses or to
amortize). The use of modified accelerated cost recovery deductions
(depreciation) may produce substantial losses in the early years of the
investment, but at the cost of creating recapture income upon any future
disposition which triggers recapture. It is anticipated that the tax losses
from the
24
<PAGE> 28
Partnership property will decline over several years to the point at which
taxable income may be realized. In such event, the Limited Partners may be
taxed on more income than money they receive from their investment. In
addition, the amount of tax liability due in later years from an investment in
the Partnership may actually exceed the money distributed from the Partnership
to a limited partner in such years, and accordingly the partner may have to pay
such excess liability with funds derived from sources other than the
Partnership. See "Federal Income Tax Considerations - Partnership
Distributions" and "- Allocations of Profits and Losses".
To the extent that the General Partner uses or sets aside funds to
repay principal on Partnership debt, for working capital, for acquisition of
new assets, for the funding of present or future liabilities or contingencies,
and for other purposes the General Partner deems appropriate, the amount of
cash distributed may be reduced to an amount less than the taxable income
allocable to each partner. Generally, partners will be required to pay federal
income tax and, in certain cases, state and local income taxes on their
allocable share of Partnership income regardless of the cash distributions, if
any, made to them by the Partnership. Also, upon the sale or other disposition
of a Unit or upon the sale or other disposition of Partnership property, there
is also a risk that a partner's tax liability may exceed the cash the partner
receives. To the extent of the excess, the payment of those taxes will be an
out-of-pocket expense to the partner.
Risks for Tax Exempt Investors. Part or all of the income from the
Partnership may constitute unrelated business taxable income ("UBTI") for
tax-exempt investors. Investors that are generally exempt from federal income
tax are, nevertheless, subject to tax on UBTI in excess of $1,000 in any
taxable year, and such investors may be required to file a federal income tax
return, whether or not any tax is due. Since the Partnership has not yet
identified any investments, there can be no assurance that the Partnership will
not generate UBTI in excess of $1,000 or otherwise cause tax exempt investors
to become subject to federal income taxation on their investment in the Units.
See "Federal Income Tax Considerations - Retirement Plan Investors" and "ERISA
Considerations."
Risk of Imputed Interest on Promissory Notes. The IRS could take the
position that Limited Partners should pay interest at a minimum interest rate
set under federal law and failure to do so could result in interest income
being imputed to a Limited Partner followed by a contribution of such deemed
interest income to the Partnership. If such a position was taken and
sustained, each Limited Partner would be required to report taxable income for
federal income tax purposes with respect to such interest, whether or not a
cash distribution was made to such Limited Partner by the Partnership. See
"Federal Income Tax Considerations - Contributions of Promissory Note".
Alternative Minimum Tax. An investment in the Partnership may give
rise to certain adjustments and items of tax preference to the Unitholders for
purposes of the alternative minimum tax and could, therefore, cause an investor
to become subject to the alternative minimum tax. In particular, depreciation
deductions must be calculated over a longer period of time using less
accelerated methods for purposes of the alternative minimum tax than that for
purposes of the regular income tax. See "Federal Income Tax Considerations -
Alternative Minimum Tax."
Partnership Allocations. Under Section 704 of the Code, allocations
of income, gain, loss, deduction, or credit will be recognized for tax purposes
if the allocations have "substantial economic effect." The United States
Treasury Department has promulgated complex regulations that contain elaborate
rules for determining whether Partnership allocations (under the Partnership
Agreement) will be respected. The Partnership will not request a ruling on
whether the Partnership's allocations of profit and losses, as set forth in the
Partnership Agreement, comply with the promulgated regulations. Counsel,
however, has opined that it is more likely than not that all material
allocations contained in the Partnership Agreement will be respected for
federal income tax purposes. To the extent that any allocation is successfully
challenged by the IRS, the tax benefits on an investment in the Partnership may
be reduced. See "Federal Income Tax Considerations - Allocations of Profit and
Losses."
Deductions Subject to IRS Challenge. The Partnership will claim all
deductions for federal income tax purposes that the General Partner believes
the Partnership is entitled to claim. The amount and availability
25
<PAGE> 29
of deductions depend not only on general legal principles, but also upon
various factual determinations relating to the time, amount, and reasonableness
of the deductions claimed. There can be no assurance that these deductions
will not be successfully contested or disallowed, or that the allocation
thereof among the partners will not be successfully challenged by the IRS. Any
challenge or disallowance may be raised in connection with the tax returns
filed by the Partnership or any partner, and the cost of any administrative or
legal proceedings regarding any such challenges or disallowances, if raised in
connection with tax returns filed by a partner, will be borne solely by the
affected partner.
Risk of Audit. The Partnership must file an annual federal
information return. Any audit of the Partnership's information return
generally would be controlled by the General Partner who is the "tax matters
partner" of the Partnership. The expense to the Partnership in contesting any
adjustment proposed by the IRS could be substantial and may significantly
reduce the cash available for distribution. The IRS also may assert a
deficiency (without first proceeding at the partnership level) against any
partner whose treatment of any partnership item on the partner's individual
return is inconsistent with the partnership item shown on the Partnership's
return. Since the General Partner will determine the Partnership's treatment
of these items, it will be incumbent upon partners to characterize items on
their individual tax returns according to the dictates of the General Partner
even though that treatment may not be favorable to an individual partner's tax
situation.
If any IRS determination adverse to the Partnership is sustained,
partners may owe additional tax, interest, and penalties. Any audit of the
Partnership's information return may precipitate an audit of a partner's
individual tax return (and vice versa), which may lead to adjustments other
than those related to the Partnership. Any expenses involved in such an audit
must be borne by such partner. In addition, any additional payment of federal
income tax arising as a result of an audit will bear interest at the rate
imposed on underpayments of federal tax, and that interest payment will not be
deductible by individuals for federal income tax purposes. See "Federal Income
Tax Considerations - Consequences of Audit".
Other Tax Matters. Investors should be aware that other tax risks
could arise depending on the nature of the properties acquired by the
Partnership. Investors also should consider certain other tax consequences,
including (i) the possible allocation by the IRS of profits and losses for tax
purposes among the General Partner and the Unitholders in the event that the
allocations provided for in the Partnership Agreement are found to be
impermissible; (ii) the possibility that the allocation by the Partnership of
the basis of the properties among real property improvements, land and personal
property might not be respected for tax purposes, resulting in the disallowance
of deductions or the deferral of deductions to later years; (iii) the
possibility, under certain circumstances, of "recapture" of depreciation; (iv)
the possible disallowance of deductions for certain fees paid to the General
Partner and its affiliates and other items deducted by the Partnership; (v) the
possibility that taxable gain will be generated by the sale or other
disposition of the properties and that the tax liability on such gain will
exceed the cash available for distribution to the Unitholders; and (vi) the
imposition of state and local taxes.
Foreign Investors. Nonresident aliens and foreign corporations
acquiring interests in the Partnership will be deemed to be engaged in a trade
or business in the United States and to have a permanent establishment in this
country. Accordingly, those investors will be taxed on income effectively
connected with that trade or business, or attributable to that permanent
establishment, as if they were resident aliens or domestic corporations. See
"Federal Income Tax Considerations - Tax Considerations for Foreign Investors."
Tax Law Changes. Because of the recent trend of constantly changing
federal income tax laws, there are no assurances that new legislation proposed
to be enacted or regulations promulgated will not adversely affect the tax
aspects of this investment or the analysis of tax risks and consequences
described in this Prospectus. Recently the U.S. Congress passed and the
President vetoed the Revenue Reconciliation Bill of 1995 (H.R. 2491). However,
this legislation or substantially similar legislation may again be passed by
Congress. Various modifications to existing tax laws are addressed in that
proposed legislation. In addition, Congress is considering various "flat tax"
proposals that, if adopted, could significantly alter the taxation of partners
and partnerships. See "Federal Income Tax Considerations - Possible Changes in
Tax Law."
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<PAGE> 30
IN VIEW OF THE COMPLEXITY OF THE INCOME TAX CONSIDERATIONS RELATING TO
THE OWNERSHIP OF UNITS, PARTICULARLY IN LIGHT OF RECENT CHANGES IN THE LAW AND
THE FACT THAT THE INCOME TAX CONSIDERATIONS WILL NOT BE THE SAME FOR ALL
UNITHOLDERS, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS PRIOR TO AN INVESTMENT IN THE
PARTNERSHIP.
ESTIMATED USE OF PROCEEDS
The following table summarizes certain information relating to the
estimated use of offering proceeds (exclusive of the General Partner
contributions and that of the original Limited Partner). The gross proceeds of
this offering will be retained by the Partnership for the benefit of investors
and used only for the purposes set forth below and under "Investment Objectives
and Policies." After deduction of organizational and offering expenses and
fees, the General Partner estimates that approximately 75% (if the Minimum
Offering is sold) to 97.5% (if the Maximum Offering is sold) of the cash
proceeds of this offering will be available to acquire investments for the
Partnership. While the estimated use of proceeds set forth in the table is
believed to be reasonable, the actual amounts cannot be precisely calculated at
the present time and consequently could vary from the amounts shown.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
100 UNITS SOLD(1) 1,000 UNITS SOLD(1)
----------------- -------------------
PERCENTAGE OF PERCENTAGE OF
AMOUNT GROSS PROCEEDS AMOUNT GROSS PROCEEDS
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Gross Offering Amount (1)(2) $1,200,000 $12,000,000
Less: Notes (1) 1,000,000 10,000,000
----------- -----------
Gross Offering Proceeds (3) $ 200,000 100.0% $ 2,000,000 100.0%
Less: Organizational and Offering
Expenses (4)(5) 50,000 25.0% 50,000 2.5%
---------- -------- ----------- -------
Amount Available for Investment(5) $ 150,000 75.0% $ 1,950,000 97.5%
========== ======= =========== =======
Use of Amounts Available for Investment:
Cash Payments for Purchase of
Properties(6) $ 115,000 57.5% $ 1,600,000 80.0%
Acquisition Fees to Affiliates(7) 23,000 11.5% 230,000 11.5%
Acquisition Expenses and Fees to Non-
Affiliates(8) 2,000 1.0% 20,000 1.0%
Initial Working Capital Reserves(9) 10,000 5.0% 100,000 5.0%
---------- ------ ----------- ------
Proceeds Invested $ 150,000 75.0% $ 1,950,000 97.5%
---------- ------ ----------- ------
- --------------------
</TABLE>
(1) For each Unit sold, the Partnership will receive $2,000 in cash and a
$10,000 Note payable to the Partnership in ten equal annual installments
of $1,000. The Note will not accrue interest and will be collateralized
by the Unit purchased with such Note.
(2) Excluding the aggregate initial capital contribution of $900 by the
Initial Limited Partner and $5,000 by the General Partner. Includes Units
purchased by the General Partner pursuant to this offering. It is
currently anticipated that the General Partner will purchase five Units if
the Minimum Offering is sold (ten Units if the Maximum Offering is sold).
See "Capitalization" and "Plan of Distribution".
(3) Represents the cash proceeds to be received at closing. Excludes the
obligations represented by the Notes tendered as payment for the Units.
This amount does not include any proceeds that the Partnership may
27
<PAGE> 31
receive, if any, from loans made by a financial institution payable from,
or supported by, the obligations evidenced by the Notes. See "Investment
Objectives and Policies - Borrowing Policies and Other Financings".
(4) Includes (i) expenses incurred in connection with the organization and
formation of the Partnership and (ii) the estimated offering expenses
including, legal, accounting, and Escrow Agent fees and expenses, and
printing costs, filing and qualification fees, and disbursements. The
General Partner and its affiliates will advance the funds for such
expenses and be reimbursed for all such out-of-pocket expenses from the
proceeds of this offering.
(5) The Units will be offered for sale exclusively through specified officers
and directors of the General Partner, and no commissions will be paid,
directly or indirectly, on account of such sales efforts. See "Plan of
Distribution".
(6) This amount does not include any acquisition fees or expenses.
(7) Acquisition Fees to Affiliates include real estate and lease commissions
paid to Flordeco Realty, Inc. in connection with the selection,
acquisition and lease of properties. Although acquisition fees in real
property transactions usually are paid by the sellers, the purchase price
of real property investments are often adjusted upward to take such fees
into account. To the extent that sellers pay such Acquisition Fees, the
amount shown as Acquisition Expenses and Fees would decrease but the
amounts shown as Cash Payments for Investment in real property
transactions would likely increase. Thus, in effect, the Partnership, as
purchaser of the property investments, ultimately would bear the cost of
the acquisition fees. Flordeco Realty, Inc. or other affiliates of the
General Partner in some instances may receive an acquisition fee directly
from the Partnership in lieu of or as a supplement to the payment of an
acquisition fee by the Seller. Acquisition of properties may be highly
leveraged since the Partnership Agreement permits the maximum amount of
leverage to be 100%. To the extent that the Partnership uses leverage in
making its property investments, the Partnership will be able to acquire
property investments having a greater aggregate value than that which
would be available without the use of leverage, thereby increasing the
acquisitions fees payable to affiliates of the General Partner, which fees
are based on the total purchase or lease price of real property
investments. In no event will the aggregate acquisition fees payable to
affiliates of the General Partner in connection with the original
acquisition of real property investments with the proceeds of this
offering exceed the lesser of 11.5% of the Gross Offering Proceeds or 10%
of the total purchase price (including loans) of all properties to be
acquired by the Partnership with such proceeds. The Partnership also
expects to pay commissions in connection with the sale of properties which
will reduce the net proceeds to the Partnership from such sales.
Furthermore, to the extent that net proceeds from sales or other revenues
generated from Partnership operations were reinvested, additional
acquisition fees may be paid to affiliates of the General Partner. See
"Compensation of General Partner and its Affiliates".
(8) Includes items such as legal fees and expenses, travel and communication
expenses, costs of appraisals and engineering surveys (if any),
non-refundable option payments on property investments not acquired,
accounting fees and expenses, miscellaneous expenses related to the
selection and acquisition of property investments (whether or not
acquired), title insurance premiums, transfer taxes, recording fees, loan
application and processing fees, financing fees, mortgage brokerage fees,
and similar fees to be paid property sellers and unaffiliated third
parties. This amount does not include organizational and offering
expenses. Except for certain real estate or lease brokerage commissions,
none of such payments will be made to the General Partner or its
affiliates, except to the extent of reimbursement for out-of-pocket
expenses incurred. Although the General Partner does not currently intend
to provide property management services, the General Partner reserves the
right to do so and to be compensated therefor.
(9) These amounts will be used, among other things, for repairs, replacements,
and contingencies. It is not anticipated that a permanent reserve for
maintenance and repairs will be established. However, to the extent that
the Partnership has insufficient access to funds for such purposes, the
General Partner may, but is not required to, establish reserves from
offering proceeds, operating funds, or available proceeds of any sale of
the properties.
Net proceeds of this offering will be used to purchase real property
investments for the Partnership as described in this Prospectus. See
"Investment Objectives and Policies - Borrowing Policies and Other Financings".
Depending on the number of Units sold, the amount of leverage achieved by the
Partnership, and the ability of the Partnership to obtain loans secured by the
Notes, the Partnership expects to invest in 5 to 20 real property investments.
The Partnership, however, is not limited in the amount that it may invest in
any single property investment. If only the Minimum Offering proceeds are
obtained, it is possible that the entire proceeds of the offering will be
invested in a single property investment. It is possible that even
28
<PAGE> 32
if substantially more than the Minimum Offering proceeds are obtained, the
Partnership still might invest the entire proceeds of the offering in a single
property investment. See "Risk Factors - Lack of Diversification".
Until the proceeds of the offering are invested in the manner
described above, after their release from escrow Partnership funds may be
temporarily invested in short-term certificates of deposit, short-term
securities or money market funds which invest in short-term funds directly or
indirectly issued or guaranteed by the United States or its government
agencies, U.S. Treasury bonds, notes or bills, and federally insured time and
demand deposits in state or national banks. If the Minimum Offering has not
been subscribed and paid for prior to the Initial Termination Date,
subscription proceeds will be returned to investors without interest or
reduction. See "Plan of Distribution".
COMPENSATION OF GENERAL PARTNER AND ITS AFFILIATES
The following table summarizes the recipients of, types, methods of
compensation, and the estimated amounts of compensation, fees and distributions
to be paid, directly or indirectly, by the Partnership to the General Partner
and its affiliates in connection with this offering and in the operation of the
Partnership, some of which will be paid regardless of the success or
profitability of the Partnership's operations. None of the arrangements for
compensation and fees to the General Partner and its affiliates were determined
by arm's-length negotiations. See "Conflicts of Interest".
<TABLE>
<CAPTION>
AMOUNT TO BE RECEIVED;
RECIPIENT TYPE OF COMPENSATION METHOD OF COMPUTATION
--------- -------------------- ---------------------
<S> <C> <C>
Organizational and Offering Stage
---------------------------------
General Partner Accountable Reimbursement of At cost to the General Partner
and its affiliates Organizational and Offering Expenses. and its affiliates. It is
Reimbursement for actual out-of-pocket estimated that the Partnership
organizational and offering expenses. will reimburse the General
Partner and its affiliates at
cost for organizational and
offering expenses of
approximately $50,000.
Acquisition Stage
-----------------
General Partner or Real Estate Brokerage Commissions. Actual amount depends on the
its affiliates(1) Non-recurring commission to be paid by type of investment and is not
the Partnership for assisting in the determinable at this time. Such
identification of potential real estate fees are expected to be 5% of
acquisitions, the due diligence review the total purchase price of each
and analysis of all such potential real improved real property
estate acquisitions, negotiation of investment and up to 10% of the
their purchase, and other real estate total purchase price of each
acquisition services, including the unimproved real property
closing of the transaction. The investment (including cash
Partnership also expects to pay payments and any acquisition
commissions in connection with the sale financing). However, in
of its properties. connection with the original
acquisition of real property
investments with the proceeds of
this offering, such fees shall
not exceed the lesser of 11.5%
of the Gross Offering Proceeds
or 10% of the total purchase
price (including acquisition
financing) of all properties to
be acquired by the Partnership
with such proceeds (2).
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
RECIPIENT TYPE OF COMPENSATION METHOD OF COMPUTATION
--------- -------------------- ---------------------
<S> <C> <C>
General Partner or Lease Brokerage Commissions. Non- Amount not determinable at this
its affiliates(1) recurring commission paid for services time since the total amount of
in locating tenants and negotiating the leasing services required is not
lease of the Partnership's property presently ascertainable. It is
investments. anticipated that such fees will
be approximately 7% of the gross
lease value (2) (3).
General Partner or Reimbursement of Expenses. Actual amounts not determinable
its affiliates Reimbursement of out-of-pocket expenses at this time, but may not exceed
incurred in connection with the the lesser of actual cost or the
investigation and acquisition of real amount which would be required
property investments. to be paid to independent
parties for comparable services.
Operating Stage
---------------
General Partner Accountable Operating Expense Amount not determinable at this
Reimbursement. After the Partnership time.
commences operations, the General
Partner will be reimbursed by the
Partnership for the administrative
services necessary to the prudent
operation of the Partnership on an
ongoing basis. Verification of the
allocation of such costs to the
Partnership will be made by the General
Partner and the annual report of the
Partnership shall contain a breakdown
of the costs reimbursed to the General
Partner.
Flordeco, Inc. Management Fee. Recurring fee paid Actual amount not determinable
monthly for managing the Partnership's at this time. The amount of the
assets and investments. Management Fee will depend on
the revenues received from the
Partnership's assets and
investments. In this regard,
the Partnership has agreed to
pay a monthly fee of 5% of the
Gross Operating Receipts from
Rents for such services. This
payment will be distributed to
Flordeco, Inc. on a monthly
basis.
General Partner Partnership Distributions. Through it Actual amounts depend upon
and ownership of the Units, the General results of Partnership
affiliates(4)(5)(6) Partner will receive its pro rata operations and are not
distributive share of the same determinable at this time.
distributions made by the Partnership
to other Unitholders. No front end
fees or special Partnership interests
will be granted to the General Partner
for its services.
</TABLE>
30
<PAGE> 34
<TABLE>
<CAPTION>
AMOUNT TO BE RECEIVED;
RECIPIENT TYPE OF COMPENSATION METHOD OF COMPUTATION
--------- -------------------- ---------------------
<S> <C> <C>
Liquidating Stage
-----------------
General Partner(4) Interest in Net Proceeds. Net proceeds Actual amounts depend upon
from the sale or liquidation of the results of Partnership
Partnership will be paid to all operations and are not
Unitholders. In accordance with their determinable at this time.
positive Capital Account balances after
taking into account all contributions,
distributions, and allocations.
- ------------------------------
</TABLE>
(1) Flordeco Realty, Inc., a Florida corporation and a wholly owned
subsidiary of the Management Company, is expected to render such
services on behalf of the Partnership and to receive commissions
therefor. Such services are expected to include assisting in
identifying, reviewing, and analyzing, negotiating, and closing the
purchase of the Partnership's real estate acquisitions, and/or the
leasing thereof. As shareholders and directors of both the Management
Company and the General Partner, Mr. Thomas R. Cronin, Sr. and
Dr. Gerald Laboda, may receive, directly or indirectly, the benefit
of the real estate and lease commissions paid by the Partnership. See
"Management".
(2) In addition, to the extent that net proceeds from the sale of property
investments or other revenues generated from Partnership operations
are reinvested, additional Real Estate or Lease Brokerage Commissions
may be paid to affiliates. Such additional commissions are not
subject to any limitations other than those established under the
Partnership Agreement. Furthermore, the amount of Real Estate and
Lease Brokerage Commissions may increase to the extent that the
Partnership utilizes acquisition financing and/or loan proceeds
secured by the Notes, both of which will provide the Partnership with
additional funds to apply to the purchase of property investments.
See "Investment Objectives and Policies - Borrowing Policies and Other
Financing".
(3) Gross lease value is the aggregate amount of gross lease payments
payable under the terms of the lease from its commencement through the
expiration of the lease, not including any options to renew the lease.
(4) The General Partner will not be compensated or otherwise receive any
front-end fees for its services to the Partnership and accordingly
will not assess the Partnership any fees for administrative and
management services furnished to the Partnership. Instead, the
General Partner, through its ownership of Units, will only receive and
be limited to its pro rata share of the Partnership's distributions to
Unitholders as a group. Accordingly, the General Partner will receive
payment for such services only to the extent that the Partnership is
in a position to make Partnership distributions.
(5) Profits, losses, and distributions of cash or property by the
Partnership generally will be made to the Unitholders (including the
General Partner) in proportion to the Units held by each of them. It
is anticipated that distributions of cash, if any, will be made
annually from Net Cash Flow commencing in the year 2000. See "Risk
Factors - The Offering and Investment Risks -- No Assurance of Cash
Distributions". Upon liquidation of the Partnership, the cash and
property of the Partnership (not otherwise sold or retained by the
Partnership to meet certain contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner) will be
distributed in accordance with the positive capital account balances
of its Unitholders. Notwithstanding the foregoing, to the extent that
Partnership losses exceeds those amounts that may be allocated to the
Unitholders for federal income tax purposes, such losses will be
allocated to the General Partner. Likewise, the General Partner will
be allocated the first profits of the Partnership in an amount up to
the excess losses allocated to the General Partner. See "Partnership
Distributions and Allocations", and "Summary of the Partnership
Agreement".
(6) The amount of cash available for distribution consists of the
Partnership's Net Cash Flow after payment of all operating expenses,
including debt service requirements and other liabilities of the
Partnership, and any adjustment for made reserves, or any allocation
of available cash for working capital purposes, contingent
liabilities, taxes and other purchases. See "Partnership
Distributions and Allocations".
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<PAGE> 35
CONFLICTS OF INTEREST
The Partnership will be subject to various potential conflicts of
interest arising out of its relationship with the General Partner and its
affiliates, including conflicts related to the arrangements pursuant to which
the General Partner and its affiliates will be compensated by the Partnership.
See "Compensation of the General Partner and Its Affiliates" and "Management."
Certain provisions of the Partnership Agreement, especially those set forth in
Sections 5.6 and 5.7 of Article V with respect to permissible transactions and
compensation therefor, are intended to protect the interests of the
Partnership's Limited Partners. In addition, see "Fiduciary Responsibilities
of the General Partner" for a discussion of the General Partner's fiduciary
obligations to the Limited Partners, which in general require the General
Partner to consider the best interests of the Limited Partners in managing the
property and the affairs of the Partnership. The General Partner intends to
exercise its best business judgment and discretion in resolving any such
conflicts which may arise but does not intend necessarily to accord priority to
the Partnership with respect to any other partnership or entity with which it
may be affiliated. In addition, in an attempt generally to reduce the overall
conflicts of interests described herein, the Partnership has attempted to align
the interests of the General Partner with those of the investors by limiting
distributions to the General Partner to only those distributions which are made
to all Unitholders (except for certain expense reimbursements). In these
instances, the General Partner, through its ownership of Units, will receive
its pro rata share of any such distribution. Other than such Unitholder
distributions, the General Partner will not receive any front end fees or
otherwise assess the Partnership for any administration or management services.
By aligning the interests of the General Partner with those of the other
Unitholders, the General Partner is provided with an incentive to maximize the
profitability of the Partnership in a manner beneficial to Unitholders and
which also should reduce the potential for conflicts of interests. These
potential conflicts include, but are not limited to, the following:
1. Receipt of Fees and Other Compensation by the General Partner and
Its Affiliates. Partnership transactions involving the purchase, lease, and
sale of the Partnership's properties may result in the immediate realization by
the General Partner and its affiliates, including the Management Company and
Flordeco Realty, Inc., of substantial commissions, fees, compensation and other
income. These fees are generally based upon a percentage of the amount paid to
or by the Partnership. None of the agreements for such services were the
result of arm's-length negotiations. The General Partner believes, however,
that the terms of the arrangements are reasonable and no less favorable than
those which would be obtained from unaffiliated entities. Subject to the
fiduciary duties and specific restrictions set forth in the Partnership
Agreement, the General Partner has considerable discretion with respect to all
decisions relating to the terms of, and timing of, such transactions.
Accordingly, a conflict of interest may arise with respect to decisions
concerning the retention of disposition of the Partnership's property
investments since the General Partner may have an interest in retaining, rather
than disposing of, a property investment in order to continue the payment of
management fees to its affiliates, especially if the proceeds realizable as a
result of such disposition would not be large enough to provide any significant
distribution to the General Partner or its affiliates. The General Partner,
however, is a fiduciary and must exercise good faith and integrity in
performing its duties. Accordingly, in making decisions as to such
transactions, the General Partner will consider its fiduciary responsibilities
to the Limited Partners and will seek to determine which course of action is
most consistent with the Partnership's investment objectives and policies.
2. Property Management Fees. Flordeco, Inc., an affiliate of the
General Partner, has been engaged to provide management services to the
Partnership and its real property investments and will receive a monthly fee
based upon the Gross Operating Revenues from Rents generated by such property
investments. See "Compensation of the General Partner and its Affiliates."
This agreement was not the result of arm's-length negotiations. The fee is
payable whether or not these property investments are generating sufficient
cash to make a distribution to Unitholders or is otherwise held on a basis
advantageous to the Partnership. Accordingly, a conflict of interest could
arise if the retention of a property investment advantageous to General Partner
or its affiliates but would be detrimental to the Partnership.
3. Competition for Management's Time and Services. The General
Partner and its affiliates will only devote so much of their time to the
business of the Partnership as in their judgment is reasonably required. Since
the officers of the General Partner also are officers and employees of
affiliated entities, they will have
32
<PAGE> 36
a conflict of interest in allocating management time, services, and functions
among the Partnership, such affiliated entities, and any future partnerships or
other ventures which may be organized by the General Partner or its affiliates.
The General Partner believes that it and its affiliates have sufficient staff
and other resources to perform their responsibilities on behalf of the
Partnership. Prior to the formation of any other partnerships or other
ventures, the General Partner will take any such additional actions as may then
appear appropriate to ensure that both staff and resources will be sufficient
in light of the increased responsibilities which will result therefrom,
including the hiring of additional qualified personnel, if necessary. The
General Partner and its affiliates will allocate their time and services among
the Partnership and any future partnerships of other ventures which may be
sponsored by the General Partner or its affiliates based upon their valuation
of the relative needs of the various entities for management services.
4. Competition with Partnership by Affiliates for Properties. An
affiliate of the General Partner has organized and sponsored one other real
estate program, which partnership is currently operating and maintains real
estate holdings and investments. In the future, this real estate program is
expected to make additional real estate investments. See "Prior Performance".
In the future, the General Partner and its affiliates, including Mr. Cronin,
may form and manage or advise, directly or indirectly, through affiliates,
additional real estate investment partnerships or other entities, both public
and private, some of which may to have some or all of the same investment
objectives as the Partnership. The Partnership Agreement provides that neither
the General Partner nor any of its affiliates shall be obligated to present any
particular investment opportunity to the Partnership, even if such opportunity
is of a character which, if presented to the Partnership, could be taken by the
Partnership. See "Risk Factors - Competition for Property Investments".
In addition, affiliates of the General Partner have been, and are
expected to continue to be, involved in other real estate investments. The
General Partner and its affiliates also may engage in, for their own accounts
or for the accounts of others, other business ventures involving real estate,
and neither the Partnership or the Limited Partners will be entitled to any
interest therein nor will the Partnership have a right of first refusal to
purchase such properties or investments. If the General Partner is presented
with a potential property investment which might be made by more than one
entity which it or one of its affiliates advises or manages, the decision as to
the suitability of the property investment by a particular entity will be based
upon a review of the investment portfolio of each entity and upon such factors
as cash flow, the effect of the acquisition on diversification of each entity's
portfolio, the expected income tax consequences of the purchase, the policies
of the entities relating to leverage, the funds of each entity available for
investment, the length of time such funds have been available for investment
and the legality of the investment for the entity. It will be within the sole
discretion of the General Partner to allocate investment opportunities as it
deems desirable. If a particular property is determined to be suitable for
more than one entity, priority generally will be given to the entity having
uninvested funds for the longest period of time. To the extent that an
investment opportunity is offered to an earlier partnership or is taken for the
account of the General Partner or its affiliates, the investment of the
Partnership's funds might be delayed.
Affiliates of the General Partner may acquire properties adjacent to
the Partnership's properties. It is possible that the value of such properties
may be enhanced by their proximity to the Partnership's properties or that such
properties may be in competition with the Partnership's properties for
prospective tenants. The General Partner believes that it is unlikely,
however, that ownership of any such real estate by the Partnership or its
affiliates would have a material adverse effect on the value of such
properties.
The General Partner will attempt to resolve any conflicts of interest
between the Partnership and others with respect to these matters by exercising
the good faith required of fiduciaries. The General Partner believes that it
will generally be able to resolve such conflicts on an equitable basis. See
"Fiduciary Responsibilities of the General Partner".
5. Sale of Property Investments. Since the interests of the General
Partner or its affiliates in selling, leasing, or holding property investments
are likely to differ as a result of their distinct financial and tax positions
and the compensation payable to the General Partner and its affiliates, the
interests of the Partnership and the interests of affiliates of the General
Partner also may conflict when the Partnership attempts to sell or lease its
properties or otherwise transfer or dispose of the Partnership investments.
See "Compensation
33
<PAGE> 37
of the General Partner and Its Affiliates". In the unlikely event that the
Partnership and another program or an affiliate of the General Partner
attempted to sell similar property investments at the same time, a conflict
could arise since they potentially could compete for a suitable purchaser. In
order to resolve this potential conflict, the General Partner has agreed not to
sell any of the Partnership's properties contemporaneously with a property
owned by another program managed by the General Partner if the two properties
are of the same type and are within a three-mile radius of each other, unless
the General Partner is able to locate a suitable purchaser for each property.
6. Lease Commissions. The General Partner or its affiliates
(including Flordeco Realty, Inc.) will negotiate the terms and conditions of
the lease agreements with tenants of the Partnership's properties. In
consideration of such services, affiliates of the General Partner may receive
commissions and fees based upon a percentage of the gross lease value. Such
commissions and fees will be payable prior to and will be payable regardless of
the success or profitability of the Partnership. Since such payments will
generally be made prior to any payments made to the Partnership, a conflict of
interest could arise where the payment of such fees for a particular agreement
are advantageous to the General Partner or such affiliates but the overall
terms or payments under any such agreement is not favorable to the Partnership.
7. Indemnification. The Partnership has agreed to indemnify the
General Partner to the full extent provided by law against any loss or
liability arising from the conduct of the business of the Partnership
(including negligence of the General Partner), except loss or liability based
upon actual fraud, bad faith, gross negligence or willful misconduct. The
right to such indemnification could adversely affect the General Partner's
performance of its duties and responsibilities to the Partnership. See
"Fiduciary Responsibilities of the General Partner".
8. Possible Joint Ventures with Affiliates. The Partnership may
enter into or invest in a property jointly with an affiliated partnership or
other affiliated entity if such affiliate has substantially identical
investment objectives as those of the Partnership, the investment by the
Partnership is on substantially the same terms and conditions as the investment
of the affiliate, and the sponsor's compensation is substantially identical in
each program. See "Investment Objectives and Policies - Joint Venture
Investments." Conflicts of interest could arise between the Partnership and
its affiliated co-venturer in connection with any such joint venture because of
differing interests or economic circumstances of the Partnership and such
co-venturer. In the event of such a disagreement, the Partnership would
normally have a right of first refusal to purchase the affiliate's interest in
the joint venture, but the exercise of such rights would be subject to the
Partnership having the financial resources to effectuate such a purpose, and
there can be no assurance that it will have such resources.
9. Tax Positions. To the extent that certain decisions or
transactions involve tax considerations, the interests of the General Partner
may be inconsistent with those of the Limited Partners (i.e., the timing of
transactions). In addition, situations may arise in which the General Partner
may be required to act on behalf of the Partnership in administrative and
judicial proceedings involving the Internal Revenue Service or other
enforcement authorities. Such proceedings may involve or affect other
partnerships for which the General Partner or an affiliate acts as a general
partner. In such situations, the positions taken by the General Partner may
have differing effects on the Partnership and other such partnerships. Any
decision made by the General Partner with respect to such matters will be made
in good faith consistent with the General Partner's fiduciary duties both to
the Partnership and its Limited Partners and to any other partnership for which
the General Partner, or an affiliate, may be acting as a general partner.
10. Lack of Separate Representation. The Partnership, the General
Partner, and its affiliates are not represented by separate counsel in this
transaction. See "Legal Matters." All of the attorneys, accountants and other
experts performing services for the Partnership also perform services for the
General Partner and certain of its affiliates. Should a dispute arise between
the Partnership and the General Partner, the General Partner will, if and when
appropriate, cause the Partnership to retain separate counsel. The Partnership
has not retained independent counsel to represent the interests of investors in
connection with the offering of the Units or the preparation of the Partnership
Agreement. SUCH COUNSEL DOES NOT PURPORT TO HAVE ACTED ON BEHALF OF THE
LIMITED PARTNERS. EACH PROSPECTIVE INVESTOR
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<PAGE> 38
SHOULD CONSULT INDEPENDENT COUNSEL IN CONNECTION WITH AN INVESTMENT IN THE
PARTNERSHIP.
11. Purchase of Units by the General Partner and its Affiliates.
The General Partner and its affiliates have the right to purchase, and intend
to purchase, Units offered hereby and any Units so purchased will included in
determined whether the Minimum Offering has been obtained. See "Plan of
Distribution". In those situations where action can or must be taken by a vote
of the limited partners, the ownership of Units by the General Partner or its
affiliates could result in a conflict with investors. See "Summary of the
Partnership Agreement - Meetings and Voting". A purchase of Units by the
General Partner or its affiliates also could result in a conflict with
investors because the General Partner or its affiliates may have an interest in
the recovery of their investment with respect to Units which may not coincide
with the timing thereof desired by investors.
FIDUCIARY RESPONSIBILITIES OF THE GENERAL PARTNER
The General Partner is accountable to the Partnership and the Limited
Partners as a fiduciary and consequently must exercise good faith and integrity
in managing Partnership affairs. Under the Florida Revised Uniform Limited
Partnership Act (1986) (the "Florida RULPA"), under which the Partnership was
formed, each Limited Partner will have the right to institute legal action on
behalf of the Partnership (a limited partnership derivative action) to recover
a judgment in the Partnership's favor, including an action against the General
Partner for breach of its fiduciary duties. The right is available if the
General Partner who has the authority to bring an action but has refused to
bring the action or if an effort to cause the General Partner to bring the
action in not likely to succeed. In addition, a breach of fiduciary duties by
the General Partner may give the Limited Partners the right to institute a
class action on behalf of themselves and other similarly situated limited
partners or, subject to procedural or jurisdictional requirements, to bring an
action under the antifraud provisions of federal and state securities laws for
the recovery of damages (including losses incurred in connection with the
purchase or sale of a Units).
By statute, a general partner of a Florida limited partnership has the
same liabilities to the partnership and the partners as a partner in a
partnership without limited partners. In any action alleging a breach of
fiduciary duties of the General Partner to either the Limited Partners or the
Partnership, it therefore is not anticipated that the General Partner will be
able to assert as a defense the so-called "business judgment rule," which
creates a presumption that the actions of directors of corporations on behalf
of the corporation are reasonable. This is a rapidly developing and changing
area of the law, however, and Limited Partners who have questions concerning
the duties or defenses of the General Partner should consult with their
counsel.
The Partnership Agreement provides that the General Partner and its
affiliates, including their shareholders, officers and directors, who perform
services for the Partnership within the scope of the General Partner's
authority, will not be liable to the Partnership or the Limited Partners for
any of their actions or inactions if they in good faith determined that such
course of conduct was in the best interest of the Partnership and such course
of conduct did not constitute actual fraud, bad faith, gross negligence, or
willful misconduct by them. To the maximum extent permitted by law, the
Partnership Agreement provides that they also will indemnify the General
Partner and its affiliates against all liabilities, costs, and expenses
(including legal fees and expenses) incurred by the General Partner or such
persons arising out of or incidental to this offering or the business of the
Partnership, including, without limitation, liabilities under federal and state
securities laws, under circumstances where the General Partner and such persons
would not be liable to the Partnership as described above. As a result of
these provisions, Limited Partners may have more limited rights against the
General Partner than they would have absent the limitations in the Partnership
Agreement. Any indemnification of the General Partner and its affiliates will
be limited to the Partnership's assets and partners will have no personal
liability for any such indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or persons controlling
the General Partner or the Partnership, the Partnership has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as
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<PAGE> 39
expressed in the Securities Act and is therefore unenforceable. If a claim for
indemnification against such liabilities (other than for expenses incurred in a
successful defense) is asserted against the Partnership by the General Partner
or its affiliates under the Partnership Agreement or otherwise, the Partnership
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 Securities Act and will be governed by the final adjudication
of such issue.
The legal obligations of general partners is a developing and changing
area of the law, and investors should consult their own legal counsel
concerning the fiduciary responsibilities of the General Partner and the
remedies available to limited partners.
PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS
PARTNERSHIP DISTRIBUTIONS
Commencing on or about the year 2000, the Partnership intends to
provide to Unitholders annual cash distributions from cash flows generated from
Partnership operations to the extent that the General Partner determines such
cash flows are not required to support the Partnership's current operations or
future needs. Accordingly, the Partnership's ability to make cash
distributions will depend upon its cash flow, financial condition, and other
factors. Such factors include the ability to generate sufficient cash from
operations to pay the Partnership's expenses, service its debt, and to satisfy
other liabilities as they became due. In this regard, distributable cash will
be reduced by the payment of Partnership expenses (including management fees
and commissions paid to affiliates of the General Partner as well as the
reimbursement of certain expenses paid by them on behalf of the Partnership).
See "Compensation of the General Partner and Its Affiliates" and "Conflicts of
Interest". In determining what portion of the Partnership's cash for any
period is distributed to Unitholders, the General Partner has the authority to
use or set aside funds to repay Partnership debt, for working capital needs,
for the purchase of new assets, for the funding of present or future
liabilities or contingencies, taxes, and for other purposes that the General
Partner deems appropriate in its sole discretion. Consequently, the amount of
distributions, if any, and their relation to the aggregate amount of cash
generated from operations otherwise available for distribution is subject in
large part to the discretion of the General Partner and may vary substantially
from year to year. It is anticipated that a substantial portion of the
proceeds received from any sale or refinancing of the Partnership's property
investments will reinvested in additional property investments until the
termination or liquidation of the Partnership. Although the General Partner
intends to provide annual cash distributions commencing in the year 2000, there
can be no assurance that such distributions will be made. See "Risk Factors -
The Offering and Investment Risks -- No Assurance of Cash Distributions" and
"Risk Factors - The Offering and Investment Risks -- Liability of Limited
Partners; Repayment of Certain Distributions".
Until there has occurred an event that will cause a dissolution and
liquidation of the Partnership under the Partnership Agreement, distributions
of Net Cash Flow, if any, will be distributed to the General Partner and to the
Unitholders in proportion to the Units held by each of them.
Distributions will be made only if, as, and when declared by the
Partnership. It is anticipated that distributions, when made, will be
furnished within 90 days after the end of each fiscal year. These
distributions will be made to Unitholders of record when the distribution is
declared.
DISTRIBUTIONS UPON DISSOLUTION
Upon the dissolution and liquidation of the Partnership, after making
provisions for the liabilities and obligations of the Partnership owed to
creditors other than the General Partner, the net proceeds from the liquidation
of the Partnership's assets will be distributed: (i) first to pay and discharge
all of the Partnership's debts and liabilities, if any, to creditors other than
the General Partner; (ii) second, to pay and discharge all
36
<PAGE> 40
amounts owed by the Partnership to the General Partner; and (iii) the balance,
if any, to the Unitholders, in accordance with their positive Capital Account
balances after giving effect to all contributions, distributions, and
allocations for all periods. See "Summary of the Partnership Agreement -
Termination, Dissolution, and Liquidation."
The proceeds of any sale or refinancing of the Partnership's
properties may be reinvested by the Partnership in additional property
investments. The General Partner currently expects that in most cases the
Partnership will reinvest a substantial portion of such proceeds in new real
property investments. See "Investment Objectives and Policies - Sale and
Refinancing; Liquidation".
ALLOCATIONS
Profits and Losses (as those terms are defined in the Partnership
Agreement) of the Partnership (which include those from operations and from
sales or refinancings) for each year will generally be allocated to Unitholders
in proportion to the Units held by each, except to the extent that Losses have
been disproportionately allocated to the General Partner as required under
applicable law. If Losses have been disproportionately allocated to the
General Partner in a prior fiscal year, then Profits will be allocated to the
General Partner in an amount up to the amount of losses disproportionately
allocated to the General Partner. Profits of the Partnership may be allocated
to Unitholders in one partnership fiscal year while the distributions of cash
relating to such Profits may be made by the Partnership in a different fiscal
year. Thus, though Unitholders may receive distributions in one Partnership
fiscal year, the Profits allocated to that Unitholder that relate to that
distribution may not be allocated to the Unitholder until a later year, or vice
versa. Notwithstanding the foregoing, if a Unitholder's Capital Account is
negative as the result of an unforeseen distribution or other event the
Unitholder will be specially allocated the next dollars of gross income, solely
for federal income tax purposes, to bring the Unitholder's Capital Account to
zero. This is required to meet the substantial economic effect test discussed
in "Federal Income Tax Considerations - Allocations of Profits and Losses."
Also, if a Unitholder contributes appreciated or depreciated property to the
Partnership, the appreciation or depreciation, as the case may be, inherent in
that property will be allocated to the contributing Unitholder or limited, as
required by law.
Losses generally will be allocated as incurred by the Partnership to
the Unitholders in the same proportion as Profits are allocated. However,
Losses that would otherwise be allocated to a Unitholder will be allocated to
the other Unitholders to the extent that such Unitholder cannot make use of
those Losses under the Partnership Agreement, which limits a Unitholder's
ability to use a Loss if the Loss would result in the Unitholder's Capital
Account becoming negative, during the fiscal year the Losses arise. Any losses
in excess of these that may be allocated to all Unitholders will be allocated
to the General Partner. All future Profits will then be allocated to the
General Partner with the Profits so allocated to equal the excess Losses
previously allocated to the General Partner.
Upon the transfer of a Unit, Profits and Losses attributable to such
Unit generally will be allocated between the transferor and transferee based on
the number of months during the year of transfer that each is deemed to have
owned the Unit, on a closing of the books method, or on any other basis
permitted by the Code as determined in each case by the General Partner in its
discretion.
PRIOR PERFORMANCE
Neither the General Partner nor any of its officers, directors, or
affiliates, including the Management Company, have sponsored any public or
private real estate limited partnership offerings during the past ten years.
The General Partnership was formed on October 24, 1995, and has no prior
history of operating real estate limited partnerships.
However, Mr. Cronin and Dr. Laboda did sponsor one other real estate
investment limited partnership in January, 1971 for C.S.L. & G. Development,
Ltd., a Florida limited partnership ("CSL&G"). Units of limited partnership
interests in CSL&G were registered under the laws of the State of Florida and
were sold
37
<PAGE> 41
only to Florida residents. They were not registered with the SEC under the
Securities Act of 1933 pursuant to the intrastate offering exemption available
under Section 3(a)(11) of that Act. 125 Units were offered and sold at a
purchase price of $13,400 per Unit, consisting of $2,000 in cash and a note to
pay the remaining $11,400 over a ten year period. Units were offered on a
best-efforts basis and were fully subscribed for, raising approximately
$250,000 in cash and $1,425,000 in notes. After investors had paid
approximately $5,155 of their indebtedness on their notes, the General Partners
cancelled all outstanding obligations under the notes. Accordingly, each
investor ultimately paid approximately $7,155 per unit to purchase their units.
CSL&G is an existing and fully operational limited partnership. Mr.
Cronin, Sr. and Dr. Laboda serve as the sole general partners of CSL&G, and the
Management Company has served as its property and investment manager since
August 1973.
CSL&G was initially formed for the purpose of acquiring, developing
and generating income from a 90 acre tract of land located in Fort Myers,
Florida. Since its acquisition of this property, CSL&G has transferred, sold
and developed the property on which has been constructed a hospital, a shopping
center, a condominium project, and a file storage facility. CSL&G has accepted
cash and securities in connection with its land transactions. Profits
generated thereby have been either distributed to investors or reinvested in
additional real property and other equity investments. Through October 1995,
investors have received distributions totalling approximately $41,155 per Unit.
The investment objectives of CSL&G are similar to the Partnership to
the extent that both partnerships seek investments in income producing property
and investments with the intent of providing investors with cash distributions
while also offering the potential to preserve capital and provide long-term
capital appreciation. CSL&G, however, invested in an identified undeveloped
property with its value and success based on the development of that property
whereas the Partnership has not yet identified any such investments.
The results achieved by CSL&G was the result of a combination of
circumstances, including the rapid economic and population growth experienced
since 1971 in the Fort Myers, Florida area, which circumstances are not likely
to be repeated. The foregoing is furnished only as a means to provide
prospective investors with information concerning the experience of the General
Partner and its affiliates.
PROSPECTIVE INVESTORS ARE CAUTIONED, HOWEVER, THAT THERE IS NO
ASSURANCE THAT INVESTORS IN THIS OFFERING WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS OF CSL&G. IN FACT, COMPARABLE
RESULTS ARE UNLIKELY. INVESTORS IN THIS OFFERING WILL NOT HAVE ANY INTEREST IN
CSL&G OR IN ANY OF ITS PROPERTIES OR OTHER INVESTMENTS AS A RESULT OF INVESTING
IN THE UNITS OFFERED HEREBY.
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CAPITALIZATION
The capitalization of the Partnership as of the date of this
Prospectus and as adjusted to reflect the issuance and sale to investors of 100
Units (if the Minimum Offering) is as follows:
<TABLE>
<CAPTION>
AS OF THE AS ADJUSTED
DATE HEREOF (1) 100 UNITS (2)
--------------- -------------
<S> <C> <C>
General Partner's Contribution (3) . . . . . . . . . . . . . . . . . . $ 5,000 $ 60,000
Limited Partners' Contributions
Initial Limited Partner . . . . . . . . . . . . . . . . . . . . . $ 900 $ 0
Units ($12,000 per Unit)(4)(5) . . . . . . . . . . . . . . . . . . 0 1,090,000
----------- -----------
5,900 1,150,000
Less: Partner notes receivable . . . . . . . . . . . . . . . . . . . . 0 (1,000,000)
----------- -----------
Total Partner Equity (4)(5) . . . . . . . . . . . . . $ 5,900 $ 150,000
=========== ===========
- ---------------
</TABLE>
(1) The Partnership was capitalized on March 19, 1996 and May 31, 1996,
with a total cash contribution of $5,000 to the Partnership from the
General Partner and $900 by the Initial Limited Partner.
(2) If the Maximum Offering is sold (1,000 Units), the General Partner
will acquire 10 Units and its contribution will increase to $120,000,
the limited partners' contributions from the purchase of Units would
be $11,830,000 (including $10,000,000 payable in Notes) resulting in a
Total Partner Equity of $1,950,000.
(3) Assumes a purchase of a minimum of five Units by the General Partner
pursuant to the offering. If the Minimum Offering is sold (ten Units
if the Maximum Offering is sold). Following the offering, the General
Partner's interest will consist entirely of such Units. The General
Partner's initial contribution of $5,000 will be credited to its
payment for Units to be purchased pursuant to this offering.
(4) Assumes that all Units are purchased for cash and Notes prior to
Initial Termination Date. Amounts are net of organizational and
offering expenses.
(5) Units will be purchased with a cash payment of $2,000 and a full
recourse Note in the amount of $10,000 payable over a ten year period
without interest. The Units so purchased will serve as collateral for
the Notes.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As reflected under the caption "Capitalization," the Partnership
currently has limited funds because substantially all the Partnership's capital
is being raised through this offering. The business plan of the Partnership is
to raise funds from investors by means of this offering and to use such funds
(less public offering and transaction expenses) to make equity investments in
income producing real properties. As of the date of this Prospectus, the
Partnership has no outstanding commitments or arrangements to purchase any real
property investments.
The Partnership's current investment plans are to acquire and develop
a diversified portfolio of real property investments located primarily in
Southwest Florida on a highly leveraged basis. The amount and timing of any
financing used for the Partnership's acquisitions and investments will depend,
in part, on the availability, terms, and cost of such debt and the actual or
anticipated revenues to be derived from the property investment. The
Partnership Agreement does not restrict the type of debt that may be incurred
by the Partnership. The maximum indebtedness which may be incurred by the
Partnership as a whole shall not exceed 100% of the total purchase price of all
property investments which have not been refinanced and 100% of the aggregate
value as determined by the lender as of the date of refinancing as to all
property investments which have been refinanced. There is no maximum leverage
limitation with respect to any single property investment, nor are there any
limitations as to the number of mortgages or loans which may be placed on any
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<PAGE> 43
single property. In connection with its real property investments, the
Partnership currently anticipates that it will incur aggregate borrowings of
75-100% of the total purchase price of such investments. See "Investment
Objectives and Policies".
During the period of this offering, pending the acquisition of
properties, the net cash proceeds of the offering released from escrow will be
invested in short-term interest bearing obligations. See "Investment
Objectives and Policies - Temporary Investments." The Partnership currently
anticipates using the Notes as collateral for bank loans or other institutional
financing to be used for the acquisition of property investment. Such
borrowings are expected to be repaid with installment payments received from
investors under the Notes and, to the extent necessary, funds generated from
Partnership operations. See "Investment Objectives and Policies - Borrowing
Policies and Other Financings".
OPERATIONS
The Partnership was recently formed and had not engaged in any
operations except for certain organizational activities. The Partnership's
future operations will consist of purchasing and holding equity investments in
a diversified portfolio of income producing real properties which are expected
to be located primarily in Southwest Florida. The General Partner will make
all decisions concerning acquisitions and dispositions of properties. The
decisions of the General Partner will in each instance be made after they have
received the recommendations of the Management Company.
MANAGEMENT
MANAGEMENT OF THE PARTNERSHIP
The General Partner of the Partnership is Investors Trust, Inc., a
Florida corporation. The General Partner has engaged the services of the
Management Company, an affiliate, to manage the Partnership's investments. In
addition, the General Partner and the Management Company will be responsible
for oversight of any capital investment projects and leasing of the properties.
Thomas R. Cronin, Sr., Dr. Gerald Laboda, Allan Fox, and Thomas R. Cronin, Jr.
are the sole shareholders of the General Partner.
THE GENERAL PARTNER AND AFFILIATES
The General Partner was incorporated on October 24, 1995, for the sole
purpose of acting as the general partner of the Partnership. The Partnership's
activities will be managed and controlled by the General Partner and, except as
expressly provided in the Partnership Agreement, the General Partner will have
exclusive control to do any and all things necessary or incident to the
Partnership's business. Unitholders will not have any right to manage or
control the business of the Partnership. To the extent that any day-to-day
activities or operations are delegated by the General Partner, the General
Partner will remain generally responsible for the Partnership's business and
will oversee all such delegated activities or operations. The Initial Limited
Partner of the Partnership is Michael P. Geml. Assuming the sale of the
Minimum Offering prior to the Initial Termination Date, Mr. Geml's original
capital contribution will either be returned to him or applied to the purchase
price of the Units, if any, to be purchased by him pursuant to this offering.
Neither the General Partner, its principals (including Thomas R.
Cronin, Sr.) nor its affiliates will devote their full time and attention to
the business of the Partnership, but, rather will devote only such time as they
deem reasonably necessary to manage the Partnership's business. Further, the
officers, directors and shareholders of the General Partner and the Partnership
may and will participate in various other business activities as long as such
activities do not conflict with the business activities of the Partnership.
The Partnership will be responsible for paying all expenses incurred
by the Partnership or by the General Partner on behalf of the Partnership.
Such Partnership expenses will include all compensation
40
<PAGE> 44
expenses and administrative costs of the General Partner. However, the
Partnership will not be responsible for compensation payable to, and expenses
incurred by, the shareholders of the General Partner, other than out-of-pocket
expenses incurred by such persons in their capacities as officers of the
General Partner.
MANAGEMENT OF THE GENERAL PARTNER
The following table sets forth information about each person who
serves as a director or executive officer of the General Partner:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE GENERAL PARTNER
- ---- --- ---------------------------------
<S> <C> <C>
Allan Fox 55 President and Director of General Partner
Thomas R. Cronin, Sr. 56 Secretary, Treasurer and Director of General Partner
Dr. Gerald Laboda 59 Director of General Partner
Thomas R. Cronin, Jr.(1) 26 Vice President and Director of General Partner
- --------------
</TABLE>
(1) Thomas R. Cronin, Jr. is the son of Thomas R. Cronin, Sr.
The background and experience of the executive officers and directors
of the General Partner and its affiliates are as follows:
ALLAN FOX is the President and a Director of the General Partner.
Since May 1990, Mr. Fox has served as President and Director of both the
Management Company and Flordeco Realty, Inc. Mr. Fox coordinates and manages
real estate sales of Flordeco Realty, Inc., and he is responsible for
industrial and commercial real property development for the Management Company.
Mr. Fox served as the President of Pate Realty/Pate Homes from 1976 to 1981 and
was the Vice President of the Fort Myers Board of Realtors from 1977 to 1978.
He has been a licensed real estate broker since 1969. Mr. Fox also serves on
the Board of Directors of the Greater Fort Myers Chamber of Commerce.
THOMAS R. CRONIN, SR., is the Secretary, Treasurer and a Director of
General Partner. Mr. Cronin has been the Chairman of the Board of Directors of
West Coast Bancorp, Inc., a publicly traded bank holding company, and its
wholly owned subsidiary, First National Bank of Southwest Florida, since their
inception in 1987 and 1989, respectively. Mr. Cronin also is chairman of the
Board of Directors of the Management Company, a real estate development company
which he founded in 1973, and Flordeco Realty, Inc. Mr. Cronin has served as a
general partner of CSL&G since 1971. From 1953 to 1995 he also was a partner
of Cronin Distributors, a beverage distribution firm, where he directed
financial and strategic planning. From 1977 to 1982 he was a director of Ellis
Bank located in Fort Myers. He was a founder and an organizer of Commerce
National Bank in Naples and served as a director until its merger in 1987 with
First Union National Bank. He is a member of the Board of Trustees of the
Southwest Florida Medical Center, an honorary member of the Board of Directors
of the Greater Fort Myers Chamber of Commerce and has served as a member of the
Board of Directors of Basic American Medical Inc., a public company. Mr.
Cronin also served as the President of the Fort Myers Property Owners
Association and on a Blue Ribbon Committee to build a governmental campus in
downtown Fort Myers. He also is a past president of the Fort Myers YMCA and
United Way.
DR. GERALD LABODA is a Director of the General Partner, the Management
Company and Flordeco Realty, Inc., and since 1971 has served as a general
partner of CSL&G. Dr. Laboda also is a partner and director of Procraft
Industries, a battery wholesaler, and has held those positions since 1989. Dr.
Laboda, an oral surgeon, has maintained a medical practice in the Fort Myers
area since 1965. In June 1971, he assisted in the organization and
establishment of the Southwest Florida Regional Medical Center (known as the
Fort Myers Community Hospital) and has served on its Board of Trustees since
its formation in various capacities including a chairmanship, Secretary and a
vice chairmanship. Columbia/HCA Healthcare Corporation, a publicly traded
healthcare provider, recently has acquired the Fort Myers Hospital and has
named Dr. Laboda as the Medical Director for its Southwest Florida Division.
Dr. Laboda also has served as a Senior Director on the Board of Barnett Bank of
Lee County. He currently is the Chairman of the Downtown Redevelopment Agency
of the City of Fort Myers.
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<PAGE> 45
THOMAS R. CRONIN, JR. is a Vice President and a Director of the
General Partner. Since July 1992, Mr. Cronin has served as the Vice President
of the Management Company and Flordeco Realty, Inc. His responsibilities
include commercial real estate development an marketing. From 1992 to 1995 he
served on the Board of Directors of Cronin Distributors. In addition, from
1993 to 1995, Mr. Cronin owned his own full service commercial real estate
company. He presently serves on the Board of Directors of YMCA of Lee County
and the Southwest District of the Florida Association of CCIM. Mr. Cronin, a
graduate of the University of Florida, has a B.S. degree in Economics and has
received his Certified Commercial Investment Member Designation.
MANAGEMENT COMPENSATION
Since inception, neither the General Partner nor the Partnership has
paid any cash compensation to their executive officers or directors. The
Partnership has not entered into any written employment agreements with any
persons. Except as disclosed in this Prospectus, neither the General Partner
nor the Partnership will pay any fees or other compensation, other than
expenses associated with this offering, to its officers, directors, or any of
their affiliates. See "Compensation of the General Partner and Its
Affiliates."
MANAGEMENT COMPANY AND FLORDECO REALTY, INC.
The following table sets forth the directors and officers of the
Management Company and Flordeco Realty, Inc.
<TABLE>
<CAPTION>
POSITION WITH THE MANAGEMENT COMPANY
NAME AND FLORDECO REALTY, INC. (1)
---- ------------------------------------------
<S> <C>
Allan Fox President and Director
Thomas R. Cronin, Sr. Director and Chairman of the Board
Dr. Gerald Laboda Director
Thomas R. Cronin, Jr. Vice President and Director
Eileen W. Murphy Secretary and Treasurer
- -----------------
</TABLE>
(1) Each of these individuals serve the Management Company and Flordeco Realty,
Inc. in the same capacities set forth above.
The Management Company has entered into the Management Agreement
pursuant to which it will provide certain management services to the
Partnership and its real property investments. The Management Company will
locate and evaluate prospective real estate investments on behalf of the
Partnership, present investment recommendations to the General Partner,
negotiate the terms of investments on behalf of the Partnership, establish a
business plan for the properties, advise the General Partner on financing,
refinancing, or eventual sale of the Partnership's investments, and provide
certain administrative services to the Partnership in connection with its
day-to-day operations. As compensation for such services, the Partnership has
agreed to pay the Management Company a monthly management fee equal to 5% of
the Gross Operating Receipts from Rents. See "Compensation of General Partner
and Its Affiliates" and "Investment Objectives and Polices - Property
Management and other Services".
In connection with the purchase, sale and other real estate brokerage
services required by the Partnership with respect to its real property
acquisitions and leases, the Partnership and/or the Management Company may
utilize the services of Flordeco Realty, Inc. Although the terms of the
brokerage commissions will not be determined through arm's-length negotiations,
the brokerage commissions paid to Flordeco Realty, Inc. will be comparable to
similar commissions payable to third parties for such services. Flordeco
Realty, Inc. is a wholly-owned subsidiary of the Management Company. See
"Compensation of General Partner and Its Affiliates" and "Investment Objectives
and Polices - Property Management and other Services".
42
<PAGE> 46
INVESTMENT OBJECTIVES AND POLICIES
PRINCIPAL INVESTMENT OBJECTIVES
The Partnership has been formed primarily for the purpose of making
equity investments in a diversified portfolio of income producing residential
and commercial properties located primarily in Southwest Florida. The
Partnership expects to invest in properties which it believes will afford the
Partnership the possibility of generating significant rental income, and,
therefore, value, during the anticipated holding period of the property. The
Partnership's principal investment objectives are to:
1. preserve and protect the Partnership's capital (which capital
will have been reduced by offering and organizational expenses and fees in
connection with the formation of the Partnership, the conducting of the
offering, and the acquisition costs of property investments);
2. provide annual cash distributions from operations commencing
in the year 2000 (provided, however, that the Partnership will pay fees and
expenses of the Partnership, including those of the General Partner and its
affiliates, before making cash distributions to investors; provided further,
that any cash distributions would be diminished by any amounts retained by the
General Partner, in its sole discretion, for working capital purposes, the
repayment of borrowings incurred by the Partnership, the purchase of new
assets, funding present or future contingent liabilities, taxes, and any
difficulties encountered in obtaining rent or dividend increases or increases
in operating expenses of the Partnership); and
3. provide capital appreciation (provided, however, that the
overall aggregate value of the property investments of the Partnership must
increase in order to offset organizational, offering, acquisition and other
expenses in order for the Partnership to be able to realize capital
appreciation).
In seeking to attain these objectives, the Partnership will invest in
income producing commercial and residential real property investments, either
existing or under construction or development, which will be acquired on a
highly leveraged basis.
The General Partner anticipates that initial cash distributions to
Unitholders will commence in the year 2000. Such annual cash distributions,
when made, are expected to be furnished with in 90 days at the end of the
fiscal year. See "Risk Factors - The Offering and Investment Risks - No
Assurance of Cash Distributions" "Partnership Distributions and Allocations"
and "Summary of the Partnership Agreement".
THERE, HOWEVER, CAN BE NO ASSURANCE THAT THE PARTNERSHIP'S INVESTMENT
OBJECTIVES WILL BE ACHIEVED. In particular, capital appreciation may not be
achieved because of the uncertainty of the future real estate market in general
and of the future value of the Partnership's property investments in particular
and cash distributions are contingent upon generating sufficient cash proceeds
in excess of expenses, reserves and other expenditures of the Partnership.
Although the purposes or investment policies of the Partnership could be
changed through amendment to the Partnership Agreement, any such amendment
would require the approval of a majority in interest of the Limited Partners.
See "Summary of Certain Provisions of the Partnership Agreement - Amendment of
the Partnership Agreement."
TYPES OF INVESTMENTS
The Partnership intends to invest substantially all of the net
proceeds of this offering in equity investments in income producing real
properties. The Partnership is not limited as to a geographic area where it
might operate or invest in properties, but it intends to invest in properties
primarily located in Southwest Florida. However, if appropriate, the
Partnership may consider investments elsewhere.
The Partnership may invest in, among other things, residential
properties such as apartment buildings, mobile home communities, condominiums
and a limited number of single family and secondary homes; commercial
properties including shopping centers and office buildings; industrial
properties; and special
43
<PAGE> 47
purpose properties such as hotels, nursing homes, rental recreational
properties, gaming facilities, and theaters. The Partnership expects to invest
primarily in existing and operating properties. However, the Partnership also
may invest in unimproved land and other properties which have been recently
constructed, under construction, or under contract for development. The
Partnership may acquire existing properties with substantial appreciation
potential, such as distress sale properties, which may require refurbishing or
additional leasing activity. Such properties initially may be expected to
operate below anticipated future performance levels. Properties in need of
refurbishing will be acquired only if such properties do not require excessive
refurbishing expenditures when compared to the Partnership's equity investment
therein (unless the General Partner has strong reason to believe that such
property will likely appreciate substantially). The Partnership also may
acquire entities serving as general partners of other real estate limited
partnerships or similar entities holding suitable real property interests. The
Partnership also does not intend to make any mortgage loans except in
connection with the purchase or disposition of the Partnership's properties,
nor does it intend to invest a significant percentage of the net offering
proceeds in property subject to sale-leaseback transactions.
The Partnership has not yet identified any potential real property
investments that it may acquire, nor has the Partnership determined the mix of
the types of properties in which it will invest. Such determination regarding
the nature of the Partnership's investments will subject to the sole discretion
of the General Partner. Further, there are no specific limitations on the
number or type of property investments to be acquired by the Partnership or on
the percentage of net proceeds of this offering which may be invested in a
single property or other investment. The number and mix of properties and
other investments acquired will depend upon real estate and money market
conditions and other circumstances and opportunities existing at the time the
Partnership is acquiring its properties investments and the amount of net
offering proceeds raised hereby. The sole limitation imposed on the
Partnership's investments is that such investment activity shall not require
the Partnership to register as an "investment company" under the Investment
Company Act of 1940, as amended.
SELECTION OF PROPERTY INVESTMENTS
In selecting property investments to be acquired by the Partnership,
the General Partner will consider relevant real property and financial factors,
including (i) the Partnership's acquisition cost in relation to the replacement
cost of a property, current rentals, expenses and cash flow and the ability to
increase cash flow over the anticipated holding period through management; (ii)
long-term appreciation potential; (iii) location, condition and design of the
property, including competition and potential competition from other properties
in the area; (iv) prospects for long-range liquidity through sale or
refinancing; (v) nature of the community in which the property is located; (vi)
type of property in light of the Partnership's diversification objectives;
(vii) creditworthiness of existing tenants, (viii) terms of existing leases,
including, specifically, potential for rent increases or a sharing in tenants'
gross receipts, and (ix) applicable rent control laws and condominium
conversion restrictions.
Pursuant to the Management Agreement, the Management Company will,
among other things, provide the Partnership with general advisory services
concerning the investment of Partnership funds in real estate, locate and
evaluate prospective real estate investments for the Partnership and present
recommendations to the General Partner based on its consideration of the above
factors. The acquisition of any particular property investment requires the
approval of the General Partner.
Generally, the General Partner will not seek or obtain third party
appraisals unless required by a lending institution. The General Partner will
rely on its own independent analysis and not on such appraisals in determining
whether or not to invest in a particular property. It should be noted that to
the extent that the Partnership does obtain an appraisal, appraisals are only
estimates of value and should not be relied upon as a measure of true worth or
realizable value. The Partnership will retain the appraisals of the properties
in the Partnership's records for at least five years and will make them
available for inspection and duplication by Unitholders.
The Partnership's obligation to close the purchase of any investment
will be conditioned upon the delivery and verification of certain documents
from the seller or developer, including, where appropriate, plans and
specifications, surveys, evidence of marketable title (subject only to such
liens and encumbrances
44
<PAGE> 48
as are acceptable to the General Partner), financial statements covering recent
operations of any properties having operating histories, loan agreements, title
and liability insurance policies, and applicable opinions of counsel.
In determining whether or not to purchase a particular property
investment, the Partnership may, in accordance with customary practices, obtain
an option on such property investment. The amount paid for the option, if any,
usually would be surrendered if the property investment were not purchased and
normally would be credited against the purchase price if the property
investment were purchased.
Investments in junior trust deeds and other similar obligations shall
be prohibited, except for junior trust deeds which arise from the sale of
Partnership property.
INVESTMENT RESTRICTIONS
The Partnership will not purchase any property or other investment
from the General Partner or any of its affiliates held in the name of the
General Partner or its affiliates for a period in excess of 12 months before it
is purchased by the Partnership unless the purchase price paid by the
Partnership will be no greater than the cost of such property to the General
Partner or the selling affiliate, and no compensation or other benefit from the
transaction will accrue to the General Partner or any of its affiliates.
The Partnership will not acquire any real property unless, in the
opinion of the General Partner, the property is adequately insured and the
Partnership has obtained adequate title insurance or other assurance of title
customary in the community in which the Property is located. See, however,
"Risk Factors - Ownership and Operational Risks -- Uninsured Losses."
PROPERTY MANAGEMENT AND OTHER SERVICES
Flordeco Realty, Inc. may receive non-recurring real estate brokerage
commissions between 5-10% of the total purchase price of a real property
acquisition (including cash payments and any acquisition financing), but
excluding fees and expenses paid by any party for any services rendered to
organize the Partnership and to acquire properties) and also excluding interest
and taxes, and, when applicable, lease brokerage commissions of approximately
7% of the gross lease value. The payment of such commissions is in
consideration for, among other things, the efforts and services of Flordeco
Realty, Inc., in performing due diligence in connection with the properties,
assisting in the negotiation of the acquisition thereof, and conducting a
closing of the sale of the Partnership's real estate acquisitions.
It is the present intention that the Partnership's properties will be
managed by the Management Company. Pursuant to the Management Agreement, the
Management Company will locate and evaluate prospective real estate
investments, present investment recommendations, negotiate the terms of the
investment, establish a business plan for the properties, advise the General
Partner on the financing, refinancing, and eventual resale of the investment,
and to oversee the provision of certain administrative services to the
Partnership in connection with its day-to-day operations. The Management
Company may subcontract this work to nonaffiliated professional property
management firms located near the property. See "Compensation of General
Partner and Its Affiliates".
DIVERSIFICATION
The Partnership currently intends to invest in properties located
primarily in Southwest Florida and it will attempt to seek different types of
properties in order to achieve portfolio diversification which will minimize
the effects of changes in specific local industries, and similar risks. The
number of different property investments that the Partnership will be able to
purchase, and, therefore, the extent to which it will be able to diversify its
investments, will depend on the amount of the net proceeds realized from the
sale of Units, the mortgage and other financing obtained by the Partnership, if
any, and the size of the investments. Since there is no limitation on the
proportion of the net proceeds that the Partnership may invest in any one
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<PAGE> 49
property investment, it is possible that the Partnership will acquire only one
or a few properties investments. See "Risk Factors."
The General Partner is more familiar with Southwest Florida properties
and businesses, and believes that the market for real property in Southwest
Florida is strong. Furthermore, the General Partner believes that restricting
its investments to a single geographic location will enhance the General
Partner's ability to monitor and control the Partnership's investments,
although this investment strategy will limit the Partnership's geographic
diversity. Although the Partnership intends to focus its investment strategy
in Southwest Florida, the Partnership Agreement does not restrict the
geographic location of its investments, and investments may be made elsewhere
if appropriate. The General Partner's beliefs regarding the market for
properties in Southwest Florida is based on the experience of its management
who have been involved in the purchase, sale, development, and operation of
real property investments in Southwest Florida for over 37 years. Neither the
General Partner nor its affiliates, however, have conducted or commissioned any
market or feasibility studies, reports, or analyses regarding any economic,
demographic or other information regarding Southwest Florida to confirm their
beliefs.
BORROWING POLICIES AND OTHER FINANCINGS
It is the present intention of the General Partner to acquire and
develop most or all of its properties investments on a highly leveraged basis.
The amount and timing of any financing of the Partnership's acquisitions and
investments will depend upon such factors as the availability and cost of such
debt and the actual or anticipated operating revenues to be derived from the
property investment. Therefore, there can be no assurance as to the amount or
terms of any financing which may be available to the Partnership.
Under the Partnership Agreement, there are no restrictions on the type
of debt the Partnership may obtain. The maximum indebtedness which may be
incurred by the Partnership shall not exceed 100% of the aggregate purchase
price of all property investments which have not been refinanced, and 100% of
the aggregate value as determined by the lender as of the date of refinancing
as to all property investments which have been refinanced. There is no maximum
or minimum leverage limitation with respect to any single property investment,
nor are there any limitations as to the number of mortgages or loans which may
be placed upon any single property. See "Summary of Partnership Agreement -
Limitations on General Partner's Authority."
Partnership indebtedness may be in the form of temporary or permanent
financing from banks, institutional investors, and other lenders or purchase
money obligations to the sellers of properties. Such indebtedness normally
will be secured by deeds of trust, mortgages or other interests in the property
or investment owned or acquired by the Partnership. Recourse for indebtedness
will generally be limited to the particular property investment to which the
indebtedness relates, but may include all Partnership assets and those of the
General Partner. Where recourse on loans includes all Partnership assets, the
equity of the Partnership in its other property and investments could be
reduced or eliminated through foreclosure. In connection with such financing,
the Partnership may pay mortgage loan and other financing fees (including
commitment fees) to persons not affiliated with the General Partner.
The General Partner intends to limit or avoid the use of debt during
periods when, because of high interest rates or other factors, borrowing does
not appear reasonable or prudent. See "Risk Factors."
As a means of generating additional cash for investment during the
initial years of the Partnership, the Partnership may attempt to secure bank
financing or alternative lending arrangements from third party lenders using
the Notes as collateral. By using the Notes to collateralize such borrowings,
the Partnership will be able to invest a portion of the obligation represented
by the Notes prior to their due dates and the receipt of installment payments
under the Notes. Although such borrowings will provide the Partnership with
currently available cash proceeds on the Note obligations, such proceeds will
be less than the face amount of the Notes due to the anticipated discounts that
will be allocated to the Notes by lending institutions, as well as the interest
charges incurred in connection therewith. Further, to the extent that such
financing is obtained, Unitholders can expect that lenders holding the Notes as
collateral will strictly enforce the payment provisions
46
<PAGE> 50
of the Notes since such funds are likely to serve as the primary source of
their repayment. Notwithstanding the foregoing, there can be no assurance that
such borrowings or financings will be available and if available, that such
borrowings or financings can be obtained at terms favorable or otherwise
satisfactory to the Partnership. See "Risk Factors - The Offering and
Investment Risks -- Risks Associated with Notes."
IMPROVEMENTS TO PROPERTIES
To the extent the Partnership acquires property on which improvements
are to be constructed or completed, or which requires refurbishing, the
Partnership is subject to risk in connection with the builder's ability to
control construction costs or to build in conformity with plans,
specifications, and timetables and to rent the property within the time
projected. Performance may be affected or delayed by conditions beyond the
builder's control such as building restrictions, clearances and environmental
impact studies imposed or caused by governmental bodies, labor strikes, adverse
weather, unavailability of materials or of skilled labor, and by the financial
insolvency of the builder or any subcontractors prior to completion of
construction. Such factors can result in increased costs of a project,
corresponding depletion of the Partnership's working capital reserves, and in
loss of permanent mortgage loan commitments relied upon as a primary source for
repayment of capital improvement loans.
The General Partner will use several techniques to insure performance
by the builder and to reduce the risk of any non-performance and to assure
compliance with approved plans and specifications as follows: (i) a labor and
material bond, a completion bond or performance bond, or more than one of the
foregoing, may be required; (ii) if, in the opinion of the General Partner, the
financial position of the builder so warrants, a personal guaranty or pledge of
other assets may be accepted in lieu of, or required in addition to, a bond;
(iii) before either (i) or (ii) is required, the General Partner will make an
appropriate investigation and obtain sufficient information to satisfy itself
that the builder has substantial assets in relation to the project under
construction and/or a satisfactory record of completion (the General Partner
will take into consideration, among other factors, the number of projects in
accordance with projected cost estimates, the number of other projects that the
builder owns, the anticipated construction cost overruns in relation to the
total assets of the Partnership and the amount of reserves available for the
project by the Partnership, the results of any prior dealings between
affiliated partnerships and the builder and the builder's reputation in the
industry); (iv) in some cases, the builder of the property will be required to
leaseback the property from the Partnership until construction is completed and
the property is rented up to the projected rent-roll with lease payments
designed to provide a return to the Partnership of a portion of its funds paid
to the builder during construction and to require the builder to bear the risk
of construction; (v) where possible, the Partnership will purchase property
subject to the capital improvement loan and the General Partner will endeavor
not to have the Partnership be liable on such loans; and (vi) depending on the
financial condition of the builder, the contract will provide that either (a)
portions of the purchase price payments to the former owners will be withheld
until a notice of completion of capital improvements is obtained or the
property is rented up to a rental level equal to the rent-roll projected at the
time of purchase or (b) the purchase price will be reduced or other adjustments
will be made if the projected rent-roll is not reached by a certain date.
POSSIBLE JOINT VENTURE INVESTMENTS
The Partnership may invest in some properties through a partnership or
joint venture in which the Partnership acquires a "controlling" interest, as
explained below. In addition, the Partnership also may invest in property
investments through the acquisition by the Partnership of limited partnership
interests. The Partnership will be limited in making such equity investments
to the extent necessary to prevent it from being deemed an "investment company"
under the Investment Company Act of 1940. See "- Policies with Respect to
Certain Activities" below. There is no limit on the proportion of the net
proceeds that the Partnership may invest in joint ventures. Any such joint
venture will be established by the Partnership or other investment pursuant to
a joint venture or general partnership agreement. The terms of such agreement
will depend upon the nature of the property and the negotiations between the
Partnership and its co-venturer. If the seller of a property is the
co-venturer, it may not make any cash contribution to the venture in some
cases, but may instead retain an interest in the property or other investment
to be owned by the venture. The retention of such an interest by the seller
will be taken into account by the Partnership in determining the purchase price
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of the Partnership's interest in the property or investment. Joint venture
arrangements may, under certain circumstances, involve risks not present in
direct investments. See "Risk Factors - The Partnership Risks - Risks of Joint
Ventures." In making any such joint venture investments, the Partnership may
not pay directly or indirectly more than price for the same service and may not
act indirectly through any such arrangements if it would be prohibited from
doing so directly by reason of restrictions in the Partnership Agreement.
The Partnership's ability to enter into joint ventures with affiliates
may be important to the Partnership if the Partnership desires to acquire an
interest in a property investment opportunity but does not have sufficient
funds (or cannot at the time it commits to acquire the property or investment
determine whether it will have sufficient funds) to make the full equity
investment required to make the acquisition.
The Partnership's controlling interest in a joint venture need not
result from the ownership of more than 50% of the venture's capital or profits,
but instead may result from provision in the governing joint venture agreement
or related documents giving the Partnership certain basic rights (i.e., certain
veto powers). In making such joint venture investments, the Partnership may
not pay directly or indirectly more than once for the same service and may not
act indirectly through such arrangement if it would be prohibited from doing so
directly by reason of restrictions in the Partnership Agreement.
See Section 1.9 of the Partnership Agreement for a more detailed
description of restrictions relating to joint venture or similar investments.
See also, "Conflicts of Interest - Possible Joint Ventures With affiliates."
SALE AND REFINANCING; LIQUIDATION
The Partnership intends to hold its property investments until sale or
other disposition appears to be advantageous to the Unitholders in view of the
Partnership's investment objectives. In deciding whether to sell a property
investment, the Partnership will consider such factors as potential capital
appreciation, cash available for distribution and federal income tax
considerations. It is contemplated that the Partnership will hold its real
properties for a minimum of one year after the completion of capital
improvements construction. However, the General Partner may exercise its
discretion as to whether and when to sell a property investment and the
Partnership is under no obligation to sell a property investment at any
particular time. See "Federal Income Tax Considerations."
The Partnership may seek to finance or refinance its properties
investments from time to time in the future depending upon such factors as the
availability of suitable loan terms, particularly long-term interest rates, and
the effect of such refinancing on cash flow from such property investments.
Some loan agreements that the Partnership may enter into in the future may
either prohibit the Partnership from refinancing for a certain period or impose
a penalty for early payment, which would affect the desirability and timing of
any subsequent refinancing.
The proceeds of any sale or refinancing of the Partnership's
properties may be reinvested by the Partnership in additional property
investments. The General Partner currently expects that in most cases, the
Partnership will reinvest a substantial portion of such proceeds in new real
property investments until the termination or liquidation of the Partnership.
Affiliates of the General Partner may receive brokerage and lease commissions
in connection with the reinvestment of such proceeds. See "Compensation of the
General Partner and its Affiliates.
The terms of payment that the Partnership will receive for property
investments sold by it generally will depend upon the custom in the area in
which the property is located and the then-prevailing economic conditions. In
some instances, the Partnership may take purchase money obligations as part
payment for property investments which could result in the delay of the
distribution of a portion of the proceeds from the sale. The Partnership may
seek to structure transactions in which it takes purchase money obligations in
such a fashion that any gain may be reported on the installment method for
federal income tax purposes. If the Partnership is unable to so structure such
a transaction or if the Partnership does not elect to report any gain
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from such a transaction on the installment method, the Unitholders may
recognize profits for tax purposes in the year of sale in excess of the cash
distributed to them on account of the sale.
The Partnership may seek to sell any purchase money obligations or
loan obligations which it receives to a third party for a current cash payment.
Depending on the interest rate and other terms of the obligation, the cash
payment may be more or less than the face amount of the obligation. The sale
of such obligations may be in the particular interest of the General Partner
because the General Partner generally will share in Capital Proceeds only in
excess of certain preference distributions thereof to the Unitholders. See
"Conflicts of Interest" and "Allocation of Income and Distributions."
INFORMATION ABOUT PROPERTIES
At such time during negotiations for any specific property investment
when, in the opinion of the General Partner, a reasonable probability exists
that a particular property investment under negotiation will be acquired, this
Prospectus will be supplemented to describe the proposed investment and the
proposed terms. Upon termination of the offering no further supplements to
this Prospectus will be made, but Unitholders will receive substantially
equivalent information about acquisition. Unitholders will not have any right
to vote on or otherwise approve or disapprove any particular investment to be
made by the Partnership.
Investors should not rely upon initial disclosure of any proposed
acquisition as an assurance that the Partnership will ultimately consummate the
proposed acquisition, or that any information provided concerning a proposed
acquisition, including its proposed terms, will not change between the date of
such information and actual purchase. Although any supplement to this
Prospectus will be prepared and distributed as promptly as practicable, there
can be no assurance that such supplement will be available prior to the closing
of the purchase of the property described therein.
TEMPORARY INVESTMENTS
There can be no assurance as to when the Partnership will be able to
invest the full amount of the net cash proceeds of this offering in real
property investments. Any net cash proceeds not immediately used to purchase
real property investments or for other purposes described above will be
invested by the Partnership in short term, highly liquid investments with
appropriate safety of principal, such as short-term certificates of deposit,
short-term securities or money market funds which invest in short-term funds
directly or indirectly issued or guaranteed by United States government or its
agencies, U.S. Treasury bonds, notes or bills, and federally insured time and
demand deposits in state or national banks. The rate of return on such types
of investments has fluctuated in recent years and may be significantly more or
less than that obtainable from equity investments in real property.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The Partnership will not lend funds to any person or entity (other
than in connection with temporary investments of the net proceeds of this
offering described above), except that it may (i) advance a portion of the
purchase price of a property investment to the seller in the form of a loan
secured by a mortgage, deed of trust or other similar security instrument, (ii)
make purchase money and other loans secured by mortgages, trust deeds or
similar security instruments to purchasers of properties from the Partnership,
and (iii) make loans to partnerships or joint ventures in which the Partnership
is permitted to invest. See "Joint Venture Investments" above.
Notwithstanding the foregoing, the total amount of any loans by the Partnership
secured by junior mortgages or trust deeds, other than loans described in
clause (ii) of the first sentence of this paragraph, may not exceed 20% of the
gross proceeds of this offering.
The Partnership will not underwrite securities of other issuers or
offer securities in exchange for property (except for purchase money
obligations to sellers) and, except for borrowings to finance or in connection
with real property investments of the Partnership, the Partnership will not
issue senior securities. Under certain limited circumstances, the Partnership
may repurchase or otherwise reacquire any Units. The Partnership will consider
the repurchase of Units only in those instances where the Unitholder can
establish,
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to the satisfaction of the General Partner, that such repurchase is just
justified because of extreme financial hardship, divorce settlement or decree,
or is necessary to settle the estate of a deceased former investor. Even under
these circumstances, the decision to grant or deny a request for repurchase is
subject to the sole and absolute discretion of the General Partner and its
determination that sufficient funds are available therefor in light of the
General Partner's plans for the use of the Partnership's liquid assets. In
those instances where the General Partner agrees to repurchase the Units, the
purchase price will be determined on a case-by-case basis through negotiations
with the seller. Such price may be less than, or exceed, the original purchase
price or book value of the Unit. It is the policy of the Partnership to agree
to repurchase Units only on a very limited basis.
The Partnership may invest in public and private limited partnerships
or other public real estate investment entities. The Partnership is not a real
estate investment trust and, therefore, is not subject to the restrictions
imposed on such entities by the Code. Although the Partnership reserves the
right to make such investments, it is not anticipated that such investments
will constitute a significant portion of its real estate investment portfolio.
Generally, the Partnership anticipates making equity investments in limited
partnerships or other real estate entities as a first step in the acquisition
or control of such entity. The Partnership will use its best efforts to
conduct its operations so as not to be required to register as an investment
company under the Investment Company Act of 1940 and so as not to be deemed a
"dealer" in real estate for federal income tax purposes.
The Partnership, however, does reserve the right to purchase or invest
in business enterprises or engage in the ventures which may or many not be
primarily involved in real property investments or related operations,
including investments for the purpose of exercising control over an issuer.
The Partnership will not purchase or lease property from (except in
connection with facilitating the acquisition or financing of a property by the
Partnership), or sell any property to, the General Partner or its affiliates
(except if additional capital contributions are insufficient to acquire the
property). The Partnership will not engage in any transaction which would
result in the receipt by the General Partner or any Affiliate of the General
Partner of a "rebate" or "give-up" or in any reciprocal business arrangement
which results in the circumvention of the restrictions contained in the
Partnership Agreement and is applicable state securities laws and regulations
upon dealings between the Partnership and the General Partner and its
affiliates.
THE PARTNERSHIP
GENERAL
Flordeco, Ltd. is a Florida limited partnership formed pursuant to a
Certificate of Limited Partnership filed on March 19, 1996 with the Florida
Secretary of State, primarily for the purpose of making equity investments in
income producing real properties. The Initial Limited Partner is Michael P.
Geml. Upon the first admission of investors as Limited Partners of the
Partnership, the Partnership Agreement will be amended and restated in
substantially the form of Exhibit A to this Prospectus. At such time, Mr.
Geml's original capital contribution will either be returned to him or applied
to the purchase price of any Units purchased by him pursuant to the offering.
The General Partner of the Partnership is Investors Trust, Inc., a
Florida corporation formed on October 24, 1995, for the sole purpose of acting
as general partner of the Partnership. The General Partner has no prior
business activity. The controlling shareholders of the General Partner also
are the controlling shareholders of the Management Company. The Management
Company was formed in 1973 and has provided property management and other
services to another partnership entity formed in 1971 and controlled by the
same shareholders who control the General Partner and the Management Company.
See "Management" and "Prior Performance".
The 100 Units offered hereby for an aggregate purchase price of $1.2
million payable in cash and the Notes (subject to increase up to 1,000 Units
for a purchase price of $12.0 million) represent the limited
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partnership interests in the Partnership. It is currently anticipated that the
General Partner will purchase at least five Units of the 100 Units sold
pursuant to the Minimum Offering (ten Units of 1,000 Units are sold pursuant to
the Maximum Offering). See "Estimated Use of Proceeds", "Management", Summary
of Partnership Agreement", and "Plan of Distribution".
EMPLOYEES
At March 19, 1996, neither the General Partner nor the Partnership
have any employees other than its executive officers. As a result of the
arrangements set forth in the Management Agreement, the Partnership does not
anticipate engaging any full time employees in the near future, but will
instead rely on the Management Company to retain the employees necessary to
provide the Partnership with the services required thereunder. See
"Management".
PROPERTIES
The General Partner and the Partnership both maintain their principal
executive offices at 3591 Fowler Street, Fort Myers, Florida 33901, telephone
(941) 936-8888. These offices are provided by and are shared with the
Management Company on a rent free basis. The General Partner believes that the
existing facilities have sufficient capacity to meet is anticipated needs for
the foreseeable future.
COMPETITION
The Partnership will compete with established corporations, other
limited partnerships and other individuals for the purchaser of real property
investments, many of which may have substantially greater financial resources
than that of the Partnership and broader experience in real estate acquisitions
and management than the General Partner and the Management Company. The
Partnership, however, believes that the experience of both the General Partner
and the Management Company will provide the Partnership with a competitive
advantage over competitors who are not as familiar with real estate market in
that area. See "Management" and "Prior Performance".
LITIGATION
Neither the General Partner nor the Partnership have any operating
history and is not presently a part to any legal proceedings which, either
individually or in the aggregate, are expected to have a material effect on
their businesses or financial condition. Furthermore, to the knowledge of the
General Partner and the Partnership, no such litigation or legal proceedings
have been threatened or are otherwise contemplated against them.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following discussion summarizes certain of the federal, state, and
local income tax considerations that can be reasonably expected to have an
effect on the financial consequences of an investment in the Partnership. This
summary is based primarily upon the existing provisions of the Code, applicable
Treasury Regulations promulgated or proposed under the Code (the
"Regulations"), current positions of the IRS contained in published revenue
rulings and revenue procedures, current administrative positions of the IRS,
and existing judicial decisions, as in effect on the date of this Prospectus,
all of which are subject to change or modification, with or without retroactive
effect, at any time.
In considering the income tax consequences of an investment in the
Partnership, a prospective investor should keep in mind that the Partnership is
not intended to be a so-called "tax shelter" and tax losses are not expected to
be a principal objective of an investment in the Units. Nonetheless,
prospective investors should
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be aware that the deduction of losses, if any, resulting from an investment in
the Partnership may be restricted in offsetting from this or other similar
investments under the passive activity loss rules described below. See
"Federal Income Tax Considerations - Limitations on Deductions - - Passive
Activity Loss Limitations; Material Participation."
The availability and amount of tax benefits that will be claimed by
the Partnership will depend not only upon the general legal principals
described below, but also open certain decisions and determinations which will
be made in the future by the General Partner as to which no legal opinion is
expressed and which are subject to potential controversy on factual and other
grounds. Such determinations include allocations of basis of a property among
nondepreciable land and the components of depreciable improvements, the proper
characterization and purpose of various fees, commissions and other expenses of
the Partnership, the reasonableness and timing of fees, the dates on which the
Partnership commission business or on which a property will be considered
"placed in service", and various other matters.
The following discussion is not a general summary of tax law and does
not include a complete analysis of provisions of the Code. Ownership of Units
may affect the tax liabilities of a Unitholder in different ways depending on
such factors as the Unitholder's sources and levels of income, the nature of
his investment portfolio, and the nature and amount of his tax deductions
unrelated to the Partnership. The character of the income tax consequences of
an investment in the Partnership are complex, and certain of these
consequences, including the implications of recent and possible future
legislative tax changes, are uncertain. ACCORDINGLY, FOR THE FOREGOING REASONS
PROSPECTIVE UNITHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE FEDERAL AND STATE TAX CONSEQUENCES OF AN INVESTMENT IN THE
UNITS AS IT MAY IMPACT ON TO THEIR OWN SPECIFIC TAX SITUATIONS.
The federal income tax law governing various matters is different for
corporations, S corporations, tax-exempt entities, trusts, and individuals
owning Units. Accordingly, investors should consult their own tax advisors
regarding the differences between the consequences described herein and their
own situations, and the effect of differences on the anticipated tax result of
an investment in the Units. State and local tax laws for individuals and
corporations may also differ. An investment in the Units may not be suitable
for tax-exempt investors because the Partnership has not yet identified any
investments and as a result can provide no assurances that its investments will
not generate UBTI with respect to such investors. In fact, the Partnership's
investments may generate UBTI subject to federal income taxation with respect
to certain investors. See "Risk Factors - Tax Risks -- Risks for Tax Exempt
Investors". See also "ERISA Considerations" and "Risk Factors - The Offering
and Investment Risks -- Risks for Retirement Plan Investors".
No ruling have been or will be requested from the IRS concerning any
of the income tax aspects of this offering. Accordingly, there can be no
assurance that the IRS or a court will not disagree with the discussion
provided below or with any of the positions taken by the Partnership for funded
income tax purposes. See "Risk Factors - Tax Risks."
OPINION OF COUNSEL
The Partnership has obtained an opinion of counsel concerning the
likely outcome on the merits of all material federal income tax consequences to
a U.S. investor in the Units. The opinion further states that the summary of
federal income tax consequences to the Limited Partners set forth in this
Prospectus under the headings "Risk Factors - Tax Risks" and "Federal Income
Tax Considerations" has been reviewed by Counsel and, to the extent such
summary involves matters of law, Counsel is of the opinion that such statements
of law are correct under the Code, the Treasury Regulations promulgated
thereunder, and existing interpretations thereof.
The opinion of Counsel is based upon the facts described in this
Prospectus and upon the facts as represented by the General Partner to Counsel
or determined by it as of the date of the opinion. Any
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alteration of the facts may adversely affect the opinion rendered.
Furthermore, the opinion of Counsel is based upon the legal authorities and
resources described above.
In the preparation and rendition of its opinion, Counsel has
considered all material tax issues and has addressed fully and fairly in the
offering materials all of the material tax issues Counsel believes involve the
reasonable possibility of a challenge by the IRS.
Each prospective investor should note that the opinion described
herein represents only Counsel's best legal judgment and has no binding effect
or official status of any kind. Thus, in the absence of a ruling from the IRS,
there can be no assurance that the IRS will not challenge the conclusion or
propriety of any of Counsel's opinion.
No properties have been acquired by the Partnership, nor has the
Partnership entered into any contract to acquire any property as of the date of
the opinion of Counsel. Therefore, it is impossible at this time to opine on
the application of the law to the specific facts that will exist when
properties are acquired.
Because the facts relating to many of the proposed transactions are
not known, the fact that the Partnership has not acquired, nor entered into any
contract to acquire, any property, and in certain cases the lack of clear
authority in the law, Counsel has concluded that it is not possible to reach a
judgment as to the outcome on the merits (either favorable or unfavorable) of
the following federal income tax issues and, accordingly, expresses no opinion
thereon: (1) whether income received from the Partnership's operation of its
Properties will be characterized as unrelated trade or business income; (2)
whether the Partnership will be deemed to be a "dealer" in real estate at the
time of the sale or disposition of the Partnership's Properties, thereby
resulting in the entire gain from such sale or other disposition being treated
as unrelated business taxable income; (3) whether the Partnership's allocation
of basis between buildings and land will be respected for purposes of computing
depreciation; (4) whether the Partnership's payment of fees will be immediately
deductible or be required to be capitalized; (5) whether expenses incurred by
the Partnership prior to the time it acquires its initial property will be
immediately deductible or be required to be capitalized; and (6) whether the
Partnership will be treated as a tax shelter for purposes of the substantial
understatement of tax penalty.
PARTNERSHIP STATUS
The availability of federal income tax benefits of the Partnership to
the Unitholders is dependent upon the classification of the Partnership as a
"partnership" for federal income tax purposes, as opposed to an "association"
taxable as a corporation. This distinction is important because if the
Partnership is taxed as a corporation, losses and deductions from the
Partnership's operations will not "flow through" to the Unitholders, and all
income and gain of the Partnership may be subject to double taxation, first at
the Partnership level and again at the Unitholder level on distribution of cash
or property to the Unitholders.
No ruling has been requested from the IRS and none will be requested
concerning whether the Partnership will be treated as a partnership for federal
income tax purposes. Based on the current interpretation of the relevant
federal income tax laws, and Regulations, and subject to the conditions and
assumptions contained in this Prospectus, however, in the opinion of counsel it
is more likely than not that the Partnership will be treated as a partnership
for federal income tax purposes.
Under Regulation Sections 301.7701-2 and 301.7701-3, the determination
of whether a particular organization is classified as a partnership rather than
as an association taxable as a corporation depends on the presence or absence
of four corporate characteristics: (a) centralized management, (b) continuity
of life, (c) limited liability, and (d) free transferability of interests. The
Regulations provide that an entity lacking two or more of these corporate
characteristics generally is not considered an association taxable as a
corporation. Based on the analysis and assumptions that follow, in the opinion
of counsel it is more likely than not that the Partnership will be deemed to be
a partnership for federal income tax purposes and not an association taxable as
a corporation because it does not have more than two of these corporate
characteristics.
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In January, 1989, the IRS issued Rev. Proc. 89-12, 1989-1 CB 798,
setting forth the guidelines of the IRS for issuing advance rulings on whether
a limited partnership will be classified as a partnership for federal income
tax purposes. Rev. Proc. 89-12 modifies and supersedes the previous IRS
guidelines for advanced rulings, including Rev. Proc. 72-13, 1972-1 CB 735,
and Rev. Proc. 74-17, 1974-1 CB 438. Under Rev. Proc. 89-12, the IRS will rule
on the corporate characteristics of continuity of life, centralized management,
and limited liability under the following circumstances:
(a) A partnership will lack continuity of life if it is
formed in a state with a statute corresponding to the Uniform Limited
Partnership Act ("ULPA"), and its partnership agreement requires at
least a majority in interest (in capital and profits) of the limited
partners to elect a new general partner to continue the partnership.
(b) With respect to limited liability, the net worth of
corporate general partners must equal, at the time of the ruling
request and throughout the life of the partnership, at least 10% of
the total contributions to the limited partnership. In the case of a
limited partnership with only corporate general partners who do not
meet this "safe harbor" test, close scrutiny will be applied to
determine whether the general partner has substantial assets other
than its partnership interests that could be reached by a creditor of
the partnership or whether the general partner will act independent of
the limited partners.
In addition to the analysis in (a) above, Rev. Proc. 89-12 further
provides that the interests (including limited partners interests) of all
general partners, taken together, in each material item of partnership income,
gain, loss, deduction, and credit must equal at least 1% of each such item at
all times during the existence of the partnership, and the partnership
agreement must expressly so provide. Further, the general partner must
maintain a minimum positive capital account balance equal to the lesser of
$500,000 or 1% of the total positive capital account balances of the limited
partners. If the general partner has contributed or will contribute
substantial services in its capacity as a partner, however, then the general
partner does not have to meet this minimum capital account requirement if the
partnership agreement requires the general partner to contribute an amount
equal to its deficit capital account balance upon the dissolution and
termination of the partnership.
The Partnership will meet some of the requirements of Rev. Proc. 89-12
because (a) the Partnership Agreement requires that at least a majority in
interest of the partners (defined by Rev. Proc. 94-46, 1994-2 C.B. 688 to be a
majority of the profits interest and a majority of the capital interest in the
Partnership owned by all remaining Partners) must elect a successor general
partner to continue the Partnership, (b) the Partnership Agreement provides
that the General Partner will at all times have at least a 1% interest in each
material item of Partnership income, gain, loss, deduction, and credit, (c) the
Partnership was formed under the Florida RULPA, a statute that corresponds to
ULPA, and (d) the General Partner has and intends to maintain a minimum capital
account of 1% of the positive capital account balances of the Unitholders and
is required by the Partnership Agreement to maintain a minimum positive capital
account balance.
As to the fourth corporate characteristic, free transferability of
interests, Rev. Proc. 92-33, I.R.B. 1992-1 CB 782, which modifies and
supplements Rev. Proc. 89-12, provides that an organization, such as the
Partnership, has the corporate characteristic of free transferability of
interests if each of its members, or those members owning substantially all of
the interests in the organization, have the power, without the consent of the
other members, to substitute for themselves in the same organization.
Moreover, for this power of substitution to exist in the corporate sense, the
member must be able, without the consent of the other members, to confer upon
the member's substitute all the attributes of the member's interest in the
organization. The ruling provides that for ruling purposes, an organization
will lack free transferability of interests if, throughout the life of the
partnership, the partners agreement expressly restricts the transferability of
partnership interests representing more that twenty percent of all interests in
partnership capital, income, gain, loss, deduction, and credit, which the
Partnership Agreement does.
Although the Partnership may not satisfy all the prerequisites
specified in Rev. Proc. 89-12, the Revenue Procedure states that the conditions
for issuing an advance ruling are not intended to be substantive
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rules for the determination of partner and partnership status and are not
intended to be applied on audit of a taxpayer's return. Although such
preconditions do not constitute substantive law, the Partnership's possible
failure to satisfy these preconditions could cause the IRS to challenge the
Partnership's status for federal income tax purposes.
If, for any reason, the Partnership were treated as an association
taxable as a corporation for federal income tax purposes, the Partnership would
be required to pay federal income taxes on its taxable income as if it were a
corporation; losses of the Partnership would not be deductible by the partners;
distributions to the partners would be taxable to them as dividends (to the
extent of the Partnership's current and accumulated earnings and profits).
Treatment of the Partnership as an association taxable as a corporation would
result in adjustments to the tax returns of the partners because they would be
considered corporate shareholders. Furthermore, if the loss of partnership tax
status occurred at a time when any nonrecourse indebtedness of the Partnership
exceeded the tax basis of the Partnership's assets, the partners might be
required to recognize their allocable share of gain to the extent of the
excess.
PARTNERSHIP TAX RETURNS
Assuming the Partnership is characterized as a partnership for federal
income tax purposes, the Partnership will not be subject to federal income tax.
Rather, under Section 702 of the Code, each partner will report on the
partner's income tax return the partner's allocated share of the Partnership's
income and gain ("Profits"), loss and deduction ("Losses") for the
Partnership's taxable year ending within or with the partner's taxable year.
References to Profits or to Losses include any federal tax credits that may
apply, although there are no federal tax credits currently available for which
the Partnership expects to qualify. Also, items of tax preference are not
referred to below, but certain partnership items distributable to partners may
be tax preference items and subject to alternative minimum tax. This "flow
through" of Profits and Losses will occur regardless of whether any cash or
property is distributed to the partners. As a consequence, partners may have
to report taxable income in the absence of a distribution of cash from which to
pay the tax.
A Schedule K-1 to Form 1065, the information return filed by the
Partnership with the IRS, will be supplied to each partner, reporting each
partner's share of the Partnership's Profits and Losses. It is assumed that
all partners will report income on a calendar year basis and will use the cash
receipts and disbursements method of accounting. The Partnership uses a
December 31 year end as its fiscal year and uses the accrual method of
accounting for tax purposes. Tax information on Form K-1 will be provided to
partners as soon as practicable after the close of each fiscal year of the
Partnership. The character of a partner's allocated share of items of Profits
and Losses will be determined as if such items were realized directly from the
source from which realized by the Partnership, but are first netted out at the
Partnership level. For example, capital gain (or loss) realized by the
Partnership will retain its character as such when reported by a partner on the
partner's tax return. Similarly, ordinary income (or loss) realized by the
Partnership will be characterized as such to the partners. It will be each
partner's personal responsibility to prepare and file all appropriate tax
returns required as a result of the partner's participation in the Partnership.
The General Partner will not be responsible, nor assume any responsibility, for
the tax consequences of the Partnership to any partner.
PARTNERSHIP TAX YEAR END
Under current federal income tax law, the Partnership is required to
have a year end that is: (a) the same as the tax year end of the partner or
partners owning more than 50% of the partnership profits or capital ("Majority
Interest Partners"); or (b) if there are no Majority Interest Partners, that of
the partner or partners owning 5% or more of the Partnership's profits or
capital ("Principal Partners"); or (c) if there are no Principal Partners and
no Majority Interest Partners, the Partnership must adopt the calendar year or
any other tax year prescribed by the Regulations. The Partnership intends to
adopt a December 31 tax year.
PARTNERSHIP TAXATION IN GENERAL
Under the Code, a partnership pays no federal income tax. Rather,
each partner reports on the partner's federal income tax return the partner's
allocated share of all items of income, gain, loss, deduction,
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credit, and tax preference during the partner's tax year. A non-corporate
partner and certain closely-held corporate partners generally may use their
allocated share of any partnership losses only to offset their income from
other passive sources, unless the partner materially participates in the
operation of the partnership. See "Federal Income Tax Considerations -
Limitations on Deductions -- Passive Activity Loss Limitations; Material
Participation". In addition, a non-corporate partner and certain closely-held
corporate partners may not deduct partnership losses in excess of the amount
the partner is considered "at risk" with respect to the partnership. See
"Federal Income Tax Considerations - Limitations on Deductions -- "At-Risk"
Limitations". The extent to which a partner may utilize partnership losses in
any tax year is further limited to the adjusted tax basis of his interest in
the partnership at the end of the partnership tax year. See "Federal Income
Tax Considerations - Limitations on Deductions -- Adjusted Tax Basis". A
partner's allocated share of any partnership loss, the use of which is barred
for any tax year because of insufficient at-risk investment, insufficient
adjusted tax basis in the partner's interest, or lack of passive income, may be
deducted at the end of the first succeeding tax year of the partnership for
which the partner has sufficient investment at risk, adjusted tax basis, or
passive income, whichever is applicable, or, in some instances, upon final
disposition of the interest in the partnership in a fully taxable transaction.
PARTNERSHIP DISTRIBUTIONS
Cash distributions (and distributions of marketable securities, in
some cases) by the Partnership to a partner are taxable only to the extent the
amount of the distribution exceeds the partner's tax basis for the partner's
interest in the Partnership. It is therefore possible for a partner to have a
loss reported on the partner's federal income tax return, even though cash (or
certain marketable securities) is distributed to the partner (which will be
treated as a reduction in the partner's adjusted tax basis in his interest in
the Partnership). Similarly, it is possible for a partner to have income
reported on his federal income tax return although no cash (or marketable
securities), or cash (or marketable securities) in an amount less than is
reported as income, is distributed to the partner. In the event of a sale,
refinancing, foreclosure, or other disposition of any of the Partnership's
properties, a partner will be deemed to have received a distribution of money
in the amount of the partner's share of any debt of the Partnership that is
assumed by another or canceled, if the partner was credited with the debt for
basis purposes. The tax upon income allocated to the partners could exceed
cash distributed to the partners, and, to the extent of the excess, the payment
of such taxes will be out-of-pocket expenses of the partners.
ALLOCATIONS OF PROFITS AND LOSSES
Under Section 704 of the Code, a partner's allocated share of the
Profits and Losses of the Partnership is determined by reference to the
Partnership Agreement, provided the allocations have "substantial economic
effect" as determined by the applicable Regulations. If the allocations fail
the "substantial economic effect" test, the allocations will be redetermined in
accordance with each partner's interest in the Partnership, taking into account
all facts and circumstances.
The Regulations provide that the determination of whether an
allocation has substantial economic effect involves a two-part test. First,
the allocation must have economic effect, and second, the economic effect must
be substantial.
Generally, in order for an allocation to have economic effect, it must
be consistent with the underlying economic arrangement of the partners. An
allocation will be deemed to have economic effect if: (a) the allocation is
reflected by an appropriate adjustment to the partners' capital accounts; (b)
liquidation proceeds are to be distributed in accordance with the partners'
capital account balances throughout the term of the partnership; and (c)
following the distribution of such proceeds, partners are liable to the
partnership to restore any deficit in their capital accounts. The obligation
to restore deficit capital accounts need not be unlimited. If certain other
requirements are satisfied, an allocation of loss or deduction to a partner
that creates or increases a deficit balance in a partner's capital account will
be respected so long as such deficit balance does not exceed the dollar amount
that such partner is obligated to restore.
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Furthermore, even if partners are not obligated to restore deficit
capital account balances, allocations will be considered to have economic
effect if the partnership agreement contains a "qualified income offset."
Under the Regulations, a partnership agreement contains a qualified income
offset if it provides that a partner who unexpectedly receives certain
adjustments, allocations, or distributions will be allocated items of income
and gain in an amount and manner sufficient to eliminate his deficit balance as
quickly as possible. The Partnership Agreement contains such a provision.
The Regulations also provide that allocations will be deemed to have
economic effect, even though capital accounts are not maintained in accordance
with the Regulations, so long as the same results as would be obtained under a
capital account analysis are produced in all possible cases.
The economic effect of an allocation will be deemed to be substantial
if there is a reasonable possibility that the allocation will substantially
affect the dollar amounts to be received by the partners from the partnership,
independent of tax consequences. The economic effect of an allocation will not
be considered substantial if, at the time the allocation becomes part of the
partnership agreement (a) the after-tax economic consequences to at least one
partner may, in present value terms, be enhanced, and (b) there is a strong
likelihood that there would be no substantial decrease in after-tax economic
consequences to any other partner, in present value terms. The evaluation of
such after-tax economic consequences is to be made by comparing the effects of
the allocation under the partnership agreement to the effects that would result
had the allocation not been included in the partnership agreement. In
determining the after-tax economic benefit or detriment to a partner,
consideration is to be given to the tax consequences that result from the
interaction of the allocation with the tax attributes of that partner that are
unrelated to the partnership.
The Regulations provide that allocations of loss or deductions
attributable to nonrecourse debt ("Nonrecourse Deductions") do not have
substantial economic effect since it is the creditor, and not the partners,
that bears the burden of any economic loss. Accordingly, allocations of
Nonrecourse Deductions must be made in accordance with the partners' interests
in the partnership. Under Regulation Section 1.704-1(b)(4)(iv)(d), in order
for allocations to be deemed to be made in accordance with the partners'
interests: (a) the allocations must be reflected in the partners' capital
accounts, and liquidation proceeds must be distributed in accordance with such
capital accounts; (b) the partnership agreement must provide for allocations of
Nonrecourse Deductions (as defined in the Regulations) among the partners in a
manner that is reasonably consistent with allocations that have substantial
economic effect of some other significant partnership item attributable to the
property securing nonrecourse liabilities of the partnership; (c) the
partnership agreement must obligate partners having deficit capital account
balances to restore such deficit balances or, in the alternative, the
partnership agreement must contain a "minimum gain chargeback" provision; and
(d) all other material allocations and capital account adjustments must be
recognized under Regulation Section 1.704-(b). For purposes of the
Regulations, "minimum gain" means generally the amount by which the outstanding
principal balance of the Nonrecourse Debt exceeds the adjusted basis of the
related property.
The Partnership Agreement provides for the maintenance of capital
accounts in accordance with the Regulations and requires the distribution of
liquidation proceeds in accordance with the partners' capital accounts. The
Partnership Agreement also contains minimum gain chargeback and qualified
income offset provisions. The partners (other than the General Partner) are
not, however, obligated to restore deficit capital account balances, and
economic equivalence with the general capital account equivalence rules may not
be achieved in all possible cases.
If the allocations were to be disallowed, the General Partner could be
considered to have a greater interest in the Partnership, which would decrease
the share of partnership items initially allocated to the limited partners, and
could affect the amount of gain or loss recognized by the limited partners on a
disposition of the partnership property. Furthermore, the tax basis of the
Units and the amount of gain or loss recognized by the limited partners on a
disposition of their Units might be affected adversely.
In the opinion of Tax Counsel it is more likely than not that the
allocations of Profits, Losses, and deductions will be respected so long as the
Partnership complies with the capital account maintenance and other rules and
provisions in the Partnership Agreement.
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DEPRECIATION METHOD
The Partnership's depreciation deductions will de determined under the
Modified Accelerated Costs Recovery System ("MACRS") over the recovery period
specified in section 168 of the Code. Under MACRS, nonresidential real
property placed in service on or after May 12, 1993, generally is depreciated
over a period of 39 years using the straight-line method of recovery.
The Partnership's basis in a Property for depreciation is its cost.
However, land is not depreciable. Thus, the IRS may seek to reclassify a
portion of amounts attributed to improvements as attributable to land or other
nondepreciable, nonamortizable expenditures, thereby decreasing that
Partnership's depreciation deductions.
Depreciation claimed by the Partnership with respect to a particular
property will reduce the adjusted basis of that property, thereby increasing
the potential gain (or decreasing the potential loss) upon disposition of that
property. Depreciation claimed by the Partnership also will reduce a
Unitholder's adjusted basis in such Unitholder's Units, similarly affecting the
potential gain or loss realized upon a sale of such Unit.
Properties that are otherwise eligible for depreciation under MACRS
will not be eligible for a 39-year recovery period to the extent they are
considered to be "tax-exempt use property." In the case of a partnership that
includes Unitholders that are tax-exempt entities (including Qualified Plans,
such as IRA's), partnership property will be considered "tax-exempt use
property" to the extent of the tax-exempt entity Unitholder's proportionate
share of such property, unless (i) the property is used by the partnership in
an "unrelated trade or business" and the tax-exempt entity Unitholders are
subject to tax under the applicable Code provisions on their distributive share
of partnership income, or (ii) all allocations to tax-exempt entity Unitholders
constitute "qualified allocations."
The General Partner anticipates that a substantial number of Units may
be purchased by entities that are considered to be tax-exempt entities for
purposes of this rule and that, with certain possible limited exceptions, the
property will not be considered to be used in an "unrelated trade or business"
the income from which is subject to tax. See "Retirement Plan Investors"
below. Further, because depreciation may be allocated 1% to the General
Partner and 99% to the taxable Unitholders, the allocation to the tax-exempt
Unitholders may not constitute qualified allocations. Consequently, the
Partnership will be required to depreciate the tax-exempt Unitholders'
proportionate share of the property using the straight-line method over a 40
year recovery period or, in the case of a property that is leased for a term in
excess of 32 years (taking into account certain options to renew), over a
period equal to 125% of the lease term. In order to reduce the Partnership's
administrative costs associated with allocating basis between the tax-exempt
Unitholders and the taxable Unitholders, the Partnership may depreciate all of
the depreciable portion of its property (rather than only the tax-exempt
Unitholders' proportionate share) over the extended recovery period. See "Risk
Factors - Tax Risks -- Risks for Tax Exempt Investors" and "Risk Factors - The
Offering and Investment Risks -- Risks for Retirement Plan Investors".
VALUATION OF PARTNERSHIP PROPERTY
The federal income tax consequences of the acquisition, ownership, and
disposition of the Units will depend in part on estimates by the General
Partner of the relative fair market values and determinations of the initial
tax basis of the assets of the Partnership. Although, the General Partner may
from time to time consult with professional appraisers with respect to
valuation matters, many of the relative fair market value estimates will be
made solely by the General Partner. These estimates are subject to challenge
and will not be binding on the IRS or the courts. In the event the
determinations of fair market value are subsequently found to be incorrect, the
character and amount of items of Profit and Loss previously reported by
partners might change, and partners might be required to amend their previously
filed tax returns to include additional income or to file claims for refunds.
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CONTRIBUTING APPRECIATED PROPERTY
Under Section 737 of the Code, a Partner who contributes appreciated
property to a Partnership is required to include precontribution gain in income
to the extent that the value of other property distributed by the Partnership
to that Partner exceeds his tax basis for his Partnership interest. For
Section 737 of the Code to apply, the property distribution must occur within 5
years after the contribution of the appreciated property.
LIMITATIONS ON DEDUCTIONS
The deduction of the Partnership's losses allocated to a partner is
subject to various limitations and restrictions, the most significant of which
are described below in the order they are applied by the Code.
Adjusted Tax Basis. The amount of Partnership losses deductible by a
partner for any Partnership tax year is first limited to the amount of the
partner's adjusted tax basis of his Partnership interest as of the end of the
Partnership's year. The adjusted tax basis of a partner's interest in the
Partnership will equal the amount of cash plus the adjusted basis of property
contributed by the partner to the Partnership, increased by (a) the partner's
share of Partnership Nonrecourse Debt and (b) by the partner's distributive
share of Partnership profits. In addition, the General Partner's adjusted tax
basis would include debt for which the General Partner bears the economic risk
of loss. A partner's basis in his interest in the Partnership is decreased
(but not below zero) by (a) amounts received as cash distributions from the
Partnership, and the adjusted basis (in the Partnership's hands) of Partnership
property distributed to the partner, (b) the amount of any reduction of the
partner's share of Partnership indebtedness and (c) the partner's distributive
share of Partnership losses and nondeductible expenditures that are not
properly chargeable to its capital account. Losses not deductible by reason of
the adjusted tax basis requirement may be carried forward indefinitely and
deducted at such time as the taxpayer has losses, to the extent of that basis.
"At-Risk" Limitations. If the partner is a non-corporate taxpayer or
is one of a certain type of closely-held corporate taxpayers and has sufficient
adjusted tax basis, the partner can claim losses to the extent the partner is
at risk at the close of the Partnership's tax year. Generally, a taxpayer is
considered at risk to the extent of the amount of money and the adjusted basis
of property the taxpayer contributes to an activity, plus any amounts borrowed
with respect to an activity for which the taxpayer is personally liable or has
pledged property (other than property used in the activity) as security. A
taxpayer is also considered to be at risk with respect to "qualified
nonrecourse financing" secured by real property used in the activity of holding
real property. Losses not deductible by reason of the at-risk rules may be
carried forward indefinitely and deducted at such time as the taxpayer is at
risk to a greater extent with respect to the activity.
Passive Activity Loss Limitations; Material Participation. The
passive activity loss rules apply only if the applicable adjusted tax basis
limitation rule is satisfied and the at-risk rules would allow the loss. Under
Section 469 of the Code, losses derived from a "passive activity" generally may
only be deductible by an individual, estate, trust, or, with certain limited
exceptions, personal service corporation taxpayers to the extent of the
taxpayer's income from passive activities. By definition, profits and losses
attributable to a limited partnership interest generally are deemed to be
generated by a passive activity. If the Partnership is renting real property,
losses from that activity to the extent it is a rental activity, will be
treated as passive. The excess losses, if any, that are not deductible under
the above rule are not allowed to offset non-passive income (e.g., salary,
interest or dividends), but instead will be indefinitely carried forward to
future taxable years of the taxpayer. Such carry-over of excess losses will be
deductible in future taxable years to the extent the taxpayer receives any
additional passive activity income or upon the complete disposition of the
entire passive activity by the taxpayer in a fully taxable transaction.
Accordingly, each partner's distributive share of Partnership losses will be
deductible only to the extent of the sum of (a) such partner's distributive
share of Partnership profits, and (b) the income from all other passive
activities of the partner. Upon the partner's sale of its entire interest in
the Partnership or upon the liquidation of the Partnership, all previously
disallowed losses will then be deductible against passive and other types of
income (active (business) and portfolio (investment) income) of the partner.
The impact of the above passive loss rules on the partners depends on the
circumstances of each partner.
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A partner that "materially participates" in the operation of the
Partnership or whose income is below a certain threshold may not be subject to
the passive loss limitation rule. Specifically, see Regulation Section
1.469-5T with respect to material participation by a limited partner. However,
to the extent the Partnership is engaged in a rental activity and the partner's
income level exceeds the threshold, losses from that activity will be passive
and subject to the loss limitation. Partners should consult with their tax
advisors to determine whether this limitation applies to them.
In the opinion of Counsel, the activities of the Partnership are
likely to be passive with respect to the Limited Partners.
Activities Not Engaged In For Profit. Section 183 of the Code
provides that no deduction is allowable to an individual or an S corporation
for "activities not engaged in for profit." The IRS has ruled that this
limitation also applies at the partnership level. Rev. Rul. 77-320, 1977-2 CB
78. Section 183 of the Code provides that an activity is presumed to be
engaged in for profit if the gross income for three of the five taxable years
ending with the current taxable year exceeds the deductions attributable to
such activity.
Where Section 183 of the Code applies, deductions are allowed for
items that are the type that may be deducted, without regard to whether they
are incurred in a trade or business or for the production of income, such as
state and local property taxes. However, other deductions, such as for
depreciation, are allowed only to the extent that they do not exceed the gross
income derived from the activity, reduced by the deductions that are otherwise
allowed. While it is an objective of the Partnership to provide its investors
with current cash flow and capital appreciation, and while the General Partner
believes that the Partnership has a profit motive, there can be no assurance
that the Partnership or a specific partner will be deemed to be engaged in an
activity for profit.
Tax Treatment of Certain Fees. The Partnership will pay a management
fee to an affiliate for services rendered to the Partnership. For a
description of these fees, see "Compensation of General Partner and its
Affiliates" and "Management." The amount of the management fee has not been
determined by arm's-length negotiations. Instead, the amount has been set by
the General Partner on the basis of its judgment of the reasonable value of the
services provided.
The IRS could assert that the amount incurred for some or all of the
services exceeds the reasonable value of those services. Or, the IRS might
accept the reasonableness of the fee for the value of the services rendered.
Or, the IRS might accept the reasonableness of a fee, but contend that the fee
should be deducted in a later year, or be capitalized rather than deducted, or
be amortized over a period longer than the period chosen by the Partnership.
Finally, the IRS might attempt to recharacterize a fee as a nondeductible,
nonamortizable syndication expense or as an itemized deduction subject to the
limitation imposed on the deduction of so-called miscellaneous itemized
deductions. If the IRS were successful in seeking to disallow or
recharacterize these expenditures, the deductions of the Partnership available
to offset Partnership income would be decreased. Because the question of the
reasonable value of services and the period to which services relate is factual
in nature, and because such services will be rendered in the future, Tax
Counsel cannot render an opinion with respect to the deductibility of the
foregoing fees.
Investment Interest. The Code substantially limits the deductibility
of interest that is "properly allocable" to property held for investment. That
interest, referred to as "investment interest," generally is deductible by a
non-corporate taxpayer only to the extent of "net investment income."
Investment interest does not include interest taken into account in computing a
taxpayer's income or loss from passive activities. With certain limitations,
excess investment interest not allowed as a deduction in one taxable year may
be carried forward and deducted in subsequent taxable years to the extent that
there is sufficient net investment income in subsequent taxable years. The
deductibility of interest also effects an investor's potential alternative
minimum tax liability.
Personal Interest. The Code generally prevents individual taxpayers
from deducting personal interest. "Personal interest" includes any interest
otherwise allowable as a deduction other than (a) interest properly allocable
to a trade or business (other than the trade or business of performing services
as an employee); (b)
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investment interest as described above; (c) interest taken into account in
computing the taxpayer's income or loss from passive activities (see "Federal
Income Tax Considerations - Limitations on Deductions -- Passive Activity Loss
Limitation; Material Participation"); and (d) qualified residence interest.
CONTRIBUTION OF PROMISSORY NOTE
The contribution of a promissory note by a Unitholder as partial
payment for the Unitholder's Units, which Note is not readily tradable on an
established securities market, will be not be included in the Capital Account
of a Unitholder, and therefore not available for use in taking Losses from
Partnership operations, unless and until the Partnership makes a taxable
disposition of the Note or until (and to the extent) principal payments are
made on the Note.
The Note will be non-interest bearing. Because the Note represents an
obligation of a Unitholder to make future contributions, it should not result
in the application of the imputed interest rules under Section 1274 of the
Code. However, the IRS could take the position that interest should have been
paid by the Unitholder at the minimum applicable federal rate resulting in
imputed interest to the Unitholder in the amount of the long term applicable
federal rate then in effect (which in December 1995 was 6.26% per annum,
compounded semiannually) with a corresponding contribution of the interest to
the Partnership as a capital contribution, resulting in an increase in the
Unitholders' Capital Account. In addition, the imputed interest would be
income to the Unitholder, but would not be deductible by the Unitholder on the
deemed contribution of the interest to the Partnership. See, "Federal Income
Tax Considerations - Limitations on Deductions; Personal Interest."
In the opinion of Counsel, because the Note represents an obligation
of a Unitholder to make future contributions, it is more likely than not that
the contribution of the non-interest bearing notes by the Unitholders will not
result in the application of the imputed interest rules under Section 1274 of
the Code.
DEDUCTIBILITY OF CERTAIN OTHER EXPENSES
The Partnership will adopt the accrual method of accounting for
reporting income and expenses for federal income tax purposes. Under the
accrual method of accounting, income is includable in gross income when all
events have occurred fixing the right to receive income and the amount can be
determined with reasonable accuracy. Likewise, expenses are deductible for the
taxable year in which all the events have occurred determining the fact of the
liability and the amount thereof can be determined with reasonable accuracy.
Because of timing differences in the recognition versus collection (or
non-collection) of income, the Partnership might have income attributable to
accounts receivable in one tax year, which accounts are not collected until a
subsequent tax year, or for which a bad debt deduction may not be claimed until
a subsequent tax year. See "Federal Income Tax Considerations - Deductibility
of Certain Other Expenses -- Bad Debt Deductions."
Construction Period Interest and Taxes. Interest and taxes paid or
incurred in connection with the property constructed by the taxpayer may not be
deducted as expenses, but rather, must be capitalized as part of the cost of
the property. Interest expenses incurred in connection with the construction
of certain types of real property must be capitalized as a cost of the property
constructed and added to the Partnership's tax basis for that property. One
who constructs an asset for its own use must capitalize as a cost of that asset
certain taxes that relate to construction- related labor, materials, supplies,
equipment, land, or facilities. Taxes that must be capitalized include all
taxes allowable as a deduction under the Code, except state, local, and foreign
income taxes (which remain deductible).
Organizational, Start-Up, and Syndication Costs. Under the Code,
neither the Partnership nor its partners can deduct as expenses amounts paid or
incurred in the promotion and sale of the interests in the Partnership
(syndication expenses), including those amounts paid as commissions,
professional fees, and printing costs. However, to the extent the Partnership
pays or incurs organizational (i.e., expenditures that are incidental to the
creation of the Partnership) or start-up expenditures, the Partnership may
elect, to
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capitalize such expenditures and amortize them ratably over a period of not
less than 60 months, commencing with the month in which the Partnership began
business.
The Regulations give the following examples of partnership
organizational expenses: legal fees for services incidental to the
organization of the partnership, such as negotiation and preparation of a
partnership agreement; accounting fees for services incidental to the
organization of the partnership; and filing fees. The Regulations state that
expenses incurred in connection with acquiring assets for the partnership or
transferring assets to the partnership, syndication expenses, and certain other
expenses do not constitute organizational expenses. The Regulations give the
following examples of non-deductible syndication expenses that must be
capitalized and may not be amortized: brokerage fees, registration fees, legal
fees for securities advice and for advice pertaining to the adequacy of tax
disclosures in the offering memorandum for securities law purposes, accounting
fees for preparation of representations to be included in the offering
memorandum, and printing costs of the offering memorandum.
Start-up expenditures include: (a) certain expenses paid or incurred
relating to investigating the creation or acquisition of an active trade or
business; and (b) expenses paid or incurred pursuant to the creation of an
active trade or business, which expenses would be deductible if they were
incurred after the commencement of the particular business operation to which
they relate.
The Tax Court recently held that certain business deductions that were
incurred during the period prior to the commencement of rental operations of a
real estate limited partnership were not ordinary and necessary business
expenses and were therefore not deductible. A similar position had been taken
by the IRS in a case recently decided by the Court of Claims. However, in that
case the Court basically held that ordinary and necessary expenses incurred and
paid prior to the point in time in which the business operations first generate
income should be deductible as ordinary and necessary business expenses. The
Partnership may pay certain expenses prior to the actual opening of a property
that it acquires under construction and it will deduct these expenses in the
year of payment. The IRS may then attempt to require the disallowance and
capitalization of the expenses (other than interest and real estate taxes)
because they were paid by the Partnership during the pre-opening period. If
such a position of the IRS were to be upheld, the deduction of a substantial
portion of the payments during the period would be deferred to later years
(through the capitalization and amortization of these payments).
Expenses which are pre-opening costs, because paid prior to the
commencement of active business operations with respect to a particular
property, may be either capitalized by the Partnership or amortized over a
60-month period.
The Partnership has identified the costs and expenditures it believes
are organizational costs and intends to amortize them over a 60-month period.
Further, the General Partner will allocate what it believes to be a reasonable
amount to its syndication fees, and will not amortize or deduct these amounts.
It is possible that the IRS will disagree with the Partnership's allocation of
costs to syndication fees and organizational expenses and require fees
previously deducted to be reallocated and charged as non-amortizable capital
expenditures.
Recharacterization of Property Acquisition. Although the purchase by
the Partnership of its properties will be the result of arm's-length
negotiations between unaffiliated parties, the IRS could attempt to deny
depreciation, interest, and other deductions to be taken by the Partnership
based upon payments to the seller by attempting to recharacterize the property
acquisition, the payments to be made by the Partnership, or the purchase price.
Because such recharacterization depends on various facts and circumstances
which may be viewed subjectively, no assurance can be given by Tax Counsel that
the IRS may not attempt to recharacterize certain payments and deductions in
whole or in part. If the IRS were successful, the disallowance of the
deductibility of such payments and deductions would result in a proportionate
increase in the taxable income or decrease in the tax loss of the Limited
Partners from the Partnership, with no associated increase in cash flow with
which to pay any resulting increase in tax liabilities.
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Deductibility of Interest and Fees. The Partnership will likely pay
mortgage financing fees and interest. Some of these fees and interest expenses
may be applicable to years subsequent to the year of payment, and such payments
would be deductible by the Partnership in the future years to which they
relate, as compared to the year in which paid. Deductibility of interest and
financing fees may also be subject to the limitations on the deductibility of
construction period payments discussed in this section above
Installment Sales-Imputed Interest. If, upon an installment sale of
property by the Partnership, the Partnership were to receive a rate of interest
from the buyer that is below the "applicable federal rate," the sales terms
would be recharacterized to increase interest income taxable to the Partnership
and correspondingly decrease, first, any long-term capital gains, and second,
any depreciation recapture. Such interest income would be recognized by the
Partnership according to original issue discount rules. Because the terms of
sale for the Partnership's properties will be determined in part by
then-current market conditions and negotiations with potential buyers, no
assurance can be given that such interest income will not be imputed on sales
of Partnership properties.
Bad Debt Deductions. Taxpayers must use the specific charge-off
method of accounting for bad debts. Under the specific charge-off method, a
deduction may be taken with respect to either a wholly or partially worthless
business debt. Generally, a deduction for a wholly worthless debt may only be
taken for the tax year in which the debt became worthless. However, if it can
be determined that only part of a particular debt is recoverable, the worthless
portion may be deducted in the tax year in which the taxpayer "charges-off"
such portion from its books (i.e., eliminates such portion as an asset).
Therefore, the deduction may be taken in a year subsequent to the year in which
such portion became worthless (whereas a deduction for a wholly worthless debt
must be taken for the year the debt became wholly worthless). Regulation
Section 1.166-3(a) requires a taxpayer to specifically establish the partial
worthlessness of each debt and to be able to demonstrate to the satisfaction of
the IRS that the worthless portion has actually been charged-off. However, the
IRS cannot deny the deduction where the facts clearly show the extent of
partial worthlessness.
Recapture of Depreciation Deductions. Except in the case of an
installment sale, the provisions relating to depreciation recapture have been
somewhat diminished since capital gains are taxed at the same rate as ordinary
income (same rate of tax as applied to ordinary income except the maximum rate
on capital gains is 28%). Gain attributable to past depreciation on the
property acquired and related real property and fixtures will not be recaptured
as ordinary income under Section 1250 of the Code because the Partnership will
use the straight line method of depreciation. Any gain realized on the
disposition of personal property will be taxable as ordinary income to the
extent of the lesser of the aggregate amount of depreciation deductions claimed
with respect to such property or the gain recognized.
The discussion concerning the recapture of depreciation deductions at
the Partnership level applies equally to the sale or other disposition by a
partner of his Units, except that the amount of recapture attributable to such
Units is limited to the partner's pro rata share of such recapture at the
Partnership level. All such recapture is taxed at ordinary income rates.
The full amount of any depreciation recapture will be required to be
recognized at the time of sale (of any of the Partnership's assets or Units)
even if no cash is received in the year of sale and the taxpayer utilizes the
installment method of reporting gain.
CHARACTERIZATION OF LEASES
It is likely that the Partnership will purchase both new and existing
properties and lease them to commercial businesses. The ability of the
Partnership to claim certain tax benefits associated with ownership of the such
properties, such as depreciation, depends on a finding that the lease
transactions engaged in by the Partnership are true leases, under which the
Partnership is the owner of the leased Property for federal income tax
purposes, rather than a conditional sale of at property or a financing
arrangement. A determination by the IRS that the Partnership is not the owner
of a property for federal income tax purposes could have substantial adverse
consequences to the Limited Partners, such as denying depreciation deductions
to the Partnership and causing the income and losses attributable to such
property to be characterized as
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investment or portfolio income and losses under the passive activity loss
rules. See "Federal Income Tax Considerations - Limitations on Deductions"
above.
The characterization of transactions as leases, conditional sales, or
financing arrangements has been addressed in a number of recent cases. The
courts have not identified any one factor as being determinative of whether the
lessor or the lessee of property is to be treated as the owner. Judicial
decisions and pronouncements of the IRS with respect to the characterization of
transactions as either leases, conditional sales, or financing arrangements
have made it clear that the characterization of leases for tax purposes is a
question decided on the basis of a weighing of many factors, and courts have
reached different conclusions even where characteristics of two lease
transactions were substantially similar.
Because the Partnership does not now own property subject to a lease,
we cannot advise whether any such purported lease transaction will be respected
as such for federal income tax purposes.
ENTITY-LEVEL COLLECTIONS
If the Partnership is required under applicable law to pay any
federal, state, or local income tax on behalf of any partner or former partner,
the General Partner is authorized to pay such taxes from Partnership funds.
Such payments, if made, will be deemed current distributions of cash to the
partner. Payments by the Partnership as described above could give rise to an
overpayment of tax on behalf of a partner, in which event, the partner could
file a claim for credit or refund.
SALE OR OTHER DISPOSITION OF UNITS
Generally, gain or loss realized upon the sale or other disposition
(including a gift) of a Unit (i.e., the difference between the partner's
adjusted tax basis in a Unit and the amount received, including the partner's
share of any Partnership liabilities of which the partner is relieved) held
more than one year will be taxed as long-term capital gain or loss (short-term
if the interest has been held one year or less). However, under Section 751(a)
of the Code, that portion of realized gain allocable to certain assets (e.g.,
unrealized receivables and substantially appreciated inventory) determined with
respect to each partner as if the partner's proportionate share of each
Partnership asset had been sold, will be taxed as ordinary income. In
addition, making a gift of a Unit could subject the donor to federal gift tax
liability.
The Partnership taxable year for a partner that sells all Partnership
Units held by the partner will be deemed to have terminated upon the sale of
the Units. Upon the transfer of a Unit, Profits and Losses attributable to
such Unit generally will be allocated between the transferor and transferee
based on the number of months during the year of transfer that each is deemed
to have owned the Unit. Any losses disallowed by the passive loss rules of
Section 469 of the Code will be deductible, in full, against all types of
taxable income, on a fully taxable disposition of the units to an unrelated
party. See "Federal Income Tax Considerations - Limitations on Deductions --
Passive Activity Loss Limitations; Material Participation."
The General Partner has discretion under the Partnership Agreement, as
limited by applicable federal tax law, in determining the method for allocating
items of Profits and Losses between the Partner and the purchaser when a
partner sells less than his entire interest in the Partnership. The General
Partner can use the closing of the books method or the per diem method.
Depending on which method is chosen, the tax consequences could vary
materially.
SECTION 754 ELECTION
Section 754 of the Code provides that a partnership may elect, upon
the transfer of an interest in the partnership by sale or exchange or upon the
death of a partner, to adjust the basis of partnership property under Section
743(b) of the Code for purposes of measuring both depreciation and gain as to
the partner who acquired the interest. If such an election is made, the
transferee of a partnership interest will be treated, in effect, as if he
acquired a direct interest in the partnership assets, with a new cost basis
equal to the cost basis
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of his interest in the partnership. The Partnership Agreement provides that
the General Partner, in its sole discretion, may file an election under Section
754.
Because the Section 754 election, once made, is irrevocable without
the consent of the IRS, the number of persons likely to be Limited Partners and
because of the resulting accounting complexities of such an election, it is
unlikely that such election will be made by the Partnership. The absence of an
election could further inhibit the marketability of the Units.
SALE OR FORECLOSURE OF PARTNERSHIP'S ASSETS
Upon a sale of any of the Partnership's assets, the Partnership will
recognize a gain to the extent that the amount realized (including indebtedness
assumed or taken subject to by the purchaser) exceeds the basis of such assets
(as reduced by all prior depreciation). The gain for tax purposes may be
substantially in excess of the cash, if any, realized on the sale of such
assets, because (a) the amount received by the Partnership may be required to
be used to satisfy Partnership outstanding debt, prior to any distributions to
the partners; and (b) the Partnership may receive non-liquid assets, such as
promissory notes of the purchaser. The partners may incur substantial tax
liabilities resulting from such a sale with little or no cash available for
distribution to them.
The gain or loss realized on the sale of the Partnership's assets, if
held more than one year and not held primarily for sale to customers, will
constitute gain or loss described in Section 1231 of the Code, except that any
gain representing depreciation recapture or attributable to other Code Section
751 items (payments for unrealized receivables, generally rights to payments
not previously included in income, and substantially appreciated inventory)
would be taxed as ordinary income. A partner's allocable share of gain or loss
from the sale of a Section 1231 asset will be combined with any other Section
1231 gains or losses incurred by the partner that year, and the partner's net
Section 1231 gains or losses will generally be taxed as long-term capital gains
or constitute ordinary losses, as the case may be. However, if in the year of
sale a taxpayer has a net Section 1231 loss in the previous five years
beginning after December 31, 1981, the taxpayer will be required to report the
income from the sale of the Partnership's assets as ordinary income rather than
capital gain to the extent of the net Section 1231 losses not previously
recaptured in prior years. Note that capital gains are taxed the same as
ordinary income, except that the maximum tax rate on capital gains is 28%.
In general, a foreclosure of a mortgage or security interest
encumbering the Partnership's property would be treated as a sale of such
assets by the Partnership. In such event, the Partnership would recognize a
gain for tax purposes to the extent that the unpaid balance of its indebtedness
relating to such assets exceeded the tax basis of such assets (as reduced by
all prior depreciation). The partners would recognize their allocable share of
the gain. Thus, the partners could incur substantial tax liabilities resulting
from a foreclosure without any cash being available for distribution.
ALTERNATIVE MINIMUM TAX
The Code contains an alternative minimum tax that may reduce the
benefit to individual Limited Partners of an investment in the Partnership.
Beginning in 1993, the individual alternative minimum tax is 26% of the first
$175,000 of "alternative minimum taxable income" in excess of certain exemption
amounts and 28% of "alternative minimum taxable income" in excess of $175,000.
The alternative minimum tax is payable to the extent that it exceeds the
"regular" federal income tax payable for that year. No credits other than the
foreign tax credit may be applied against the alternative tax.
Alternative minimum taxable income generally is computed by adding
defined tax preference items to adjusted gross income and then subtracting
certain specified deductions, except that in determining adjusted gross income
for this purpose, a less beneficial alternative method of depreciation must be
used for certain property. For alternative minimum taxable income purposes,
Partnership property generally will have to be depreciated using an extended
recovery period.
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The amount of alternative minimum tax imposed depends upon various
factors peculiar to the particular taxpayer, and the extent, if any, to which
these taxes may adversely affect any Unitholder cannot be predicted. It should
be noted that certain states also impose a minimum tax on items of tax
preference. The Unitholders should consult with their own tax advisers
regarding the possible application of the alternative minimum tax.
TERMINATION OF THE PARTNERSHIP
Upon the termination and liquidation of the Partnership, after payment
of Partnership liabilities and, at the General Partner's discretion, the
establishment of reserves for liabilities and related contingencies not paid at
liquidation, all remaining partnership property will either be distributed in
kind or sold and the proceeds distributed to the partners. Gain or loss will
likely be recognized on the sale of partnership assets on liquidation and taxed
accordingly. However, gain will not be recognized to a partner on distribution
to the partner in the liquidation except to the extent that cash (and under
certain circumstances, marketable securities, if any) received, including the
partner's share of any partnership liabilities not assumed by the partner,
exceeds the partner's adjusted tax basis in the partner's Units. Losses will
not be recognized except on a liquidating distribution of only cash, unrealized
receivables, or substantially appreciated inventory. Property received from a
liquidating distribution will have a basis equal to the partner's remaining
basis in the partner's Units, reduced by any cash distributed to the partner in
the liquidation.
If within a twelve (12) month period, partnership Units aggregating
fifty percent (50%) or more of the total interests in the Partnership's capital
and profits are sold or exchanged, the Partnership will be deemed to have
terminated for federal income tax purposes. The Partnership termination would
have the same tax consequences to a partner as a voluntary liquidation.
Immediately following a termination of the Partnership, the non-transferring
partners would be treated as having recontributed to the capital of a new
partnership the cash and other property received in the "deemed" liquidation.
The taxable year of the Partnership would close on the date of the termination,
and the new partnership would acquire a basis in the recontributed assets equal
to the continuing Partnership's basis in the assets.
A termination of the Partnership, among other things, could cause a
partner to include the partner's share of the Partnership's taxable income, if
any, in the partner's income in an earlier year than it otherwise would be
includable had the taxable year of the Partnership not closed early. The
Partnership Agreement authorizes the General Partner to disapprove any
transfers of partnership units that would cause the early termination of the
Partnership.
CAPITAL GAINS AND LOSSES
Net long-term capital gains enjoy a slightly more favorable tax
treatment than ordinary income. The normal maximum marginal tax rate on
ordinary income is 36%, with an additional tax surcharge of 10% for certain
high income investors (i.e., 3.6% for a marginal rate of 39.6%) and on capital
gains it is 28%. Therefore, gain from the sale or other disposition of any of
the Partnership's assets that is treated as long-term capital gain will be
taxed at ordinary income rates up to a maximum 28%. Net long-term capital
losses and net short-term capital losses (both are computed after being netted
with capital gains for the year) may be deducted, dollar for dollar, from
ordinary income, up to a maximum of $3,000 a year. Any amount not allowed to
be deducted by the $3,000 limitation may be carried forward by the taxpayer and
deducted in future years.
Corporate taxpayers are subject to federal income tax on the full
amount of their net capital gains at ordinary income tax rates. Capital losses
of a corporation are deductible only to the extent of capital gains. Excess
capital losses of a corporation may be carried forward or back (with some
limitation).
PUBLICLY TRADED PARTNERSHIPS ("PTP") TREATED AS CORPORATIONS
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There are two provisions of the Code that adversely affect the
taxation of publicly traded partnerships. The first is Section 7704 of the
Code, which causes certain publicly traded partnerships to be taxed as
corporations, with the consequences described in "Federal Income Tax
Considerations - Partnership Status." The second is Section 469(k) of the
Code. This section causes the passive activity loss rules that are discussed
elsewhere to apply more harshly to net income and net loss as attributable to
publicly traded partnerships. Net passive income from such partnerships is
treated as investment income, which cannot be offset by net losses from other
"passive activities," and net losses attributable to such partnerships may not
be used to offset a partner's other passive income.
A partnership is a PTP if (a) interests in the partnership are traded
on an established securities market or (b) interests in the partnership are
readily tradable on a secondary market (or the substantial equivalent thereof).
The Units will not be listed for trading on an established securities market.
The General Partner will use its best efforts to ensure that the Units will not
be readily tradable on any secondary market (or substantial equivalent
thereof). There can be no assurance, however, that such efforts will be
successful. A partner may not transfer a Unit unless the partner represents
and provides other documentation satisfactory in form and substance to the
General Partner that such transfer was not affected through a broker-dealer or
matching agent that makes a market in the Units or that provides a readily
available, regular, and ongoing opportunity to partners to sell or exchange
their Units through public means of obtaining or providing information of
offers to buy, sell or exchange units. In the case of the sale of a Unit, the
General Partner must determine that such sale, assignment or transfer will not,
by itself or together with any other sales, transfers, or assignments,
substantially increase the risk of the Partnership being classified as a PTP.
A transferor will not be required to make the representations described above
if the transferor represents that the transfer is effected through an agent
whose procedures have been approved by the General Partner as consistent with
the requirements for avoiding classification as a PTP.
Whether a partnership is a PTP or not has not been the subject of
court decisions or IRS regulations. However, Notice 88-75 provides limited
safe harbors from the definition of a PTP in advance of the issuance of
regulations. Most notably, a partnership whose interests are not traded on an
established securities market will not be treated as a PTP if the sum of the
percentage of the interests in partnership capital are profits that are sold or
otherwise disposed of during the taxable year does not exceed 5% of the total
interest in the partnership capital or profits (the "5% safe harbor").
According to the notice, certain transfers are disregarded for purposes of the
5% safe harbor, including transfers at death, transfers between certain family
members, and transfers in which the basis of the partnership interest in the
hands of the transferee is determined, in whole or in part, by reference to is
basis in the hands of the transferor.
Article X of the Partnership Agreement provides that the General
Partner may prohibit the transfer or assignment of a Unit (or an economic
interest therein), if such transfer is effected through a secondary market (or
substantial equivalent thereof) or, together with other transfers, could
increase the likelihood that the Partnership would be treated as a PTP. In
addition, the General Partner has the right under the Partnership Agreement not
to recognize any purported transfer or assignment of a Unit made without the
General Partner's consent.
The General Partner has represented that it intends to enforce these
restrictions to the extent possible under the Partnership Agreement and
applicable law to prevent any increased likelihood of the Partnership being
treated as a PTP.
In the opinion of Counsel, based upon the foregoing, it is more likely
than not that the Partnership will not that the Partnership will not constitute
a PTP for the purposes described above.
RETIREMENT PLAN INVESTORS
Qualified retirement plans, IRA's, Keogh plans, and other plans that
are subject to ERISA (collectively, "Qualified Plans") are generally exempt
from taxation except to the extent of their "unrelated business taxable income"
("UBTI") from all sources exceeds $1,000 in any tax year. Certain passive-type
income from unrelated businesses, such as interest, dividends, and gain from
the sale of property (other than
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inventory and property held primarily for sale to customers in the ordinary
course of business), is excluded from UBTI.
Rents from real property are also excluded from UBTI, except that rent
that is contingent on the income or profits derived from the leased property is
excluded only if based on a fixed percentage of receipts or sales. Rent from
personal property leased with real property is also excluded from UBTI, if the
rent attributable to the personal property is not more than 10% of the total
rent received under the lease.
Notwithstanding the foregoing, income of the Partnership will
constitute UBTI to the extent it is attributable to property financed with
"acquisition indebtedness." The Partnership Agreement does not prohibit the
Partnership from borrowing money to purchase property or from encumbering its
property in connection with any borrowing. The General Partner does intend to
cause the Partnership to borrow money. If the Partnership does borrow money,
the General Partner has represented that it will use its reasonable efforts to
structure the debt in a manner so that it will not constitute "acquisition
indebtedness." Thus, no assurance can be given that the Partnership will not
acquire some or all of its property using acquisition indebtedness and
Qualified Plans should plan accordingly in making an investment in Units. The
General Partner does not intend to limit the Partnership's outstanding
indebtedness to 3% of the aggregate adjusted tax basis of its property, and
thus will not limit the portion of its income that could be characterized as
attributable to property financed with acquisition indebtedness.
In addition, a Qualified Plan's share of net income from the
Partnership generally would be characterized as UBTI if the Partnership were
held to be a dealer with respect to its property. Whether the Partnership is
treated as a dealer is inherently factual in nature and depends on the
intentions of the Partnership and its operations from time to time, and,
accordingly, Tax Counsel is unable to render an opinion (either favorable or
unfavorable) on this issue. The Partnership, however, has not been organized
to engage in the buying and selling of property and, thus, it is expected (and
the Partnership will take the position) that it will not be treated as a dealer
with respect to its property.
The tax treatment of distributions by Qualified Plans and other exempt
entities, is beyond the scope of this discussion, and such entities should
consult their tax advisers regarding such questions. See "ERISA
Considerations".
Because it is the facts surrounding Partnership borrowing, if any, and
the properties the Partnership may acquire are not presently ascertainable,
Counsel is unable to opine as to whether the Partnership will generate UBTI.
TAX SHELTER REGISTRATION
The Code generally requires the person principally responsible for
organizing certain defined investments to register such investments with the
IRS if (a) as of the close of any of the first five taxable years of the
investment, such investment satisfies a certain computed ratio of aggregate
deductions and credits to cash invested for any investor and (b) the investment
is sold pursuant to an exemption from registration requiring the filing of
notice with a federal or state agency regulating the offering or sale of
securities. Although the General Partner has not had the above ratios
computed, and has not prepared any financial projections that take into account
any federal income tax benefits, the General Partner believes that the tax
benefits available from an investment in the Partnership are not likely to be
sufficient to require registration. Nevertheless, as a precautionary measure,
the General Partner intends to register the Partnership with the IRS and will
provide each partner with the identification number to be supplied to the IRS.
The IRS has issued temporary Regulations that require a statement in
the following form be made to all investors:
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You are acquiring an interest in Flordeco, Ltd., 3591 Fowler
Street, Fort Myers, Florida 33901 whose taxpayer
identification number is __________. Section 6111 of the Code
requires the Partnership to obtain a registration number from
the Internal Revenue Service and to provide such number to
investors in the Partnership. On behalf of the Partnership,
the General Partner has applied to the Internal Revenue Service
for such a registration number. The number will be furnished
to you when received.
UNDER CURRENT TEMPORARY REGULATIONS, YOU MUST REPORT THIS
REGISTRATION NUMBER (AS WELL AS THE NAME AND TAXPAYER
IDENTIFICATION NUMBER OF THE PARTNERSHIP) TO THE INTERNAL
REVENUE SERVICE ON FORM 8271 FOR ANY DEDUCTION, LOSS, CREDIT,
OR OTHER TAX BENEFIT CLAIMED OR INCOME REPORTED BY REASON OF
THE INVESTMENT IN THE PARTNERSHIP. FORM 8271 MUST BE ATTACHED
TO THE FEDERAL INCOME TAX RETURN ON WHICH YOU CLAIM THE
DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY
INCOME.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED,
EXAMINED, OR APPROVED BY THE IRS.
Failure by a partner to furnish the Partnership's registration number in the
manner described in the statement will result in a penalty of $250 per
occurrence unless the failure is due to reasonable cause.
Current Temporary Regulations also require the transferor of interests
in a partnership that has obtained a registration number to retain certain
information concerning such a transfer. If the transferor does not wish to
maintain such information, the Partnership will maintain this information and
will give a copy of required notices to the transferees of the Partnership
interests.
In addition, the Code requires that a list be maintained by the
organizers of a partnership containing the identity of each person who is sold
an interest in a partnership with respect to which registration is required
under Section 6111 of the Code and such other information as required by the
Regulations. Such list must be made available to the IRS upon request.
CONSEQUENCES OF AUDIT
The Partnership will furnish annually to each of the partners (but not
to transferees of partners unless they become substituted partners) sufficient
information from the Partnership's tax return for the partners to prepare their
own federal, state, and local tax returns.
The tax treatment of items of partnership income, loss, deduction, and
credit will be determined at the partnership level in a unified partnership
proceeding, rather than in separate proceedings for each of the partners. In
addition, all partners are required on their federal income tax returns to
treat partnership items in a manner that is consistent with the treatment of
such items on the Partnership's return. This unified concept applies in
judicial as well as administrative proceedings.
The tax matters partner for the Partnership is the General Partner.
The tax matters partner is required to, among other things, keep the other
partners informed of all administrative and judicial proceedings and represent
the Partnership in such proceedings. The tax matters partner is authorized to
obtain judicial review of any proposed readjustment of partnership items.
Although every partner with an interest in the outcome is allowed to
participate in an action filed by the tax matters partner, the outcome of that
proceeding will bind all partners. If the tax matters partner fails to seek
judicial review of a proposed adjustment of partnership
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items, other partners may seek such review, provided that there can be only one
judicial proceeding with respect to the Partnership. The foregoing procedures
may adversely affect a partner's ability to deal with adjustments to the
partner's tax return resulting from adjustments made with respect to the
Partnership.
In the event that any of the tax returns of the Partnership are
audited, it is possible that substantial legal and accounting fees will have to
be paid to substantiate the position of the Partnership, and such fees would
reduce the cash otherwise available to meet partnership obligations or for
distribution to partners. Such an audit may result in adjustments to each
partner's return. An audit of the Partnership's tax returns may also result in
an audit of nonpartnership items on each partner's tax return, which in turn
could result in adjustments to such items. The costs incurred by a partner in
connection with an audit of the partner's income tax return will be borne
solely by that partner.
PENALTIES ON UNDERPAYMENT OF TAX; INTEREST ON DEFICIENCIES
The interest rate on underpayments of tax is adjusted quarterly to an
average rate based on the average market yield on outstanding short-term
marketable obligations of the United States plus three percentage points. In
the event certain deductions claimed by the Partnership are disallowed and
result in the underpayment by a partner of the partner's federal income taxes,
the interest expense incurred by that partner for underpayment of federal
income taxes could be substantial. Interest on deficiencies is not deductible
by individuals for federal income tax purposes.
The 1989 Tax Act amended and consolidated the generally applicable
penalties relating to the accuracy of tax returns. The new rules apply to tax
returns due after December 31, 1989. Under Section 6662(a) of the Code, an
accuracy-related penalty of 20% is now imposed on the portion of any
underpayment of tax that is attributable, in part, to (a) negligence or
disregard of rules and regulations, (b) any substantial understatement of
income tax, and (c) any substantial valuation overstatement.
Section 6662(c) of the Code defines "negligence" to include any
failure to make a reasonable attempt to comply with the Code and "disregard" to
include any careless, reckless or intentional disregard of rules or
regulations.
Section 6662(d)(1) of the Code provides that a "substantial
understatement" exists if the understatement for the taxable year exceeds the
greater of 10% of the tax required to be shown on the return for the taxable
year, or $5,000 ($10,000 for corporations, other than "S corporations" and
personal holding companies). In non-tax shelter cases, the additional tax may
be avoided if the position resulting in an understatement is supported by
substantial authority or if the relevant facts relating to the taxpayer's
position are disclosed on his return and there is a reasonable basis for the
tax treatment of such item by the taxpayer. In tax shelter cases, the
additional tax may be avoided only if there is substantial authority and the
taxpayer reasonably believes that the position taken was more likely than not
the proper tax treatment. Whether or not a taxpayer's position is supported by
substantial authority will be determined by analyzing the relevant authorities
in light of the pertinent facts and circumstances. If the analysis supporting
the position taken relates authority to the relevant facts and circumstances
and concludes that the weight of the authorities supporting the position taken
is substantial, when compared to the weight of authorities contrary to the
position taken, substantial authority will be found to exist.
Section 6662(e)(1) of the Code provides that a "substantial valuation
misstatement" exists if the value or adjusted basis of any property claimed on
a return is 200% or more of the correct value or adjusted basis. The penalty
only applies, however, if the amount of the underpayment exceeds $5,000
($10,000 for corporations other than "S corporations" and personal holding
companies). Section 6662(h) of the Code provides that the 20% penalty is
doubled to 40% if the value or adjusted basis of the property claimed on the
return is 400% or more of the correct value or adjusted basis.
Finally, Section 6663 of the Code imposes a 75% penalty on the portion
of any underpayment that is attributable to fraud.
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Pursuant to Section 6664(c) of the Code, none of the penalties
discussed above will be imposed with respect to any portion of an underpayment
if there was reasonable cause for the underpayment and the taxpayer acted in
good faith.
STATE AND LOCAL TAXES
The Partnership does business in the State of Florida. The State of
Florida imposes no income tax on partnerships, and therefore, the Partnership
will not be subject to Florida income tax unless the Partnership is classified
as an association for federal income tax purposes, in which case it will be
taxed as a corporation. Florida does not impose an income tax on individuals,
but it does impose a franchise tax measured by net income on corporations.
A partner residing in a state other than Florida may be required to
file income tax returns and pay income tax in the state or locality of the
partner's residence. No other attempt is made in this Prospectus to provide
information as to the state and local tax consequences of owning a Unit.
BECAUSE NO ATTEMPT IS MADE TO PROVIDE COMPLETE INFORMATION AS TO THE
STATE AND LOCAL INCOME OR OTHER TAX CONSEQUENCES OF OWNERSHIP OF A UNIT,
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO
THESE MATTERS.
TAX CONSIDERATIONS FOR FOREIGN INVESTORS
Nonresident aliens and foreign corporations, foreign trusts, or
foreign estates that acquire Units will be considered to be engaged in business
in the United States on account of ownership of the Units and, as a
consequence, will be required to file federal tax returns in respect of their
distributive shares of partnership profits and losses and pay federal income
tax at regular rates on the income. Generally, a partnership is required to
pay a withholding tax on the portion of the partnership's income effectively
connected with the conduct of a United States trade or business and that is
allocable to the foreign partners, regardless of whether any distributions have
been made to such partners. However, under procedural guidelines applicable to
publicly traded partnerships (see "Federal Income Tax Considerations - Publicly
Traded Partnerships ("PTP") Treated as Corporations"), the Partnership will
elect instead to withhold at the applicable rate on actual cash distributions
made quarterly to foreign partners. Each foreign partner must obtain a
taxpayer identification number from the IRS and submit that number to any
transfer agent of the Partnership on a form W-8 in order to obtain credit for
taxes withheld. Subsequent adoption of Regulations or the issuance of other
administrative pronouncements may require the Partnership to change these
procedures.
Because a foreign corporation that owns Units will be treated as
engaged in a United States trade or business, such partner may be subject to
United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its allocable share of the Partnership's earnings and
profits (as adjusted for changes in the foreign corporation's "United States
net equity") that are effectively connected with the conduct of a United States
trade or business. Such a tax may be reduced or eliminated by an income tax
treaty between the United States and the country with respect to which the
foreign corporate partner is a "qualified resident."
POSSIBLE CHANGES IN TAX LAW
The foregoing discussion includes only those provisions of the Code
believed to be material to an investment in the Partnership. Many of the
recent amendments to the Code have not been supplemented by corresponding
Regulations, administrative rulings, or judicial decisions. Accordingly,
certain of those amendments discussed above may be modified or clarified by the
IRS or the courts in a manner having an adverse effect on the Partnership or
the partners' respective tax situations. Currently, the United States Senate
and House of Representatives are considering tax legislation that could, among
other things, significantly modify the federal income tax system (the "flat
tax"). In addition, reductions in the capital gains
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rate have been proposed, along with the indexing of capital gains and
modifications to the alternative minimum tax system. The adoption of any of
that legislation could materially affect an investment in the Partnership.
ERISA CONSIDERATIONS
General. Pension or profit sharing plans, IRAs, HR-10 Plans ("Keogh
Plans"), endowment funds, foundations and other entities exempt from federal
income taxation (collectively, "Qualified Plans"), may invest in Units where
such Qualified Plans administrators, trustees or beneficiaries demonstrate
that: (a) the Qualified Plans overall commitment to investments which are not
readily marketable is reasonable in relation to its assets; and (b) the
administrator, trustee or beneficiary of the Qualified Plan has read the
Partnership Agreement and this Prospectus for purposes of evaluating the risks
of investing in the Partnership, and has substantial experience in making
investment decisions of this type or is relying on his own tax counsel or other
qualified adviser in making this investment decision. In addition, an
investment in the Units by a Qualified Plan is subject to (i) the provisions of
their governing instruments, and (ii) any limitations relating to their
tax-exempt status. An investment in the Units will not in and of itself create
an IRA or Keogh Plan for an investor. In order to create an IRA or Keogh Plan,
an investor must, among other things, comply with any applicable provisions of
the Code and ERISA.
Prohibited Transactions. Generally, a fiduciary may not cause a
Qualified Plan to engage in a transaction that constitutes a prohibited
transaction, such as transactions with a "party-in-interest" or "disqualified
person". For this purpose, "party-in-interest" and "disqualified person"
generally include any fiduciary of the plan, any person providing services to
the plan, any employer whose employees are covered by the plan, any employee
organization whose members are covered by the plan, and various parties related
to the foregoing. A fiduciary responsible for a Qualified Plan engaging in a
prohibited transaction may be held personally liable for any losses incurred by
the Qualified Plan on account of the prohibited transaction. In addition, the
Code imposes an excise tax on any "disqualified person" (other than a fiduciary
acting only as such) who participates in a prohibited transaction. Prohibited
transactions generally include direct or indirect sales, exchanges, or leases
of property, loans or extension of credit, furnishing of goods or services or
facilities, benefitting from assets of the Qualified Plan ("plan asset"), or
certain acquisitions on behalf of the Qualified Plan of employer securities or
employer real property.
Plan Asset Rules. Fiduciaries of Qualified Plans also should consider
whether a purchase of Units will cause the Partnership's assets to be deemed
"plan assets" for the purposes of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code. Neither ERISA nor the Code
define "plan assets". However, the Department of Labor has issued regulations
which provide, generally, that when a Qualified Plan makes an equity investment
in another entity such as the Partnership, the underlying assets of the entity
will be considered "plan assets" unless equity participation by the Qualified
Plan is not significant. The regulation provides that the assets of a
corporation or partnership in which an employee benefit plan invests would not
be deemed to be assets of such plan if less than 25% of each class of equity
interest in the corporation or partnership is held in the aggregate by "benefit
plan investors" (including, for this purpose, benefit plans such as Keogh plans
for owner-employees and IRAs which are not subject to the general requirements
of ERISA).
Potential Consequences of Treatment as Plan Asset. If the
Partnership's underlying assets are deemed to be plan assets, the Partnership
may be required to take steps which could affect partners who are subject to
income tax, as well as Qualified Plans which may invest in the Partnership. In
such event, the fiduciary duties, including compliance with the exclusive
benefit rule and the diversification and prudence requirements, must be
considered with respect to the investment in the Partnership. Each Partner of
the Partnership who has authority or control with respect to the management or
disposition of the assets of the Partnership, or who renders investment advice
for a fee or other compensation, direct or indirect, with respect to the assets
of the Partnership would be treated as a fiduciary and therefore would be
personally liable for any losses to a Qualified Plan which invests in the
Partnership resulting from a breach of fiduciary duty.
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The prohibited transaction restrictions would apply to any
transactions in which the Partnership engages involving the assets of The
partnership and a party-in-interest. Such restrictions could, for example,
require that the Partnership and the General Partner avoid transactions with
entities that are affiliated with the Partnership or the General Partner or
that Qualified Plan investors be given the opportunity to withdraw from the
partnership. Also, the General Partner who participates in a prohibited
transaction may be subject to an excise tax. Finally, entering into a
prohibited transaction may result in loss of the Qualified Plan's tax-exempt
status.
Unrelated Business Taxable Income. Net income generated in the
operation of the Partnership may be classified as unrelated business taxable
income. The classification of net income as unrelated business taxable income
generally depends on the type of business carried on and the nature of the
financing used in the business. For example, rents from real property
generally are not included in the determination of unrelated business taxable
income unless the real property is subject to an "acquisition indebtedness."
Thus, if the Partnership owns real property subject to such indebtedness, some
or all of the net income from such property could be classified as unrelated
business taxable income. Tax exempt investors could be subject to federal
income tax imposed on such income and should consult their own tax advisers
before purchasing Units.
SUMMARY OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement, as restated and amended (the form of which
is attached hereto as Exhibit A), will be the governing instrument establishing
the provisions under which the Partnership will be operated. The Partnership
Agreement provides that each person holding units may transfer such Units by
written assignment provided that the assignment is in compliance with and does
not contravene any provision of the Partnership Agreement. Unless and until
the assignee is admitted as a substitute Limited Partner, the assignee is not a
partner and is only entitled to the same share of the profits, losses, and
distributions from the Partnership that the assignor would have been entitled
to with respect to the unit after such assignment. Whether a transferee is
admitted as a substitute Limited Partner is within the authority and power of
the General Partner which, in its sole discretion, may or may not permit the
transferee's admission for any reason whatsoever. See "Restrictions on
Transferability of Units" hereunder. Profits and Losses attributable to such
Units for the fiscal year shall be allocated as provided in the Partnership
Agreement. Many of the provisions of the Partnership Agreement have been
summarized elsewhere in this Prospectus under various headings. The following
summarizes certain other important provisions of the Partnership Agreement and
is qualified in its entirety by reference thereto. Each person considering an
investment in the Partnership is urged to carefully read the Partnership
Agreement in its entirety. It is recommended that each prospective investor
review the Partnership Agreement with his investment and tax advisors,
accountants, and attorneys. Capitalized terms used herein, unless otherwise
defined, shall have those meanings ascribed to them in the Partnership
Agreement.
ORGANIZATION AND DURATION
The Partnership was organized on March 19, 1996, as a Florida limited
partnership under the Florida RULPA. Investors Trust, Inc. is the sole General
Partner of the Partnership. Pursuant to this offering, the General Partner is
expected to purchase five Units if the Minimum Offering is sold (ten Units if
the Maximum Offering is sold) and after this offering, if all the remaining
Units are sold to persons who are not affiliated with the General Partner, the
General Partner and its affiliates will hold a 5% interest in the Partnership
if the Minimum Offering is sold (1% if the Maximum Offering is sold). The
Partnership will dissolve on December 31, 2016, unless sooner dissolved
pursuant to the terms of the Partnership Agreement or as required by law.
RESPONSIBILITIES OF THE GENERAL PARTNER
The General Partner has the exclusive management and control of all
aspects of the business of the Partnership and, as such, is authorized to
perform all acts deemed necessary or appropriate to carry out the
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purposes and to conduct the business of the Partnership. Except for certain
limited voting rights contained in the Partnership Agreement, the Limited
Partners shall not have the right or power to manage or control the business or
affairs of the Partnership. The General Partner will devote such time and
attention to the management of the business and affairs of the Partnership as
it deems necessary, in its sole discretion. All Unitholders may acquire or
conduct any other business or activity, and engage or possess an interest in a
business venture related to that of the Partnership which is competitive with
the Partnership.
LIMITED LIABILITY
Assuming that the Limited Partners do not take part in the control of
the business of the Partnership and otherwise comply with the provisions of the
Partnership Agreement, the Limited Partners as such will not be liable under
Florida law for the obligations of the Partnership in excess of their
contributions, except as described under "Risk Factors - The Partnership and
Units -- Return of Distributions or Contributions". Under Florida law, a
Limited Partner who participates in the control of the Partnership's business
is liable only to persons who transact business with the Partnership reasonably
believing, based on such Limited Partner's conduct, that the Limited Partner is
a general partner of the Partnership.
RESTRICTIONS ON GENERAL PARTNER
While the General Partner is given broad powers to manage the affairs
of the Partnership, the authority of the General Partner is subject to certain
express limitations set forth in the Partnership Agreement. The General
Partner has the authority to issue in the future any of the Units which are not
purchased pursuant to this offering. However, any Units not purchased pursuant
to this offering which are issued in the future can only be issued in
consideration of a Capital Contribution of at least $12,000 per Unit. The
General Partner is specifically prohibited by the Partnership Agreement from
admitting another general partner or limited partner, except in accordance with
the Partnership Agreement. In addition, the General Partner is expressly
prohibited from converting Partnership property for its own use, or possessing
or assigning any rights in specific Partnership property for other than a
Partnership purpose, confessing a judgment against the Partnership in an amount
in excess of $5,000, or knowingly performing any act which would subject any
Limited Partner to liability as a general partner in any jurisdiction.
GENERAL PARTNER REMOVAL AND WITHDRAWAL
The General Partner may be removed for cause (as provided in Section
11.5 of the Partnership Agreement) by a vote of a majority in interest of the
Limited Partners. The General Partner ceases being general partner upon the
transfer of more than 75% of its Partnership interest, its bankruptcy, the
involuntary transfer by operation of law of its Partnership interest, or upon
the vote of two-thirds of the Limited Partners to approve a request by the
General Partner to retire, or a vote of majority in interest of the Unitholders
to remove the General Partner if the General Partner has attempted to transfer
its Partnership interests in violation of the Partnership Agreement. Upon the
withdrawal by the General Partner, the Partnership will dissolve unless within
90 days thereafter a successor general partner is elected by the holders of a
two-thirds majority in interest of the Limited Partners and the same two-thirds
agree in writing to continue the Partnership.
LIABILITY OF GENERAL PARTNER TO PARTNERSHIP AND PARTNERS; INDEMNIFICATION OF
THE GENERAL PARTNER
Neither the General Partner nor its officers and directors are liable
to the Partnership or to any Partner for any loss suffered by the Partnership
or any partner arising out of any action or inaction by the General Partner if
the General Partner, in good faith, determined that the course of action chosen
was in the best interests of the Partnership and such course of action did not
constitute actual fraud, bad faith, gross negligence, or willful misconduct by
the General Partner. The Partnership will indemnify the General Partner
against any losses, judgments, liabilities, expenses, and amounts paid in
settlement of any claims sustained by it in connection with the Partnership,
provided that the claim or claims were not the result of gross negligence,
fraud, bad faith, or willful misconduct on the part of the General Partner.
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TRANSACTIONS WITH PARTNERS
Except in the case of the Management Agreement between the Partnership
and the Management Company, whenever any loan or contract is to be made between
the Partnership and any partner or an affiliate of any partner, the terms of
such loan or contract shall be on terms and conditions no less favorable to the
Partnership than if the loan or contract were between the Partnership and an
independent third party.
The Partnership is permitted to consider the repurchase of Units from
a Unitholder under certain circumstances in which it is established to the
General Partner's satisfaction that such repurchase is justified because of
extreme financial hardship, divorce settlement or decree, or is necessary to
settle the estate of a deceased Unitholder. In those situations when a
repurchase may be considered, the determination of whether to grant or deny
such a request is subject to the availability of sufficient funds therefor
considered in view of the General Partner's plans for the use of the
Partnership assets, and to sole and absolute discretion of the General Partner.
The grant or denial or a repurchase request may be made for any reason
whatsoever as the General Partner shall so determine.
The Partnership will not purchase or lease property from (except in
connection with facilitating the acquisition or financing of a property by the
Partnership), or sell any property to, the General Partner or its affiliates
(except if additional capital contributions are insufficient to acquire the
property). The Partnership will not engage in any transaction which would
result in the receipt by the General Partner or any Affiliate of the General
Partner of a "rebate" or "give-up" or in any reciprocal business arrangement
which results in the circumvention of the restrictions contained in the
Partnership Agreement and is applicable state securities laws and regulations
upon dealings between the Partnership and the General Partner and its
affiliates.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Any amendments to the Partnership Agreement may be proposed by the
General Partner on its own initiative, or by 25% or more in interest of the
Limited Partners. The adoption of such a proposed amendment requires approval
from a majority in interest of the Limited Partners. However, the Partnership
Agreement cannot be amended without the consent of each partner adversely
affected if the amendment would (a) convert a Limited Partner's interest into a
general partner's interest, (b) modify the limited liability of a Limited
Partner, or (c) alter the interest of a partner in Profits, Losses, other
items, or any Partnership distributions. The purposes and investment policies
of the Partnership may be changed only by amendment of the Partnership
Agreement approved by the Limited Partners. However the Partnership Agreement
may be amended by the General Partner without the consent of the Limited
Partners in order to comply with state and federal laws and filing
requirements.
MEETINGS AND VOTING
The Partnership Agreement does not obligate the Partnership to hold
annual or other periodic meetings of the partners. However, a meeting may be
called in the discretion of the General Partner or by the written request of
25% or more in interest of the Limited Partners. The voting rights of Limited
Partners described in this Prospectus are granted only to Limited Partners
admitted to the Partnership under the Partnership Agreement. For the purpose
of determining the partners entitled to vote on, or to vote at, any meeting of
the partners or any adjournment thereof, the General Partner or the Limited
Partners requesting such meeting may fix, in advance, a date as the record date
for that determination. That date cannot be more than 30 nor fewer than 10
Business Days before the meeting. Partners who have not been admitted to the
Partnership as substituted Limited Partners are not partners for any purpose
under the Partnership Agreement, and are not entitled to vote at Partnership
meetings or cause the General Partner to call meetings of partners. Any
Limited Partner may authorize any person in writing to act for him by proxy on
all matters in which a Limited Partner is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting.
Under Florida law, except as expressly provided in the Partnership
Agreement, Limited Partners have no voting rights. The Partnership Agreement
grants Limited Partners only limited voting rights. Under the Partnership
Agreement, Limited Partners may: (i) by a vote of a majority in interest,
remove the General
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Partner for cause or for attempting to transfer its Partnership interests in
violation of the Partnership Agreement, (ii) by a vote of two-thirds, approve a
request of the General Partner to retire from the Partnership, (iii) by a vote
of a majority in interest, dissolve the Partnership, (iv) by a vote of a
majority or interest, elect a new general partner to continue the Partnership's
existence upon the General Partner ceasing to be a general partner of the
Partnership, and (v) by a vote of a majority in interest, approve a proposed
amendment to the Partnership Agreement. Notwithstanding the foregoing,
however, certain provisions of the Partnership Agreement may not be amended
without the consent of each partner adversely affected thereby. Such
amendments include any which would convert the limited partnership interests
into general partner interests, modify the limited liability of Limited
Partners, or alter the partner's interest in Profits, Losses, or any
Partnership distributions. For a description of the rights of Limited Partners
to review the Partnership's books and records, including a list of current
partners, see "Reports to Limited Partners".
TERMINATION, DISSOLUTION, AND LIQUIDATION
The Partnership shall be dissolved upon the earliest of (a) the
expiration of its term on December 31, 2016, (b) a determination to dissolve
the Partnership by the vote of a majority in interest of the partners, (c) the
happening of any other event that makes it unlawful, impossible or impractical
to carry on the business of the Partnership or (d) the withdrawal or removal of
the General Partner, the assignment by the General Partner of its entire
interest in the Partnership or any other event that causes the General Partner
to cease to be the general partner under the Florida RULPA, unless the
Partnership is continued upon the election of a successor general partner
within 90 days thereof by a majority in interest of the partners.
Upon dissolution, the General Partner (or in the event there is no
remaining general partner, any person elected by holders of a majority in
interest of the Limited Partners) will liquidate the Partnership's assets and
apply the proceeds of the liquidation first to pay creditors other than the
General Partner; second to pay debt and liabilities owed to the General
Partner; third to pay the General Partner and the Unitholders (except to the
extent such payment would cause the Capital Account of a Unitholder to become
negative); in accordance with their positive Capital Account balances after
taking into account all profits, losses, contributions, and distributions for
all periods. See "Partnership Distributions and Allocations".
RESTRICTIONS ON TRANSFERABILITY OF UNITS
No transfer, sale, or assignment of a unit shall be effective unless
made in accordance with the terms of the Partnership Agreement.
Except in the case of a transfer of units at death or involuntarily by
operation of law, prior to any transfer, sale or assignment of a unit, the
General Partner must be furnished with the information required by the
Partnership Agreement and a satisfactory opinion of the selling partner's legal
counsel to the effect that such transfer, sale or assignment (a) will be in
compliance with all applicable federal and state securities laws, (b) will not
cause the Partnership to terminate for federal income tax purposes and will not
cause the application of the rules of Code Sections 168(g)(1)(b) and 168(h)
(generally referred to as the "tax exempt entity leasing rules") or similar
rules to apply to the Partnership, Partnership property, or the General Partner
or Limited Partners, and (c) will not cause the Partnership to be deemed to be
an "investment company" under the Investment Company Act of 1940.
REPORTS TO LIMITED PARTNERS
The General Partner will furnish annual financial statements to each
Limited Partner within 120 days following the close of each Partnership fiscal
year. The annual report will contain a balance sheet, statement of income,
statement of partners' capital, and statement of cash flows. To the extent
that the Partnership is required to file an annual report on Form 10-K with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the annual financial statements will be audited and prepared
in accordance with generally accepted accounting principles by independent
certified public accountants. If a Form 10-K is not required to be filed with
the Commission, such annual report may be unaudited. It is
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anticipated that the Partnership will not be required to provide investors with
audited financial statements following its first full year of operations.
Information necessary to prepare federal and state tax returns will be
distributed by the Partnership to Limited Partners within 75 days following the
end of each calendar year.
If the Partnership is required by the Exchange Act to file quarterly
reports with the Commission, the Partnership will furnish to each Limited
Partner the information specified by Form 10-Q within 45 days after the close
of each quarterly period for which it is required to file such report with the
Commission. If the Partnership is not subject to this requirement, the
Partnership may furnish to Limited Partners a quarterly report containing
unaudited summary financial information, but is not required to do so.
During the offering period and until the net cash proceeds of this
offering are fully invested, the Partnership shall furnish to each Limited
Partner, at least quarterly, a report concerning the investments of the
Partnership. The Partnership will amend this Prospectus by supplement to
describe each investment to be made by the Partnership at such time as there
arises a reasonably probability that such investment will be made.
The Partnership will send to each Limited Partner, as least annually,
a detailed statement of any transactions with the General Partner or its
affiliates, and of fees, commissions, compensation or other benefits paid, or
accrued to the General Partner or its affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed.
In the event that the Commission promulgates rules which allow a
reduction in any reporting requirement, the Partnership may cease preparing and
filing certain of the aforementioned reports of the General Partner determines
such action to be in the best interest of the Partnership.
Financial information contained in all reports to Limited Partners
will be prepared on the accrual method of accounting in accordance with
generally accepted accounting principles. If such information differs from the
information furnished to Limited Partners for tax purposes, the two sets of
information will be reconciled in the annual report.
Limited Partners and their duly authorized representatives are
entitled to inspect and copy, at their expense, the books and records of the
Partnership at all times during regular business hours, upon reasonable prior
notice to the General Partner, at the location where such reports are kept by
the Partnership. Limited Partners, upon request and at their expense, may
obtain full information regarding the financial condition of the Partnership, a
copy of the Partnership's federal, state, and local income tax returns for each
fiscal year of the Partnership, and a current list of the names, addresses, and
capital contributions of all Limited Partners.
PLAN OF DISTRIBUTION
TERMS OF THE OFFERING
A minimum of 100 Units and a maximum of 1,000 Units are being offered
for sale hereby on behalf of the Partnership through the General Partner and
certain of its officers and directors directly to investors on a best- efforts
basis. The purchase price for the Units is $12,000 per Unit consisting of
$2,000 in cash and a $10,000 Note. Each Note will be a full recourse
obligation of the investor payable in ten equal annual installments, and each
purchaser's Unit or Units so acquired will serve as collateral therefor. No
interest will accrue on such Notes. The cash portion of the purchase price may
not exceed $2,000 at the time of subscription. Except as otherwise stated
herein, the minimum investment is five Units ($60,000) unless the Partnership,
in its sole discretion, waives this restriction and accepts a subscription for
a different amount. Once submitted, a subscription can not be withdrawn by a
subscriber.
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Commencing on the date of this Prospectus, all cash subscription funds
received will be deposited into a noninterest bearing escrow account with First
National Bank of Southwest Florida (the "Escrow Agent") pursuant to the terms
of an escrow agreement. Such funds will be held in an escrow account until the
Initial Termination Date (December 31, 1996, unless extended in the sole
discretion of the General Partner to a date no later than January 31, 1997) or
the Minimum Offering is received, whichever occurs first. See "Risk Factors -
Risk of Escrowed Funds".
If the Minimum Offering has not been subscribed and paid for prior to
the Initial Termination Date, the offering will terminate and the proceeds will
be returned promptly to subscribers without interest or reduction. If the
Minimum Offering has been subscribed and paid for prior to the Initial
Termination Date, the Escrow Agent shall release all subscription funds to the
Partnership, and the Partnership, in its discretion, may continue the offering
until all Units are sold or until the Final Termination Date (March 31, 1997,
unless extended to a date no later than April 30, 1997), unless earlier
terminated by the Partnership in its discretion, whichever occurs first. The
Partnership may directly accept and retain subscription funds tendered once
funds have been released from escrow.
The General Partner intends to purchase five Units offered hereby if
the Minimum Offering is sold (ten Units if the Maximum Offering is sold), and
directors, officers and affiliates of the General Partner also may purchase
Units offered hereunder, all on the same terms and conditions as other
investors. Any Units purchased by these persons will be for investment
purposes only, not with a view to distribution thereof within the meaning of
Section 2(11) of the Securities Act, and will be counted in determining whether
the Minimum Offering has been reached. While the General Partner and its
management does not expect that they will purchase Units for the purpose of
satisfying the Minimum Offering requirements, they reserve the right, without
limitation, to do so.
The Partnership reserves the right to terminate the offering at any
time. In the event the offering is terminated prior to the release of funds
from escrow, the Escrow Agent shall return subscriptions without interest or
reduction. The General Partner also has an unconditional right to reject, in
whole or in part, any subscription in its sole discretion. As soon as
practicable, but not more than seven days after the date a subscription is
received, the General Partner will accept or reject such subscription in whole
or in part. Funds tendered with any rejected subscription will be refunded to
such subscriber without any interest or reduction.
METHOD OF OFFERING
No underwriter, broker, dealer, or sales person will be involved in
the sale of the Units pursuant to this offering. Units will be offered and
sold on behalf of the Partnership by the directors and officers of the General
Partner specified below. As of the date of this Prospectus, the following
individuals are authorized to solicit subscriptions for the Units: Allan Fox,
Thomas R. Cronin, Sr., Dr. Gerald Laboda, and Thomas R. Cronin, Jr. See
"Management".
All of such persons will be "associated persons" of the Partnership as
that term is used in the Exchange Act, and such sales activities will be in
addition to their other duties. See "Management". No compensation, discounts,
commissions or other form of remuneration will be paid, directly or indirectly,
in connection with the sale of the Units; however, reimbursement for reasonable
expenses will be made. In making offers and sales of Units pursuant to this
offering, the above persons will take all steps necessary to meet the safe
harbor provisions of Rule 3a4-1 of the Exchange Act.
PROMISSORY NOTES
The Notes received in partial consideration of the purchase price of a
Unit will be full recourse obligations of the investor, payable in ten annual
installments of $1,000, and each purchaser's Unit or Units purchased therewith
will serve as collateral on the amount owed. No interest will accrue on the
Notes during the term thereof. At such time as the Minimum Offering has been
subscribed for and all other conditions to the release of proceeds from escrow
have been satisfied, investors whose subscriptions for Units have been accepted
will become the legal and beneficial owners of such Units with all the burdens
and benefits of
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ownership and, in this regard, such investors will be liable to the Partnership
for the full amount of their Capital Contributions, including their obligations
under the Notes. The Notes represent the promise of the investor to make
certain contributions of the capital of the Partnership. If an investor
defaults on the payment of any installment due on the Notes, the total
remaining obligation of the Note shall be accelerated and will become
immediately due and payable. If the investor does not pay this amount
immediately, the Partnership may seek enforcement of the payment obligation
through any appropriate legal action, including the foreclosure of the Note and
sale of the Unit held as collateral. The proceeds from the sale of the Unit
shall be applied first to the costs and expenses associated with such
foreclosure and sale, and then to the outstanding obligation due under the
Note. Any excess proceeds will be remitted to the borrower. If the proceeds
are insufficient to repay the accelerated amounts due on the Note, the
Partnership may attempt to assess the investor's personal assets for the
amounts due. As an alternative remedy, the General Partner may set-off any
distributions accrued on such Unit against the balance of any installments due
under the Note.
The General Partner has the discretion to waive the payment of any
particular installment (if such waiver applies to all Unitholders) and to
determine whether it will foreclose on or resell a Unit of a defaulting
investor and/or to seek a deficiency judgment.
In addition, the Partnership may use the Notes to collateralize
borrowings of the Partnership from third party lenders, such as banks and other
institutional lenders ("Partnership Loan"). In order to obtain such financing,
the General Partner would likely pledge the security of the Notes to the
lending institution. The Partnership Loan may be due and payable upon demand.
To the extent that such financing is obtained, Unitholders can expect lenders
holding the Notes as collateral to strictly enforce the payment provisions of
the Notes since funds are likely to serve as the primary source of their
repayment. Accordingly, prior holders of the Notes, including the Partnership
and the General Partner may be obligated to collect the amounts due under the
Notes and may be required to accrue and demand payment of interest on an
overdue payment (or the acceleration of principal upon default) of a Note.
See "Risk Factors - The Offering and Investment Risks -- Risks Associated with
Notes" and "Investment Objectives and Policies - Borrowing Policies and Other
Financings".
HOW TO SUBSCRIBE
A prospective investor may subscribe for Units by completing, signing,
and delivering the following documents prior to the Final Termination Date, to
the Partnership:
(1) A Subscription Agreement, which incorporates a power of attorney;
(2) A Promissory Note, which includes a security agreement; and
(3) A counterpart signature page to the Partnership Agreement.
Except as otherwise provided herein, the subscription price of $12,000 per Unit
must be paid $2,000 in cash, by certified bank or cashier's check payable in
immediately available funds to the order of "First National Bank of Southwest
Florida - Escrow Agent" and a $10,000 promissory note in the form attached
hereto as Exhibit C issued in favor of the Partnership, and delivered no later
than upon delivery of the above documents. Wiring instructions to the Escrow
Account will be provided upon request.
The above subscription documents and subscription payment may be hand
delivered to the Partnership at its current business address located at 3591
Fowler Street, Fort Myers, Florida 33901, or delivered by mail to the
Partnership, c/o First National Bank of Southwest Florida, 2915 Colonial
Boulevard, Fort Myers, Florida 33901, Attention: Harold Tate.
INVESTORS' REPRESENTATIONS AND WARRANTIES
The Subscription Agreement requires a prospective investor to make
certain representations and warranties to the Partnership. The following is a
summary of the representations and warranties, and is qualified in its entirety
by reference to, and should be read in conjunction with, the more detailed text
of the representations and warranties appearing in the Subscription Agreement.
In general, the purpose of the
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representations and warranties is to assure that prospective investors satisfy
certain state and federal securities law and basic contractual requirements.
Although the Partnership does not expect to assert representations and warrants
of an investor against that investor in general, this could become necessary in
the event of litigation relating to this Partnership or the offering.
A. The investor must represent and warrant that he is twenty-one
years of age, that he or she has adequate means of providing for his or her
needs and personal contingencies, and that he or she has no need for liquidity
in their investment in the Units. In light of the relatively large minimum
investment in this offering, and the risks inherent in such an investment
especially the lack of liquidity. The General Partner believes that it is
necessary for the investor to determine that he or she is in a portion to make
a long term investment of this nature.
B. The investor must represent and warrant that he or she is a
bona-fide resident of the state in which he or she indicate that they reside,
and that he or she will notify the Partnership if the state of residency
changes. This is important because, for state securities law purposes, the
Partnership must have proper and complete information concerning the residency
of all purchasers and offerees.
C. The investor must represent and warrant that he or she is
acquiring Units for investment for his or her own accounts and not for
transfer. This provision allows the Partnership to be assured that the person
purporting to be an investor does not intend to transfer his Units to any other
person who might not be appropriate under applicable state securities laws.
D. If the Subscription Agreement is executed and delivered on
behalf of an entity other than an individual person, the entity must represent
and warrant that the person signing is acting in an authorized capacity, and
that it was not formed for the purpose of investing in these Units. This is to
ensure that an entity purchasing Units is acting properly and with all
necessary authority.
SALES MATERIALS
In addition to and apart from this Prospectus, the Partnership may
utilize certain sales materials in connection with the offering of the Units.
This material may include brochures and pamphlets, two-way mailers, invitations
to seminars, prospecting letters, business cards, scripts for oral
presentations, articles and publications concerning real estate and Southwest
Florida, and other matters relating to the offering. The General Partner and
its affiliates also may respond to specific questions from prospective
investors.
Except as described herein, the Partnership has not authorized the use
of other sales materials in connection with the offering. The offering is made
only by means of this Prospectus. Although the information contained in such
material will not conflict with any of the information contained in this
Prospectus, such material will not purport to be complete, and should not be
considered as part of this Prospectus or the Registration Statement of which
this Prospectus is a part, or as incorporated in this Prospectus or said
Registration Statement by reference, or as forming the basis of the offering of
Units described herein.
AVAILABLE INFORMATION
The Partnership has filed a Registration Statement on Form S-11
("Registration Statement") with the Securities and Exchange Commission (the
"Commission" or the "SEC"), Washington, D.C., pursuant to the Securities Act of
1933, as amended, with respect to the Units offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement
and the schedules and exhibits thereto, certain parts of which have been
omitted pursuant to the rules of the Commission. Statements herein concerning
the contents of any contract or other document filed with the Commission as an
exhibit to the Registration Statement or otherwise, each such statement being
qualified in all respects by such reference. For further information about the
Partnership and such securities, reference is made to the Registration
80
<PAGE> 84
Statement and the schedules and exhibits files as part thereof. The
Registration Statement, together with schedules and exhibits, may be inspect
without charge, and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. and at its regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Avenue, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission at its Washington, D.C. address.
LEGAL MATTERS
The legality of the Units being offered hereby and certain federal
income tax matters will be passed on for the Partnership by Carlton, Fields,
Ward, Emmanuel, Smith & Cutler, P.A., Tampa, Florida, counsel to the
Partnership and the General Partner.
EXPERTS
The balance sheet of Flordeco, Ltd. as of May 31, 1996 and the
balance sheet of Investor's Trust, Inc. as of May 31, 1996, included in this
Prospectus, have been included herein in reliance on the reports of Coopers &
Lybrand, L.L.P. independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing.
GLOSSARY
Certain of the capitalized terms used in this Prospectus are defined
below. Capitalized terms not otherwise defined in this Prospectus shall have
those meanings set forth in Article I of the Partnership Agreement attached
hereto as Exhibit A.
"Business Day" means a day of the year on which banks are not required
or authorized to be closed in New York, New York.
"Capital Account" means the capital account maintained for the General
Partner or any Unitholder as defined in the Partnership Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of any succeeding law).
"Escrow Agent" means First National Bank of Southwest Florida, Fort
Myers, Florida.
"Final Termination Date" means the last day that Units may be offered
hereunder, which date shall be the earlier of the occurrence of any of the
foregoing: (i) sale of all Units offered hereby, or (ii) March 31, 1997, unless
extended by the General Partner in its sole discretion to a date no later than
April 30, 1997.
"General Partner" means Investors Trust, Inc., a Florida corporation.
"Gross Operating Receipts from Rents" means the gross operating
revenues from rents and other income or receipts received by the Partnership
from its property investments which are under management by the Management
Company pursuant to the Management Agreement.
"Initial Closing" means the closing at which Limited Partners, other
than the Initial Limited Partner, are first admitted to the Partnership.
81
<PAGE> 85
"Initial Termination Date" means the date that the Minimum Offering
must be subscribed and paid for, which date shall be December 31, 1996, unless
extended by the General Partner to a date no later than January 31, 1997.
"IRS" means Internal Revenue Service.
"Limited Partner" means all persons who have become limited partners
pursuant to the Partnership Agreement.
"Management Company" means Flordeco, Inc., a Florida corporation.
"Maximum Offering" means the maximum number of 1,000 Units which may
be sold pursuant to this offering.
"Minimum Offering" means the minimum number of 100 Units which must be
sold prior to the Initial Termination Date in order to break escrow and accept
investors.
"Net Cash Flow" means the gross cash proceeds from Partnership
operations (including sales and dispositions of the Partnership's property
investments in the ordinary course of business) less the portion thereof used
to pay or establish reserves for all Partnership expenses, debt payments,
capital improvements, replacements, and contingencies, all as determined by the
General Partner and the net cash proceeds from all sales and other dispositions
(other than in the ordinary course of business) and all refinancing of
Partnership property investments, less any portion thereof used to establish
reserves, all as determined by the General Partner. "Net Cash Flow" shall not
be reduced by depreciation, amortization, cost recovery deductions, or similar
allowances, but shall be increased by any reductions of reserves previously
established.
"Note" means the full recourse promissory note tendered by investors
as partial payment for the Units offered for sale pursuant to this Prospectus.
"Partners" means all General Partners and Limited Partners, where no
distinction is required in the context in which the term is used.
"Partnership" means Flordeco, Ltd., a Florida limited partnership.
"Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement and Certificate of the Partnership.
"Partnership Loan" - means any borrowings of the Partnership from
third party lenders collateralized by the Notes.
"Profits" and "Losses" means, for each year of the Partnership or
amount equal to the Partnership's taxable income or loss, as adjusted under
applicable federal income tax law.
"Regulations" means the federal income tax regulations promulgated by
the IRS under the Code, including Temporary Regulations, as those regulations
may be amended from time to time (including corresponding provisions of
succeeding regulations.)
"Unit" means an interest in the Partnership representing Capital
Contributions of $12,000 to the Partnership.
"Unitholder" means all persons who hold Units, regardless of whether
they are Partners.
82
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Balance Sheets F-3
Notes to Balance Sheets F-4
</TABLE>
F-1
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Flordeco, Ltd.
Fort Myers, Florida
We have audited the accompanying balance sheet of Flordeco, Ltd. (a development
stage enterprise) as of May 31, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Flordeco, Ltd. (a development
stage enterprise) as of May 31, 1996, in conformity with generally accepted
accounting principles.
/s/ COOPERS LYBRAND L.L.P.
----------------------
COOPERS LYBRAND L.L.P.
Fort Myers, Florida
August 5, 1996
F-2
<PAGE> 88
FLORDECO, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
May 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash in bank $ 5,900
--------
Total assets $ 5,900
========
PARTNERS' EQUITY
Contribution - general partner $ 5,000
Contribution - limited partner 900
--------
Total partners' equity $ 5,900
========
</TABLE>
See Accompanying Notes.
F-3
<PAGE> 89
FLORDECO, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENT
1. NATURE OF BUSINESS:
Flordeco, Ltd. (Flordeco), a Florida limited partnership, was formed to
make equity investments in a diversified portfolio of income producing
residential and commercial properties. Profits, losses, and distributions
of cash or property by the Partnership generally will be made to the
Unitholders (including the general partner) in proportion to the units held
by each of them.
Flordeco had no operations prior to May 31, 1996. Due to the
fact Flordeco's planned operations have not commenced, Flordeco is
considered a development stage enterprise.
2. CAPITALIZATION:
Flordeco was capitalized by cash contributions from the general
partner ($5,000) and from the limited partner ($900).
Through a public offering, Flordeco intends to sell a maximum of one
thousand (minimum of one hundred) units of limited partnership interests
for $12,000 per unit. Purchases of units will be payable $2,000 in cash
and $10,000 in a full-recourse promissory note collateralized by the unit.
Unless waived by the partnership, the minimum investment will be five units
($60,000).
It is the intent of the general partner to purchase five units if the
minimum offering is sold and ten units if the maximum offering is sold.
Accordingly, the general partner would contribute additional cash of $5,000
and notes of $50,000 if the minimum offering is sold or additional cash of
$15,000 and notes of $100,000 if the maximum offering is sold.
If the minimum offering of 100 units has not been reached by April 30,
1997, all subscription proceeds will be refunded to subscribers without
interest or reduction.
Investors in the partnership will not be acquiring any interest in
Investor's Trust, Inc., the general partner.
F-4
<PAGE> 90
NOTES TO FINANCIAL STATEMENT, CONTINUED
3. RELATED PARTIES:
An affiliate of the general partner, Flordeco, Inc., a Florida corporation
formed in 1973 (the Management Company), will provide certain management
services to the partnership and its real property investments. Mr. Thomas
R. Cronin and Dr. Gerald Laboda, shareholders of the general partner,
together own a controlling interest in the Management Company. Flordeco
Realty, Inc. is a Florida corporation and a wholly-owned subsidiary of the
Management Company.
Partnership transactions involving the purchase, lease, and sale of the
partnership's properties may result in the immediate realization by the
general partner and its affiliates, including the Management Company and
Flordeco Realty, Inc., of substantial commissions, fees, compensation and
other income. These fees will generally be based upon a percentage of the
amount paid to or by the partnership. None of the agreements for such
services were the result of arm's-length negotiations.
4. RISKS AND UNCERTAINTIES:
The partnership will be subject to all of the risks inherent in owning real
property investments. Such risks include, but are not limited to, changes
in the investment climate for real estate, unanticipated operating
expenses, occupancy levels, and rental rates. Additionally, most of the
proposed investments will be located in the limited geographical area of
Southwest Florida.
F-5
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Investor's Trust, Inc.
Fort Myers, Florida
We have audited the accompanying balance sheet of Investor's Trust, Inc. (a
development stage enterprise) as of May 31, 1996. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those stand Cards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Investor's Trust, Inc. (a
development stage enterprise) as of May 31, 1996, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
------------------------
COOPERS & LYBRAND L.L.P.
Fort Myers, Florida
August 5, 1996
F-6
<PAGE> 92
INVESTOR'S TRUST, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
May 31, 1996
<TABLE>
ASSETS
<S> <C>
Cash in bank $ 5,000
Investment in Flordeco, Ltd. (at cost) 5,000
-----------
Total assets $ 10,000
===========
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 1,000 shares authorized and issued $ 10
Additional paid in capital 9,990
-----------
Total stockholders' equity $ 10,000
===========
</TABLE>
See Accompanying Notes.
F-7
<PAGE> 93
INVESTOR'S TRUST, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENT
1. NATURE OF BUSINESS:
Investor's Trust, Inc. (the Company), a Florida corporation, was formed for
the purpose of being the sole general partner of Flordeco, Ltd. (Flordeco),
a Florida limited partnership. As such, the Company will be responsible
for making equity investments in a diversified portfolio of income
producing residential and commercial properties on behalf of Flordeco.
The Company had no operations prior to May 31, 1996. Due to the fact the
Company's planned operations have not commenced, the Company is considered
a development stage enterprise.
Investors in Flordeco will not acquire an interest in the Company.
2. INVESTMENT IN FLORDECO:
The Company has contributed $5,000 to Flordeco as a general partner capital
contribution. It is the intent of the Company to increase its investment
in Flordeco should the partnership be successful in raising funds through
a public offering.
In accordance with the offering document, the Company would purchase five
units ($60,000) if the minimum offering is sold and ten units ($120,000) if
the maximum offering is sold. Payment for the units would consist of an
additional cash contribution of $5,000 plus issuance of $50,000 in
non-interest bearing promissory notes payable $5,000 per year for ten years
if the minimum offering is sold ($15,000 cash plus $100,000 in notes if the
maximum offering is sold). The Company intends to issue additional common
stock to fund the investment.
F-8
<PAGE> 94
EXHIBIT A
AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
FLORDECO, LTD.
A FLORIDA LIMITED PARTNERSHIP
DATED AS OF AUGUST ____, 1996
<PAGE> 95
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.1 Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.3 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.4 Principal Place of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.6 Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.7 Title to Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.8 Payments of Individual Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
Section 1.9 Independent Activities; Transactions With Affiliates. . . . . . . . . . . . . . . . . . . . . . A-2
Section 1.10 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
ARTICLE II
PARTNERS' CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
Section 2.1 General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
Section 2.2 Limited Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
Section 2.3 Additional Limited Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
Section 2.4 Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
Section 2.5 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
Section 2.6 Default on Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
ARTICLE III
ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
Section 3.1 Profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
Section 3.2 Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
Section 3.3 Special Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
Section 3.4 Curative Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
Section 3.5 Other Allocation Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
Section 3.7 Maintenance of General Partner's 1% Interest. . . . . . . . . . . . . . . . . . . . . . . . . A-13
ARTICLE IV
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
Section 4.1 Net Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
Section 4.2 Division Among Unitholders and General Partner. . . . . . . . . . . . . . . . . . . . . . . . A-14
Section 4.3 Amounts Withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
ARTICLE V
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
Section 5.1 Authority of the General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
Section 5.2 Right to Rely on General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
Section 5.3 Restrictions on Authority of General Partner. . . . . . . . . . . . . . . . . . . . . . . . . A-15
Section 5.4 Duties and Obligations of The General Partner. . . . . . . . . . . . . . . . . . . . . . . . A-17
Section 5.5 Indemnification of General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
Section 5.6 Compensation; Expenses of The General Partner; Loans. . . . . . . . . . . . . . . . . . . . . A-18
Section 5.7 Operating Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-18
Section 5.8 Limitation on Out-of-State Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
Section 5.9 Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
</TABLE>
A-i
<PAGE> 96
<TABLE>
<S> <C>
ARTICLE VI
ROLE OF LIMITED PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
Section 6.1 Rights or Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
Section 6.2 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
Section 6.3 Procedure for Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
ARTICLE VII
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
Section 7.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
Section 7.2 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
ARTICLE VIII
BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
Section 8.1 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
Section 8.2 Annual Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
Section 8.3 Tax Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
ARTICLE IX
AMENDMENTS; MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
Section 9.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
Section 9.2 Meetings of the Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
ARTICLE X
TRANSFERS OF UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 10.1 Restriction on Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 10.2 Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 10.3 Conditions to Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 10.4 Prohibited Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
Section 10.5 Rights of Unadmitted Assignees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
Section 10.6 Admission of Assignees as Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
Section 10.7 Covenants; Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
Section 10.8 Distributions and Allocations in Respect to Transferred Units. . . . . . . . . . . . . . . . A-24
ARTICLE XI
GENERAL PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Section 11.1 Additional General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Section 11.2 Covenant Not to Withdraw, Transfer, or Dissolve. . . . . . . . . . . . . . . . . . . . . . . A-25
Section 11.3 Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Section 11.4 Prohibited Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Section 11.5 Termination of Status as General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . A-26
Section 11.6 Election of New General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
ARTICLE XII
POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
Section 12.1 General Partner as Attorney-In-Fact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
Section 12.2 Nature as Special Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
ARTICLE XIII
DISSOLUTION AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
Section 13.1 Liquidating Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
Section 13.2 Winding Up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
Section 13.3 Compliance With Certain Requirements of Regulations; Deficit Capital Accounts. . . . . . . . A-28
Section 13.4 Deemed Distribution and Recontribution. . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 13.5 Rights of General Partner and Unitholders. . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 13.6 Notice of Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XIV
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 14.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 14.2 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 14.3 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 14.4 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 14.5 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
Section 14.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.7 Incorporation by Reference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.8 Further Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.9 Variation of Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.11 Waiver of Action for Partition; No Bill for Partnership Accounting. . . . . . . . . . . . . A-30
Section 14.12 Counterpart Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.13 Sole and Absolute Discretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
Section 14.14 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
</TABLE>
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<PAGE> 98
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is entered
into and shall be effective as of the ______ day of __________________ 1996, by
and between INVESTORS TRUST, INC., a Florida corporation, as the General
Partner, MICHAEL P. GEML, as the Original Limited Partner, and the Persons
whose names are set forth on Exhibit A, as Limited Partners, pursuant to the
provisions of the Florida Revised Uniform Limited Partnership Act, on the
following terms and conditions:
ARTICLE I
THE PARTNERSHIP
SECTION 1.1 FORMATION. The Partnership was formed on March 18, 1996.
The Partners hereby agree to continue the Partnership as a limited partnership
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement. This Agreement completely restates, amends, and
supersedes that certain Agreement of Limited Partnership of Flordeco, Ltd., a
Florida Limited Partnership, executed by the General Partner and the Original
Limited Partner as of March 18, 1996.
SECTION 1.2 NAME. The name of the Partnership shall be Flordeco,
Ltd., a Florida Limited Partnership. All business of the Partnership shall be
conducted in that name. The General Partner may change the name of the
Partnership upon ten (10) Business Days notice to the Limited Partners.
SECTION 1.3 PURPOSE. The primary purpose of the Partnership is to
acquire, construct, develop, improve, lease, operate, hold for investment, and
sell or otherwise dispose of the Property, directly or indirectly, and,
secondarily, to engage in any other lawful business of any kind calculated or
designed to be profitable to the Partnership.
SECTION 1.4 PRINCIPAL PLACE OF BUSINESS. The principal place of
business of the Partnership shall be at 3591 Fowler Street, Fort Myers, Florida
39901. The General Partner may change the principal place of business of the
Partnership to any other place within the State of Florida upon ten (10)
Business Days notice to the Limited Partners.
SECTION 1.5 TERM. The term of the Partnership commenced on the date
the certificate of limited partnership, the affidavit of limited partner
contributions, and other required documents described in the Act (the
"Certificate") were filed in the office of the Florida Department of State in
accordance with the Act, as set forth in Section 1.6(a), and shall continue
until the winding up and liquidation of the Partnership and its business is
completed following a Liquidating Event, as provided in Article XIII.
SECTION 1.6 FILINGS.
(a) The Certificate was filed in the office of the
Florida Department of State in accordance with the provisions of the Act on
March 19, 1996. The General Partner shall take any and all other actions
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership under the laws of Florida. The General Partner shall cause
amendments to the Certificate to be filed whenever required by the Act. The
amendments may be executed by the General Partner or by any Person designated
in the amendment as a new General Partner.
(b) The General Partner shall execute and cause to be
filed original or amended Certificates and shall take any and all other actions
as may be reasonably necessary to perfect and maintain the status of the
Partnership as a limited partnership or similar type of entity under the laws
of any other states or jurisdictions in which the Partnership engages in
business.
(c) The registered agent for service of process on the
Partnership shall be Thomas R. Cronin, Sr., or any successor as appointed by
the General Partner in accordance with the Act. The registered office of the
Partnership in the State of Florida is located at 3591 Fowler Street, Fort
Myers, Florida 33901.
(d) Upon the dissolution of the Partnership, the General
Partner (or, in the event there is no General Partner, any Person elected
pursuant to Section 13.2) shall promptly execute and cause to be filed
certificates of cancellation in accordance with the Act and the laws of any
other states or jurisdictions in which the Partnership has filed certificates.
SECTION 1.7 TITLE TO PROPERTY. All real and personal property owned
by the Partnership shall be owned by the Partnership as an entity. No Partner
shall have any ownership interest in that property in its individual name or
right. Each Partner's interest in the Partnership shall be personal property
for all purposes. Except as otherwise provided in this Agreement, the
Partnership shall hold all of its real and personal property in the name of the
Partnership and not in the name of any Partner.
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SECTION 1.8 PAYMENTS OF INDIVIDUAL OBLIGATIONS. The Partnership's
credit and assets shall be used solely for the benefit of the Partnership. No
asset of the Partnership shall be transferred or encumbered for or in payment
of any individual obligation of any Partner.
SECTION 1.9 INDEPENDENT ACTIVITIES; TRANSACTIONS WITH AFFILIATES.
(a) The General Partner and any of its Affiliates shall
be required to devote only such time to the affairs of the Partnership as the
General Partner determines in its sole discretion may be necessary to manage
and operate the Partnership, and each such Person, to the extent not otherwise
directed by the General Partner, shall be free to serve any other Person or
enterprise in any capacity that it may deem appropriate in its discretion.
(b) Insofar as permitted by applicable law, the General
Partner (acting on its own behalf) and each Limited Partner (acting on its own
behalf) may, notwithstanding this Agreement, engage in whatever activities they
choose, whether competitive with the Partnership or otherwise, without having
or incurring any obligation to offer any interest in those activities to the
Partnership or any Partner and neither this Agreement nor any activity
undertaken pursuant to this Agreement shall prevent any Partner from engaging
in those activities, or require any Partner to permit the Partnership or any
Partner to participate in any of those activities, and as a material part of
the consideration for the execution of this Agreement by each Partner, each
Partner hereby waives, relinquishes, and renounces any right or claim of
participation in those activities.
(c) To the extent permitted by applicable law and except
as otherwise provided in this Agreement, the General Partner, when acting on
behalf of the Partnership, is hereby authorized to purchase property from, sell
property to, or otherwise deal with any Partner, acting on its own behalf, or
any Affiliate of any Partner, provided that any such purchase, sale, or other
transaction shall be made on terms and conditions that are no less favorable to
the Partnership than if the sale, purchase, or other transaction had been
entered into with an independent third party.
(d) The Partnership will not purchase any property or
other investment from the General Partner or any of its Affiliates held in the
name of the General Partner or its Affiliates for a period in excess of 12
months before it is purchased by the Partnership unless the purchase price paid
by the Partnership will be no greater than the cost of such property to the
General Partner or the selling Affiliate, and no compensation or other benefit
from the transaction will accrue to the General Partner or any of its
Affiliates.
(e) The Partnership will not acquire any real property
unless, in the opinion of the General Partner, the property is adequately
insured and the Partnership has obtained adequate title insurance or other
assurance of title customary in the community in which the Property is located.
SECTION 1.10 DEFINITIONS. Capitalized words and phrases used in this
Agreement have the following meanings:
(a) "ACT" means the Florida Revised Uniform Limited
Partnership Act, as set forth in Sections 620.101 through 620.186, Florida
Statutes, as amended from time to time (or any corresponding provisions of
succeeding law).
(b) "ADDITIONAL CLOSING" means any closing, following the
Initial Closing, at which Limited Partners are admitted to the Partnership
pursuant to Section 2.3.
(c) "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with
respect to any Unitholder, the deficit balance, if any, in that Unitholder's
Capital Account as of the end of the relevant fiscal year, after giving effect
to the following adjustments:
(i) Credit to that Capital Account any amounts
that Unitholder is obligated to restore (pursuant to the terms of that
Unitholder's Promissory Note or otherwise) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to that Capital Account the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently with that Regulation.
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(d) "AFFILIATE" means, with respect to any Person, (i)
any Person directly or indirectly controlling, controlled by or under common
control with that Person, (ii) any Person owning or controlling ten percent
(10%) or more of the outstanding voting interests of that Person, (iii) any
officer, director, or general partner of that Person, or (iv) any Person who is
an officer, director, general partner, trustee, or holder of ten percent (10%)
or more of the voting interests of any Person described in clauses (i) through
(iii) of this sentence. For purposes of this definition, the term "controls,"
"is controlled by," or "is under common control with" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
the ownership of voting securities, by contract, or otherwise.
(e) "AGREEMENT" or "PARTNERSHIP AGREEMENT" means this
Amended and Restated Agreement of Limited Partnership, as amended from time to
time.
(f) "BANKRUPTCY" means, with respect to any Person, a
"Voluntary Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary
Bankruptcy" means, with respect to any Person, the inability of that Person
generally to pay its debts as those debts become due, or an admission in
writing by that Person of its inability to pay its debts generally or a general
assignment by that Person for the benefit of creditors; the filing of any
petition or answer by that Person seeking to adjudicate it a bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of that Person or
its debts under any law relating to bankruptcy, insolvency, or reorganization
or relief of debtors, or seeking, consenting to, or acquiescing in the entry of
an order for relief or the appointment of a receiver, trustee, custodian, or
other similar official for that Person or for any substantial part of its
property; or corporate action taken by that Person to authorize any of the
actions set forth above. An "Involuntary Bankruptcy" means, with respect to
any Person, without the consent or acquiescence of that Person, the entering of
an order for relief or approving a petition for relief or reorganization or any
other petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or other similar relief under any
present or future bankruptcy, insolvency, or similar statute, law, or
regulation, or the filing of any such petition against that Person, which
petition shall not be dismissed within ninety (90) days, or, without the
consent or acquiescence of that Person, the entering of an order appointing a
trustee, custodian, receiver, or liquidator of that Person or of all or any
substantial part of the property of that Person, which order shall not be
dismissed within sixty (60) days.
(g) "BUSINESS DAY" means a day of the year on which banks
are not required or authorized to close in New York, New York.
(h) "CAPITAL ACCOUNT" means, with respect to the General
Partner or any Unitholder, the Capital Account maintained for that Person in
accordance with the following provisions:
(i) To each Person's Capital Account there shall
be credited that Person's Capital Contributions, that Person's distributive
share of Profits, and any items in the nature of income or gain that are
specially allocated pursuant to Sections 3.3 or 3.4, and the amount of any
Partnership liabilities assumed by that Person or which are secured by any
Partnership Property distributed to that Person.
(ii) To each Person's Capital Account there shall
be debited the amount of cash and the Gross Asset Value of any Partnership
Property distributed to that Person pursuant to any provision of this
Agreement, that Person's distributive share of Losses, and any items in the
nature of expenses or losses that are specially allocated pursuant to Sections
3.3 or 3.4, and the amount of any liabilities of that Person assumed by the
Partnership or that are secured by any property contributed by that Person to
the Partnership.
(iii) In the event all or a portion of an interest
in the Partnership 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 Sections 1.10(h)(i) and 1.10(h)(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 are intended to comply with
Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with those Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits to the Capital Accounts (including, without
limitation, debits or credits relating to liabilities that are secured by
contributed or distributed property or that are assumed by the Partnership, the
General Partner, or the Unitholders), are computed in order to comply with
those Regulations, the General Partner may make that modification, provided
that it is not likely to have a
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material effect on the amounts distributable to the General Partner or any
Unitholder pursuant to Article XIII upon the dissolution of the Partnership.
The General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the General
Partner and Unitholders and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event unanticipated events (for example, the acquisition
by the Partnership of oil or gas properties) might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
(i) "CAPITAL CONTRIBUTIONS" means, with respect to the
General Partner or any Unitholder, the amount of money and the initial Gross
Asset Value of any property (other than money) contributed to the Partnership
with respect to the Units held by that Person. The principal amount of a
promissory note that is not readily traded on an established securities market
and that is contributed to the Partnership by the maker of the note (or a
Person related to the maker of the note within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of
any Person until the Partnership makes a taxable disposition of the note or
until (and to the extent) principal payments are made on the note, all in
accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
(j) "CERTIFICATE" has the meaning set forth in Section
1.5.
(k) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of succeeding law).
(l) "DEBT" means (i) any indebtedness for borrowed money
or deferred purchase price of property or evidenced by a note, bonds, or other
instruments, (ii) obligations as lessee under capital leases, (iii) obligations
secured by any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind existing on any asset owned or held by the Partnership
whether or not the Partnership has assumed or become liable for the obligations
secured thereby, (iv) any obligation under any interest rate swap agreement
(the principal amount of such obligation shall be deemed to be the notional
principal amount on which the swap is based), and (v) obligations under direct
or indirect guarantees of (including obligations (contingent or otherwise) to
assure a creditor against loss in respect of) indebtedness or obligations of
the kinds referred to in clauses (i), (ii), (iii), and (iv) above, provided
that Debt shall not include obligations in respect of any accounts payable that
are incurred in the ordinary course of the Partnership's business and are not
delinquent or are being contested in good faith by appropriate proceedings.
(m) "DEPRECIATION" means, for each Fiscal Year, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for that Fiscal Year, except that if the
Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of the Fiscal Year, Depreciation shall be
an amount that bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for that Fiscal Year bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of that Fiscal Year is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any reasonable method
selected by the General Partner.
(n) "ENVIRONMENTAL LAWS" means any federal, state, or
local statute, code, ordinance, rule, regulation, permit, consent, approval,
license, judgment, order, writ, judicial decision, common law rule, decree,
agency interpretation, injunction, or other authorization or requirement
whenever promulgated, issued, or modified, including the requirement to
register underground storage tanks, relating to:
(i) Emissions, discharges, spills, releases, or
threatened releases of pollutants, contaminants, Hazardous Substances (as
hereinafter defined), materials containing Hazardous Substances, or hazardous
or toxic materials or wastes into ambient air, surface water, groundwater,
watercourses, publicly or privately owned treatment works, drains, sewer
systems, wetlands, septic systems, or onto land;
(ii) The use, treatment, storage, disposal,
handling, manufacturing, transportation, or shipment of Hazardous Substances,
materials containing Hazardous Substances or hazardous wastes or toxic wastes,
material, products, or by-products (or of equipment or apparatus containing
Hazardous Substances) as defined in or regulated under the following statutes
and their implementing regulations: the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 9601 et seq., or the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., each as amended from time to
time; or
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(iii) Otherwise relating to pollution or the
protection of human health or the environment.
(o) "FISCAL YEAR" means (i) the period commencing on the
effective date of this Agreement and ending on December 31, (ii) any subsequent
twelve (12) month period commencing on January 1 and ending on December 31, or
(iii) any portion of the period described in clause (ii) for which the
Partnership is required to allocate Profits, Losses, and other items of
Partnership income, gain, loss or deduction pursuant to Article III.
(p) "GENERAL PARTNER" means any Person who (i) is
referred to as such in the first paragraph of this Agreement or has become a
General Partner pursuant to the terms of this Agreement, and (ii) has not
ceased to be a General Partner pursuant to the terms of this Agreement.
"General Partners" means all such Persons.
(q) "GROSS ASSET VALUE" means, with respect to any asset,
the asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair market
value of the asset, as determined by the contributing Partner and the General
Partner, provided that, if the contributing Partner is a General Partner, the
determination of the fair market value of a contributed asset shall be
determined by appraisal;
(ii) The Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market values, as
determined by the General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership (other than pursuant
to Section 2.4(c)) by any new or existing Partner in exchange for more than a
de minimis Capital Contribution; (b) the distribution by the Partnership to a
General Partner or Unitholder of more than a de minimis amount of Partnership
Property as consideration for an interest in the Partnership; and (c) the
liquidation of the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g): provided, however, that the adjustments pursuant to
subclauses (a) and (b) above shall be made only if the General Partner
reasonably determines that those adjustments are necessary or appropriate to
reflect the relative economic interests of the General Partner and Unitholders
in the Partnership;
(iii) The Gross Asset Value of any Partnership
asset distributed to the General Partner or any Unitholder shall be adjusted to
equal the gross fair market value of that asset on the date of distribution as
determined by the distributee and the General Partner, provided that, if the
distributee is a General Partner, the determination of the fair market value of
the distributed asset shall be determined by appraisal; and
(iv) The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments to the adjusted
basis of those assets pursuant to Code Section 734(b) or Code Section 743(b),
but only to the extent that those adjustments are taken into account in
determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and Sections 1.10(al)(vi) and 3.3(g); provided, however,
that Gross Asset Values shall not be adjusted pursuant to this Section
1.10(q)(iv) to the extent the General Partner determines that an adjustment
pursuant to Section 1.10(q)(ii) is necessary or appropriate in connection with
a transaction that would otherwise result in an adjustment pursuant to this
Section 1.10(q)(iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to Sections 1.10(q)(i), 1.10(q)(ii), or 1.10(q)(iv), that Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with
respect to that asset for purposes of computing Profits and Losses.
(r) "HAZARDOUS SUBSTANCES" means (i) hazardous materials,
hazardous wastes, and hazardous substances as those terms are defined under the
following statutes and their implementing regulations as they may be amended
from time to time: the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Comprehensive Environmental Response, Compensation
and Liability Act, as amended by the Superfund Amendments and Reauthorization
Act, 42 U.S.C. Section 9601 et seq., the Clean Water Act, 33 U.S.C. Section
1251 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., (ii) petroleum and
petroleum products including crude oil and any fractions thereof, (iii) natural
gas, synthetic gas, and any mixtures thereof, (iv) asbestos or any material
that contains any hydrated mineral silicate, including but not limited to
chrysolite, amosite, crocidolite, tremolite, anthophylite, or actinolite,
whether friable or non-friable, (v) PCBs, or PCB-containing materials or
fluids, (vi) radon, (vii) any other hazardous radioactive, toxic or noxious
substance, material, pollutant, or solid, liquid, or gaseous waste, and (viii)
any substance with respect to which a federal, state, or local agency requires
environmental investigation, monitoring, or remediation.
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(s) "INITIAL CLOSING" means the closing at which Limited
Partners other than the Original Limited Partner are first admitted to the
Partnership pursuant to Section 2.3.
(t) "INVOLUNTARY BANKRUPTCY" has the meaning set forth in
Section 1.10(f).
(u) "ISSUANCE ITEMS" has the meaning set forth in Section
3.3(j).
(v) "LIMITED PARTNER" means any Person (i) whose name is
set forth in the first paragraph of this Agreement as the Original Limited
Partner or whose name is set forth on Exhibit A or who has become a Limited
Partner pursuant to the terms of this Agreement, and (ii) who is the owner of
Units. "Limited Partners" means all such Persons. All references in this
Agreement to a majority or a specified percentage of the Limited Partners shall
mean Limited Partners holding more than fifty percent (50%) or such specified
percentage, respectively, of the Units then held by Limited Partners.
(w) "LIQUIDATING EVENT" has the meaning set forth in
Section 13.1.
(x) "MANAGEMENT AGREEMENT" means that certain Management
Agreement by and between the Partnership and Flordeco, Inc., a Florida
corporation, dated _______________.
(y) "NET CASH FLOW" means the gross cash proceeds from
Partnership operations (including sales and dispositions of Property in the
ordinary course of business) less the portion thereof used to pay or establish
reserves for all Partnership expenses, debt payments, capital improvements,
replacements, acquisitions, investments, and contingencies, all as determined
by the General Partner and the net cash proceeds from all sales and other
dispositions (other than in the ordinary course of business) and all
refinancing of Property, less any portion thereof used to establish reserves or
make acquisitions or investments all as determined by the General Partner.
"Net Cash Flow" shall not be reduced by depreciation, amortization, cost
recovery deductions, or similar allowances, but shall be increased by any
reductions of reserves previously established.
(z) "NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(b)(1).
(aa) "NONRECOURSE LIABILITY" has the meaning set forth in
Regulations Section 1.704-2(b)(3).
(ab) "OFFERING TERMINATION DATE" means August 1, 1995, or
such earlier date on which the maximum number of Units set forth in the
Registration Statement is sold or such later date to which such date may be
extended in accordance with the Registration Statement, which is set at
February 28, 1997.
(ac) "ORIGINAL LIMITED PARTNER" means any Person who (i)
is referred to as such in the first paragraph of this Agreement, and (ii) has
not ceased to be a Limited Partner pursuant to the terms of this Agreement.
(ad) "PARTNER NONRECOURSE DEBT" has the meaning set forth
in Regulations Section 1.704-2(b)(4).
(ae) "PARTNER NONRECOURSE DEDUCTIONS" has the meaning set
forth in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
(af) "PARTNER NONRECOURSE DEBT MINIMUM GAIN" means an
amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership
Minimum Gain that would result if that Partner Nonrecourse Debt were treated as
a Nonrecourse Liability, determined in accordance with Regulations Section
1.704-2(i)(3).
(ag) "PARTNERS" means all General Partners and all Limited
Partners, where no distinction is required by the context in which the term is
used. "Partner" means any one of the Partners. All references in this
Agreement to a majority or a specified percentage of the Partners shall mean
Partners holding more than fifty percent (50%) or such specified percentage,
respectively, of the Units then held by Partners.
(ah) "PARTNERSHIP" means the partnership continued
pursuant to this Agreement and the partnership continuing the business of this
Partnership in the event of dissolution as provided in this Agreement.
(ai) "PARTNERSHIP MINIMUM GAIN" has the meaning set forth
in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
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(aj) "PERMITTED TRANSFER" has the meaning set forth in
Section 10.2.
(ak) "PERSON" means any individual, partnership,
corporation, trust, limited liability company, or other person or entity.
(al) "PROFITS" and "LOSSES" means, for each Fiscal Year,
an amount equal to the Partnership's taxable income or loss for that 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) Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into account in computing
Profits and Losses pursuant to this Section 1.10(al) shall be added to that
taxable income or loss;
(ii) Any expenditures of the Partnership 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 or Losses pursuant to this
Section 1.10(al) shall be subtracted from taxable income or loss;
(iii) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to Section 1.10(q)(ii) or Section
1.10(q)(iii), the amount of that adjustment shall be taken into account as gain
or loss from the disposition of that asset for purposes of computing Profits
and Losses;
(iv) Gain or loss resulting from any disposition
of Partnership Property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross Asset
Value of the property disposed of, notwithstanding that the adjusted tax basis
of that property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization,
and other cost recovery deductions taken into account in computing taxable
income or loss, there shall be taken into account Depreciation for that fiscal
year or other period, computed in accordance with Section 1.10(m);
(vi) To the extent an adjustment to the adjusted
tax basis of any Partnership 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)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a General
Partner's or Unitholder's interest in the Partnership, the amount of that
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 1.10(al), any items specially allocated pursuant to Sections 3.3 or 3.4
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss, or deduction
available to be specially allocated pursuant to Sections 3.3 and 3.4 shall be
determined by applying rules analogous to those set forth in Sections
1.10(al)(i) through 1.10(al)(vi) above.
(am) "PROMISSORY NOTE" means the promissory note payable
to the Partnership issued by each Person who acquires Units pursuant to Section
2.4(c).
(an) "PROPERTY" means all real and personal property,
constructed, acquired, and operated by the Partnership and any improvements to
that property as set forth in the Registration Statement and any interest in
any Person owning such property.
(ao) "QUALIFIED COUNSEL" has the meaning set forth in Section 5.8.
(ap) "RECONSTITUTION PERIOD" has the meaning set forth in
Section 13.1.
(aq) "REGISTRATION STATEMENT" means that certain S-11
dated ___________, 1996, relating to the Partnership.
(ar) "REGULATIONS" means the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as those
regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
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(as) "REGULATORY ALLOCATIONS" has the meaning set forth in
Section 3.4.
(at) "SYNDICATION EXPENSES" means all expenditures
classified as syndication expenses pursuant to Regulations Section 1.709-2(b).
Syndication Expenses shall be taken into account under this Agreement at the
time they would be taken into account under the Partnership's method of
accounting if they were deductible expenses.
(au) "TAX MATTERS PARTNER" shall have the meaning set
forth in Section 5.1(j).
(av) "TRANSFER" means, as a noun, any voluntary or
involuntary transfer, sale, or other disposition and, as a verb, voluntarily or
involuntarily to transfer, sell, or otherwise dispose of.
(aw) "UNIT" means an interest in the Partnership
representing Capital Contributions of $12,000.00 to the Partnership.
(ax) "UNITHOLDERS" means all Persons who hold Units,
regardless of whether they are Partners. "Unitholder" means any one of the
Unitholders.
(ay) "VOLUNTARY BANKRUPTCY" has the meaning set forth in
Section 1.10(f).
(az) "WHOLLY OWNED AFFILIATE" of any Person means an
Affiliate of that Person (i) one hundred percent (100%) of the voting stock or
beneficial ownership of which is owned directly by that Person, or by any
Person who, directly or indirectly, owns one hundred percent (100%) of the
voting stock or beneficial ownership of such Person, (ii) an Affiliate of that
Person who, directly or indirectly, owns one hundred percent (100%) of the
voting stock or beneficial ownership of that Person, and (iii) any Wholly Owned
Affiliate of any Affiliate described in clause (i) or clause (ii) of this
Section 1.10(az).
ARTICLE II
PARTNERS' CAPITAL CONTRIBUTIONS
SECTION 2.1 GENERAL PARTNER. The name, address, and Capital
Contribution made by the General Partner are as follows:
<TABLE>
<CAPTION>
Name and Address Capital Contribution
---------------- --------------------
<S> <C>
Investors Trust, Inc. $5,000.00
3591 Fowler Street
Fort Myers, Florida 39901
</TABLE>
SECTION 2.2 LIMITED PARTNERS.
(a) The name, address, and Capital Contribution made by
the Original Limited Partner are as follows:
<TABLE>
<CAPTION>
Name and Address Capital Contribution
---------------- --------------------
<S> <C>
Michael P. Geml $900.00
West Coast Bancorp, Inc.
2724 Del Prado Boulevard south
Cape Coral, Florida 33904
</TABLE>
(b) The name, address and number of Units acquired by
each Partner (including the Original Limited Partner and the General Partner)
shall be set forth on EXHIBIT A, which Exhibit A shall be amended by the
General Partner from time to time.
SECTION 2.3 ADDITIONAL LIMITED PARTNERS. The General Partner is
hereby authorized, on behalf of the Partnership, to offer not more than One
Thousand (1,000) Units pursuant to the Registration Statement, and to admit as
Limited Partners those Persons who subscribe to purchase Units and are
acceptable to the General Partner. No subscriber shall be so admitted and no
subscriber's funds shall be transferred to the Partnership prior to the Initial
Closing (which shall not occur until subscriptions have been received
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for at least 100 Units from subscribers who are acceptable to the General
Partner). Thereafter, additional subscribers may be admitted at Additional
Closings, provided that the maximum number of Units that may be acquired by
Limited Partners shall not exceed One Thousand (1,000). The Initial Closing and
all Additional Closings shall occur on or before the Offering Termination Date.
No subscribers shall be admitted pursuant to this Section 2.3 after the
Offering Termination Date.
At the Initial Closing and at each Additional Closing, the Capital
Contributions of those Persons then being admitted as Limited Partners shall be
transferred to the Partnership, which amounts shall be credited to their
respective Capital Accounts pursuant to Section 1.10(h)(i).
SECTION 2.4 CAPITAL CONTRIBUTIONS.
(a) Upon original formation of the Partnership, the
General Partner made a Capital Contribution of $5,000.00. The General Partner
shall be credited with such amount as part of the cash downpayment for any Unit
or Units purchased by the General Partner in the offering described in the
Registration Statement. Except as otherwise provided in Article XIII and
mandatory provisions of applicable state law, the General Partner shall not be
required to make any other Capital Contributions to the Partnership.
(b) Upon original formation of the Partnership, the
Original Limited Partner made a Capital Contribution of $900.00. The Original
Limited Partner shall be credited with such amount as part of the cash
downpayment for any Unit purchased by the Limited Partner in the offering
described in the Registration Statement.
(c) Each Person who acquires any of the Units offered
pursuant to the Registration Statement shall be admitted as a Limited Partner
upon the acceptance of his subscription by the General Partner. Each such
Person shall make Capital Contributions with respect to each Unit he acquires
as follows:
(i) $2,000.00 concurrently with that Person's
admission to the Partnership;
(ii) $1,000.00 on or before ______________, 1997;
(iii) $1,000.00 on or before ______________, 1998;
(iv) $1,000.00 on or before ______________, 1999;
(v) $1,000.00 on or before ______________, 2000;
(vi) $1,000.00 on or before ______________, 2001;
(vii) $1,000.00 on or before ______________, 2002;
(viii) $1,000.00 on or before ______________, 2003;
(ix) $1,000.00 on or before ______________, 2004;
(x) $1,000.00 on or before ______________, 2005;
and
(xi) $1,000.00 on or before ______________, 2006.
Each such Person's obligation to make those Capital Contributions (other than
the Capital Contribution set forth in Section 2.4(c)(i) above) shall be
evidenced by a Promissory Note in the form attached as EXHIBIT B, which shall
be delivered to the Partnership concurrently with that Person's admission to
the Partnership.
SECTION 2.5 OTHER MATTERS.
(a) Except as otherwise provided in this Agreement,
neither the General Partner nor any Unitholder shall demand or receive a return
of its or his Capital Contributions, as the case may be, or withdraw from the
Partnership without the consent of a majority of the Partners. Under
circumstances requiring a return of any Capital Contributions, neither the
General
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Partner nor a Unitholder shall have the right to receive property other than
cash except as may be specifically provided in this Agreement.
(b) Neither the General Partner nor a Unitholder shall
receive any interest, salary, or drawing with respect to its or his Capital
Contributions, as the case may be, or its or his Capital Account, as the case
may be, or for services rendered on behalf of the Partnership or otherwise in
its or his capacity as the General Partner or Unitholder, as the case may be,
except as otherwise provided in this Agreement.
(c) Provided that the Limited Partners act in accordance
with this Agreement, no Limited Partner shall be liable for the debts,
liabilities, contracts, or any other obligations of the Partnership. Except as
otherwise provided by mandatory provisions of applicable state law, a Limited
Partner shall be liable only to make his Capital Contributions and shall not be
required to lend any funds to the Partnership or, after his Capital
Contributions have been made, to make any additional capital contributions to
the Partnership.
(d) The General Partner shall have no personal liability
for the repayment of any Capital Contributions of any Unitholder.
(e) In accordance with the mandatory provisions of
applicable law, a Unitholder who is not a General Partner may, under certain
circumstances, be liable to return to the Partnership, for the benefit of
Partnership creditors, amounts previously distributed to him by the
Partnership. It is the intent of the Partnership that no distribution under
this Agreement to any Unitholder who is not a General Partner shall be deemed a
return or withdrawal of such Unitholder's contribution or capital, whether or
not such distribution, or the aggregate of all such distributions, exceeds such
Unitholder's allocable share of the Partnership's aggregate net profits, and
that no Unitholder who is not a General Partner shall be obligated to pay the
amount of any such distribution to, or for the account of, the Partnership or
any creditor of the Partnership. In the event that a court of competent
jurisdiction holds that, notwithstanding the foregoing sentence, a Unitholder
who is not a General Partner is or may be liable to pay to creditors or return
to the Partnership all or a portion of such distributions, it is the intent of
the Partnership that the amount of such distributions that represent a return
to such Unitholder of his contributions or capital shall not be greater than an
amount equal to the excess of such Unitholder's Capital Contributions, over the
balance that would then be standing in such Unitholder's Capital Account if the
adjustments thereto for Partnership Profits and Losses were made by reference
to income and loss computed in accordance with generally accepted accounting
principles, consistently applied (utilizing methods of depreciation,
amortization, and depletion that produce the slowest permissible recovery of
the cost of the Partnership's wasting assets). The General Partner shall not be
liable or accountable to any Unitholder for any amount that such Unitholder may
hereafter be required to pay to, or return to the Partnership for the benefit
of, its creditors as a result of any assertion or determination that,
notwithstanding this Section 2.5(e), under applicable law such Unitholder has
received distributions of his capital or contributions and is liable to return
such distributions to the Partnership for the benefit of Partnership creditors.
(f) The General Partner shall maintain a minimum Capital
Account balance equal to One percent (1%) of the total positive Capital Account
balances for the Partnership or $500,000.00, whichever is less. If a Limited
Partner makes an additional Capital Contribution, the General Partner shall
immediately contribute capital equal to One and One-one hundredth percent
(1.01%) of the Limited Partner's Capital Contribution or a lesser amount
(including zero) that causes the sum of the General Partner's Capital Account
balance to equal the lesser of One percent (1%) of the total positive Capital
Account balances for the Partnership or $500,000.00.
SECTION 2.6 DEFAULT ON CAPITAL CONTRIBUTIONS. If a Unitholder fails
to make any Capital Contributions when due, that Unitholder shall be in
default, and the Partnership may exercise all legal rights including the
commencement of an action to collect from the defaulting Unitholder by legal
process the entire amount of his unmade Capital Contributions (including those
not currently in default), together with all court costs and reasonable
attorneys' fees, and including the right to withhold and apply to any unmade
Capital Contributions of such Unitholder any amounts distributable to such
Unitholder under Article IV until such unmade Capital Contribution has been
recovered from such distributions such Unitholder is entitled to under this
Agreement.
ARTICLE III
ALLOCATIONS
SECTION 3.1 PROFITS. After giving effect to the special allocations
set forth in Sections 3.3 and 3.4, Profits for any Fiscal Year shall, subject
to Sections 2.5(f) and 3.7, be allocated in the following order and priority:
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(a) First, to the General Partner in an amount equal to
the cumulative Losses allocated to the General Partner pursuant to Section
3.2(b); and
(b) The balance, if any, to the Unitholders and to the
General Partner in proportion to the number of Units held by each.
SECTION 3.2 LOSSES. After giving effect to the special allocations
set forth in Sections 3.3 and 3.4, Losses for any Fiscal Year shall, subject to
Sections 2.5(f) and 3.7, be allocated as set forth in Section 3.2(a) below,
subject to the limitations in Section 3.2(b) below.
(a) Losses for any Fiscal Year shall be allocated among
the Unitholders and the General Partner in proportion to the Units held by
each.
(b) The Losses allocated pursuant to Section 3.2(a) shall
not exceed the maximum amount of Losses that can be so allocated without
causing any Unitholder who is not a General Partner to have an Adjusted Capital
Account Deficit at the end of any Fiscal Year. In the event some but not all
of the Unitholders who are not the General Partner would have Adjusted Capital
Account Deficits as a consequence of an allocation of Losses pursuant to
Section 3.2(a), the limitation set forth in this Section 3.2(b) shall be
applied on a Unitholder by Unitholder basis so as to allocate the maximum
permissible Losses to each Unitholder who is not a General Partner under
Regulations Section 1.704-1(b)(2)(ii)(d). All Losses in excess of the
limitation set forth in this Section 3.2(b) shall be allocated to the General
Partner.
SECTION 3.3 SPECIAL ALLOCATIONS. The following special allocations
shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(f), notwithstanding any other provision
of this Article III, if there is a net decrease in Partnership Minimum Gain
during any Partnership Fiscal Year, each General Partner and Unitholder shall
be specially allocated items of Partnership income and gain for that Fiscal
Year (and, if necessary, subsequent Fiscal Years) in an amount equal to that
Person's share of the net decrease in Partnership Minimum Gain, determined in
accordance with Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts
required to be allocated to each General Partner and Unitholder pursuant
thereto. The items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 3.3(a) is
intended to comply with the minimum gain chargeback requirement in Regulations
Section 1.704-2(f) and shall be interpreted consistently with that Regulation.
(b) Partner Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704- 2(i)(4), notwithstanding any other
provision of this Article III, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during
any Partnership Fiscal Year, each Person who has a share of the Partner
Nonrecourse Debt Minimum Gain attributable to that Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for that Fiscal Year
(and, if necessary, subsequent Fiscal Years) in an amount equal to that
Person's share of the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to that Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each General Partner and Unitholder pursuant thereto. The items
to be so allocated shall be determined in accordance with Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2). This Section 3.3(b) is intended to comply
with the minimum gain chargeback requirement in Regulations Section
1.704-2(i)(4) and shall be interpreted consistently with that Regulation.
(c) Qualified Income Offset. In the event any Unitholder
who is not a General Partner unexpectedly receives any adjustments,
allocations, or distributions described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), Regulations Section 1.704-1(b)(2)(ii)(d)(5), or
Regulations Section 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and
gain shall be specially allocated to each that Unitholder in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of that Unitholder as quickly as possible,
provided that an allocation pursuant to this Section 3.3(c) shall be made if
and only to the extent that such Unitholder would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article III
have been tentatively made as if this Section 3.3(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Unitholder
who is not a General Partner has a deficit Capital Account at the end of any
Partnership Fiscal Year that is in excess of the sum of (i) the amount that
Unitholder is obligated to restore (pursuant to the terms of that Unitholder's
Promissory Note or otherwise), and (ii) the amount that Unitholder is deemed to
be
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obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Unitholder shall be
specially allocated items of Partnership income and gain in the amount of that
excess as quickly as possible, provided that an allocation pursuant to this
Section 3.3(b) shall be made if and only to the extent that that Unitholder
would have a deficit Capital Account in excess of that sum after all other
allocations provided for in this Article III have been tentatively made as if
this Section 3.3(d) and Section 3.3(c) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for
any Fiscal Year shall be specially allocated to the Unitholders.
(f) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the
General Partner or Unitholder who bears the economic risk of loss with respect
to the Partner Nonrecourse Debt to which the Partner Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i)(1).
(g) Section 754 Adjustment. To the extent an adjustment
to the adjusted tax basis of any Partnership 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 the result of a
distribution to the General Partner or a Unitholder in complete liquidation of
his interest in the Partnership, the amount of the 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 the basis of the
asset) and the gain or loss shall be specially allocated to the General Partner
and Unitholders in accordance with their interests in the Partnership in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
General Partner and Unitholders to whom the distribution was made in the event
that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) Imputed Interest. To the extent the Partnership has
taxable interest income with respect to any Promissory Note pursuant to Section
483 or Sections 1271 through 1288 of the Code:
(i) That interest income shall be specially
allocated to the Unitholder to whom the Promissory Note relates; and
(ii) The amount of that interest income shall be
excluded from the Capital Contributions credited to that Unitholder's Capital
Account in connection with payments of principal with respect to that
Promissory Note.
(i) Syndication Expenses. Syndication Expenses for any
Fiscal Year shall be specially allocated to the Unitholders in proportion to
their Units, provided that, if additional Limited Partners are admitted to the
Partnership pursuant to Article II on different dates, all Syndication Expenses
shall be divided among the Persons who own Units from time to time so that, to
the extent possible, the cumulative Syndication Expenses allocated with respect
to each Unit at any time is the same amount. In the event the General Partner
shall determine that that result is not likely to be achieved through future
allocations of Syndication Expenses, the General Partner may allocate other
items of income, gain, deduction, or loss so as to achieve the same effect on
the Capital Accounts of the Unitholders.
(j) Allocations Relating to Taxable Issuance of
Partnership Interests. Any income, gain, loss, or deduction realized as a
direct or indirect result of the issuance of an interest in the Partnership by
the Partnership to a Partner (the "Issuance Items") shall be allocated among
the Partners so that, to the extent possible, the net amount of the Issuance
Items, together with all other allocations under this Agreement to each
Partner, shall be equal to the net amount that would have been allocated to
each such Partner if the Issuance Items had not been realized.
SECTION 3.4 CURATIVE ALLOCATIONS. The allocations set forth in
Sections 3.2(b), 3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), and 3.3(g)
(the "Regulatory Allocations") are intended to comply with certain requirements
of the Regulations. It is the intent of the Partners that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss, or deduction pursuant to this Section 3.4.
Therefore, notwithstanding any other provision of this Article III (other than
the Regulatory Allocations), the General Partner shall make offsetting special
allocations of Partnership income, gain, loss, or deduction in whatever manner
it determines appropriate so that, after the offsetting allocations are made,
the General Partner's and each Unitholder's Capital Account balance is, to the
extent possible, equal to the Capital Account balance that General Partner or
Unitholder would have had if the Regulatory Allocations were not part of the
Agreement and all Partnership items were allocated pursuant to Sections 3.1,
3.2(a), 3.3(d), 3.3(e), 3.3(h), 3.3(i), 3.3(j), and 3.5. In exercising its
discretion under this Section 3.4, the General Partner shall take into account
future Regulatory Allocations under
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Sections 3.3(a) and 3.3(b) that, although yet to be made, are likely to offset
other Regulatory Allocations previously made under Sections 3.3(e) and 3.3(f).
SECTION 3.5 OTHER ALLOCATION RULES.
(a) Generally, all Profits and Losses allocated to the
Unitholders shall be allocated among them in proportion to the Units held by
each. In the event more than one Person is a General Partner, Profits or
Losses allocated to the General Partners shall be divided among them as they
may agree. In the event additional Limited Partners are admitted to the
Partnership pursuant to Article II on different dates during any Fiscal Year,
the Profits (or Losses) allocated to the Unitholders for each such Fiscal Year
shall be allocated among the Unitholders in proportion to the number of Units
each holds from time to time during that Fiscal Year in accordance with Code
Section 706, using any convention permitted by law and selected by the General
Partner.
(b) For purposes of determining the Profits, Losses, or
any other items allocable to any period, Profits, Losses, and any such other
items shall be determined on a daily, monthly, or other basis, as determined by
the General Partner using any permissible method under Code Section 706 and the
Regulations thereunder.
(c) The Partners are aware of the income tax consequences
of the allocations made by this Article III and hereby agree to be bound by the
provisions of this Article III in reporting their shares of Partnership income
and loss for income tax purposes.
(d) Solely for purposes of determining a General
Partner's or Unitholder's proportionate share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), the General Partners's and Unitholders' interests in Partnership
profits are as follows: Unitholders one hundred percent (100%) (in proportion
to their Units).
(e) To the extent permitted by Regulations Sections
1.704-2(h)(3), the General Partner shall endeavor to treat distributions of Net
Cash Flow as having been made from the proceeds of a Nonrecourse Liability or a
Partner Nonrecourse Debt only to the extent that those distributions would
cause or increase an Adjusted Capital Account Deficit for any Unitholder who is
not a General Partner.
SECTION 3.6 TAX ALLOCATIONS: CODE SECTION 704(C). 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
Partnership shall, solely for tax purposes, be allocated among the General
Partner and the Unitholders so as to take account of any variation between the
adjusted basis of that property to the Partnership for federal income tax
purposes and its initial Gross Asset Value (computed in accordance with Section
1.10(q)(i)).
In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Section 1.10(q)(ii) subsequent allocations of income,
gain, loss, and deduction with respect to that asset shall take account of any
variation between the adjusted basis of that asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations under that Code Section.
Any elections or other decisions relating to those allocations shall
be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
3.6 are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any Person's Capital
Account or share of Profits, Losses, other items, or distributions pursuant to
any provision of this Agreement.
SECTION 3.7 MAINTENANCE OF GENERAL PARTNER'S 1% INTEREST. The
General Partner's interest in the Partnership, including its limited
partnership interests, in each material item of partnership income, gain, loss,
deduction, or credit shall at all times equal at least one percent (1%) of each
such Partnership item.
ARTICLE IV
DISTRIBUTIONS
SECTION 4.1 NET CASH FLOW. Except as otherwise provided in Section
2.6 or Section 13.2, Net Cash Flow shall be distributed to the Unitholders and
the General Partner in proportion to the Units held by each when and as
determined by the General Partner.
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SECTION 4.2 DIVISION AMONG UNITHOLDERS AND GENERAL PARTNER. All
distributions to the Unitholders pursuant to this Article IV shall be divided
among them in proportion to the Units held by each. In the event there is more
than one General Partner, all amounts distributed to the General Partners
pursuant to this Article IV shall be divided among them as they may agree.
SECTION 4.3 AMOUNTS WITHHELD. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment, distribution, or allocation to the Partnership, the General Partner,
or the Unitholders shall be treated as amounts distributed to the General
Partner and Unitholders pursuant to this Article IV for all purposes under this
Agreement. The General Partner is authorized to withhold from distributions,
or with respect to allocations, to the General Partner and Unitholders and to
pay over to federal, state, or local government any amounts required to be so
withheld pursuant to the Code or any provisions of any other federal, state, or
local law and shall allocate those amounts to the General Partner and
Unitholders with respect to which such amount was withheld.
ARTICLE V
MANAGEMENT
SECTION 5.1 AUTHORITY OF THE GENERAL PARTNER. Subject to the
limitations and restrictions set forth in this Agreement (including, without
limitation, those set forth in this Article V), the General Partner shall have
the sole and exclusive right to manage the business of the Partnership and
shall have all of the rights and powers that may be possessed by general
partners under the Act including, without limitation, the right and power to:
(a) Acquire by purchase, lease, or otherwise any real or
personal property necessary, convenient, or incidental to the accomplishment of
the purposes of the Partnership;
(b) Operate, maintain, finance, improve, construct, own,
grant options with respect to, sell, convey, assign, mortgage, and lease any
real estate and any personal property necessary, convenient, or incidental to
the accomplishment of the purposes of the Partnership;
(c) Execute any and all agreements, contracts, documents,
certifications, and instruments necessary or convenient in connection with the
management, maintenance, and operation of Partnership Property, or in
connection with managing the affairs of the Partnership, including executing
amendments to the Agreement and the Certificate, in accordance with the terms
of the Agreement, both as General Partner and, if required, as attorney-in-fact
for the Limited Partners pursuant to any power of attorney granted by the
Limited Partners to the General Partner;
(d) Borrow money and issue evidences of indebtedness
necessary, convenient, or incidental to the accomplishment of the purposes of
the Partnership, and secure the same by mortgage, pledge, or other lien on any
Partnership Property;
(e) Execute, in furtherance of any or all of the purposes
of the Partnership, any deed, lease, mortgage, deed of trust, mortgage note,
promissory note, bill of sale, contract, or other instrument purporting to
convey or encumber any or all of the Partnership Property;
(f) Prepay in whole or in part, refinance, recast,
increase, modify, or extend any liabilities affecting the Partnership Property
and in connection therewith execute any extensions or renewals of encumbrances
on any or all of the Partnership Property;
(g) Care for and distribute funds to the General Partner
and Unitholders by way of cash, income, return of capital, or otherwise, all in
accordance with the provisions of this Agreement, and perform all matters in
furtherance of the objectives of the Partnership or this Agreement;
(h) Contract on behalf of the Partnership for the
employment and services of employees and independent contractors, such as
lawyers and accountants, and delegate to those Persons the duty to manage or
supervise any of the assets or operations of the Partnership;
(i) Engage in any kind of activity and perform and carry
out contracts of any kind (including contracts of insurance covering risks to
Partnership Property and General Partner liability) necessary or incidental to,
or in connection with, the
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accomplishment of the purposes of the Partnership, as may be lawfully carried
on or performed by a partnership under the laws of each state in which the
Partnership is then formed or qualified;
(j) Make any and all elections for federal, state, and
local tax purposes including, without limitation, any election, if permitted by
applicable law: (i) to adjust the basis of Partnership Property pursuant to
Code Sections 754, 734(b), and 743(b), or comparable provisions of state or
local law, in connection with transfers of interests in the Partnership and
Partnership distributions; (ii) to extend the statute of limitations for
assessment of tax deficiencies against the General Partner and Unitholders with
respect to adjustments to the Partnership's federal, state, or local tax
returns; and (iii) to the extent provided in Code Sections 6221 through 6231,
to represent the Partnership, the General Partner, and Unitholders before
taxing authorities or courts of competent jurisdiction in tax matters affecting
the Partnership, the General Partner, and Unitholders in their capacity as the
General Partner and Unitholders, and to file any tax returns and execute any
agreements or other documents relating to or affecting that tax matters,
including agreements or other documents that bind the General Partner and
Unitholders with respect to those tax matters or otherwise affect the rights of
the Partnership, the General Partner, and Unitholders. The General Partner is
specifically authorized to act as the "Tax Matters Partner" under the Code and
in any similar capacity under state or local law;
(k) Take, or refrain from taking, all actions, not
expressly proscribed or limited by this Agreement, as may be necessary or
appropriate to accomplish the purposes of the Partnership; and
(l) Institute, prosecute, defend, settle, compromise, and
dismiss lawsuits or other judicial or administrative proceedings brought on or
in behalf of, or against, the Partnership or the Partners in connection with
activities arising out of, connected with, or incidental to this Agreement, and
to engage counsel or others in connection therewith.
In the event more than one Person is a General Partner, the rights and powers
of the General Partner hereunder shall be exercised by them in the manner as
they may agree. In the absence of an agreement among the General Partners, no
General Partner shall exercise any of those rights and powers without the
unanimous consent of all General Partners.
SECTION 5.2 RIGHT TO RELY ON GENERAL PARTNER.
(a) Any Person dealing with the Partnership may rely
(without duty of further inquiry) upon a certificate signed by the General
Partner as to:
(i) The identity of the General Partner or a
Limited Partner;
(ii) The existence or nonexistence of any fact or
facts that constitute a condition precedent to acts by the General Partner or
that are in any other manner germane to the affairs of the Partnership;
(iii) The Persons who are authorized to execute and
deliver any instrument or document of the Partnership; or
(iv) Any act or failure to act by the Partnership
or any other matter whatsoever involving the Partnership or any Partner.
(b) The signature of the General Partner shall be
necessary and sufficient to convey title to any real property owned by the
Partnership or to execute any promissory notes, trust deeds, mortgages, or
other instruments of hypothecation, and all of the Partners agree that a copy
of this Agreement may be shown to the appropriate parties in order to confirm
the same, and further agree that the signature of the General Partner shall be
sufficient to execute any "statement of partnership" or other documents
necessary to effectuate this or any other provision of this Agreement. All of
the Partners appoint the General Partner as their attorney-in-fact for the
execution of any or all of the documents described in this Section 5.2(b).
SECTION 5.3 RESTRICTIONS ON AUTHORITY OF GENERAL PARTNER.
(a) The General Partner shall not have the authority to,
and covenants and agrees that it shall not, do any of the following acts
without the unanimous consent of the Partners:
(i) Cause or permit the Partnership to engage in
any activity that is not consistent with the purposes of the Partnership as set
forth in Section 1.3;
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(ii) Knowingly do any act in contravention of
this Agreement;
(iii) Knowingly do any act that would make it
impossible to carry on the ordinary business of the Partnership, except as
otherwise provided in this Agreement;
(iv) Confess a judgment against the Partnership
for an amount in excess of $5,000.00;
(v) Possess Partnership Property or assign rights
in specific Partnership Property for other than a Partnership purpose;
(vi) Knowingly perform any act that would subject
any Limited Partner to liability as a general partner in any jurisdiction;
(vii) Cause the Partnership to voluntarily take any
action that would cause a Bankruptcy of the Partnership; or
(viii) Cause the Partnership to acquire any equity
or debt securities of the General Partner or any of its Affiliates or otherwise
make loans to the General Partner or any of its Affiliates, or any other
person, except that it may advance a portion of the purchase price of a
property investment to the seller in the form of a loan secured by a mortgage,
deed of trust or other similar security instrument, or make purchase money and
other loans secured by mortgages, trust deeds or similar security instruments
to purchasers of properties from the Partnership, or make loans to partnerships
or joint ventures in which the Partnership is permitted to invest.
(ix) The Partnership will not underwrite
securities of other issuers, offer securities in exchange for property (except
for purchase money obligations to sellers). Under certain limited
circumstances, the Partnership may repurchase or otherwise reacquire any Units.
Except for borrowings to finance or in connection with real property
investments of the Partnership, the Partnership will not issue senior
securities.
(x) The Partnership may invest in public and
private limited partnerships or other public real estate investment entities.
The Partnership anticipates making equity investments in limited partnerships
or other real estate entities as a first step in the acquisition or control of
such entity. The Partnership will use its best efforts to conduct its
operations so as not to be required to register as an investment company under
the Investment Company Act of 1940 and so as not to be deemed a "dealer" in
real estate for federal income tax purposes.
(xi) The Partnership reserves the right to
purchase or invest in business enterprises or engage in the ventures which may
or may not be primarily involved in real property investments or related
operations, including investments for the purpose of exercising control over an
issuer.
(xii) The Partnership will not purchase or lease
property from (except in connection with facilitating the acquisition or
financing of a property by the Partnership), or sell any property to, the
General Partner or its Affiliates (except if additional capital contributions
are insufficient to acquire the property). The Partnership will not engage in
any transaction which would result in the receipt by the General Partner or any
Affiliate of the General Partner of a "rebate" or "give-up" or in any
reciprocal business arrangement which results in the circumvention of the
restrictions contained in this Agreement and applicable state securities laws
and regulations upon dealings between the Partnership and the General Partner
and its affiliates.
(b) The General Partner shall not have the authority to,
and covenants and agrees that it shall not, do any of the following acts
without the consent of a majority of the Partners:
(i) Sell or otherwise dispose of at one time all
or substantially all of the Partnership Property, except for a liquidating sale
of Partnership Property in connection with the dissolution of the Partnership;
or
(ii) Elect to dissolve the Partnership.
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SECTION 5.4 DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER.
(a) The General Partner and its affiliates, including its
shareholders, officers, and directors shall not be liable to the Partnership or
the Limited Partners for actions or inactions done within the scope of the
General Partner's authority, if determined in good faith to be in the best
interests of the Partnership so long as such course of conduct does not
constitute fraud, willful misconduct, or gross negligence. The General Partner
shall cause the Partnership to conduct its business and operations separate and
apart from that of the General Partner or any of its Affiliates, including,
without limitation, (i) segregating Partnership assets and not allowing funds
or other assets of the Partnership to be commingled with the funds or other
assets of, held by, or registered in the name of, the General Partner or any of
its Affiliates, (ii) maintaining books and financial records of the Partnership
separate from the books and financial records of the General Partner and its
Affiliates, and observing all Partnership procedures and formalities,
including, without limitation, maintaining minutes of Partnership meetings and
acting on behalf of the Partnership only pursuant to due authorization of the
Partners, (iii) causing the Partnership to pay its liabilities from assets of
the Partnership and (iv) causing the Partnership to conduct its dealings with
third parties in its own name and as a separate and independent entity.
(b) The General Partner shall take all actions necessary
or appropriate (i) for the continuation of the Partnership's valid existence as
a limited partnership under the laws of the State of Florida and of each other
jurisdiction in which its existence is necessary to protect the limited
liability of the Limited Partners or to enable the Partnership to conduct the
business in which it is engaged, and (ii) for the accomplishment of the
Partnership's purposes, including the acquisition, development, maintenance,
preservation, and operation of Partnership Property in accordance with the
provisions of this Agreement and applicable laws and regulations.
(c) The General Partner shall be under a fiduciary duty
to conduct the affairs of the Partnership in the best interests of the
Partnership and of the Limited Partners, including the safekeeping and use of
all of the Partnership Property and the use thereof for the exclusive benefit
of the Partnership.
(d) The General Partner shall cause to be provided, or
cause the Partnership to carry, all insurance as is customary in the business
in which the Partnership is engaged and in the places in which it is so
engaged.
(e) The General Partner shall take all actions necessary
or appropriate to prevent the Partnership from being treated as a publicly
traded partnership within the meaning of Code Section 7704.
SECTION 5.5 INDEMNIFICATION OF GENERAL PARTNER.
(a) The Partnership, its receiver, or its trustee (in the
case of its receiver or trustee, to the extent of Partnership Property) shall
indemnify, save harmless, and pay all judgments and claims against the General
Partner or officer or director of the General Partner's for its own acts of
negligence or relating to any liability or damage incurred by reason of any act
performed or omitted to be performed by the General Partner, officer, or
director in connection with the business of the Partnership, including
attorneys' fees incurred by the General Partner, officer, or director in
connection with the defense of any action based on any such act or omission,
which attorneys' fees may be paid as incurred, including all such liabilities
under federal and state securities laws (including the Securities Act of 1933,
as amended) as permitted by law.
(b) The Partnership, its receiver, or its trustee (in the
case of its receiver or trustee, to the extent of Partnership Property) shall
indemnify and hold harmless, to the maximum extent permitted by law, the
General Partner and Unitholder from and against any and all liabilities, sums
paid in settlement of claims (if such settlement is consented to by the General
Partner), obligations, charges, actions (formal or informal), claims
(including, without limitation, claims for personal injury under any theory or
for real or personal property damage), liens, taxes, administrative
proceedings, losses, damages (including, without limitation, punitive damages),
penalties, fines, court costs, administrative service fees, response and
remediation costs, stabilization costs, encapsulation costs, treatment,
storage, or disposal costs, groundwater monitoring or environmental study,
sampling, or monitoring costs, other causes of action, and any other costs and
reasonable expenses (including, without limitation, reasonable attorneys',
experts', and consultants' fees and disbursements and investigating,
laboratory, and data review fees) imposed upon or incurred by the General
Partner or Unitholder (whether or not indemnified against by any other party)
arising from and after the date of this Agreement directly or indirectly out
of:
(i) The past, present, or future treatment,
storage, disposal, generation, use, transport, movement, presence, release,
threatened release, spill, installation, sale, emission, injection, leaching,
dumping, escaping, or seeping of any
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Hazardous Substances, material containing or alleged to contain Hazardous
Substances at or from any past, present, or future properties, or assets of the
Partnership; or
(ii) The violation or alleged violation by the
Partnership or any third party of any Environmental Laws with regard to the
past, present, or future ownership, operation, use, or occupying of any
property or asset of the Partnership.
(c) In the event of any action by a Unitholder against
the General Partner, including a Partnership derivative suit, the Partnership
shall indemnify, save harmless, and pay all expenses of the General Partner,
including attorneys' fees, incurred in the defense of that action, if the
General Partner is successful in the action.
(d) Partnership shall indemnify, save harmless and pay
all expenses, costs, or liabilities of the General Partner who for the benefit
of the Partnership makes any deposit, acquires any option, or makes any other
similar payment or assumes any obligations in connection with any property
proposed to be acquired by the Partnership and who suffers any financial loss
as the result of that action.
(e) Notwithstanding the provisions of Sections 5.5(a),
5.5(b), 5.5(c), and 5.5(d) above, neither the General Partner nor any
Unitholder shall be indemnified from any liability for fraud, bad faith,
willful misconduct, or gross negligence.
(f) Notwithstanding anything to the contrary in any of
Sections 5.5(a), 5.5(b), 5.5(c), and 5.5(d) above, in the event that any
provision in any of those Sections is determined to be invalid in whole or in
part, that Section shall be enforced to the maximum extent permitted by law.
SECTION 5.6 COMPENSATION; EXPENSES OF THE GENERAL PARTNER; LOANS.
(a) Compensation and Reimbursement. Except as otherwise
provided in this Section 5.6, no Partner shall receive any salary, fee, or draw
for services rendered to or on behalf of the Partnership, nor shall any Partner
be reimbursed for any expenses incurred by that Partner on behalf of the
Partnership.
(b) Expenses. The General Partner may charge the
Partnership for any expenses reasonably incurred in connection with the
out-of-pocket organizational and offering expenses of the Partnership and in
connection with Partnership business.
(c) Compensation. Except as set forth in the
Registration Statement, the General Partner shall not receive any fees or other
compensation for serving as General Partner, unless those fees or other
compensation are approved by a majority of the Partners. However, the General
Partner shall be entitled to the distributions and allocations provided for
elsewhere in this Agreement.
(d) Loans. Any Partner or Affiliate of a Partner may,
with the consent of the General Partner, lend or advance money to the
Partnership. If any Partner or Affiliate shall make any loan or loans to the
Partnership or advance money on its behalf, the amount of any such loan or
advance shall not be treated as a contribution to the capital of the
Partnership but shall be a debt due from the Partnership. The amount of any
such loan or advance by a lending Partner or Affiliate of a Partner shall be
repayable out of the Partnership's cash and shall bear interest at a rate not
in excess of the greater of (i) the prime rate established, from time to time,
by any major bank selected by the General Partner for loans to its most
creditworthy commercial borrowers, plus one (1) percentage point per annum, or
(ii) the maximum rate permitted by law. If the General Partner, or any
Affiliate of the General Partner, is the lending Partner, the rate of interest
shall be determined by the General Partner taking into consideration, without
limitation, prevailing interest rates and the interest rates the lender is
required to pay in the event the Lender has itself borrowed funds to loan or
advance to the Partnership and the terms and conditions of that loan, including
the rate of interest, shall be no less favorable to the Partnership than if the
lender had been an independent third party. None of the Partners or their
Affiliates shall be obligated to make any loan or advance to the Partnership.
SECTION 5.7 OPERATING RESTRICTIONS.
(a) No loans or guarantees of loans shall be made by the
Partnership to the General Partner or any Affiliate of the General Partner.
(b) No rebates, kickbacks, or reciprocal arrangements may
be received or entered into by the General Partner, nor may the General Partner
participate in any business arrangement that would circumvent this Agreement.
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(c) All Property in the form of cash not otherwise
invested shall be deposited for the benefit of the Partnership in one or more
accounts of the Partnership or any of its Affiliates, maintained in the
financial institutions the General Partner determines or be invested in
short-term liquid securities or other cash-equivalent assets or be left in
escrow, and withdrawals made only in the regular course of Partnership business
on the signature or signatures as the General Partner may determine from time
to time.
SECTION 5.8 LIMITATION ON OUT-OF-STATE BUSINESS. In addition to any
other limitation or restriction contained herein on the activities of the
Partnership, the Partnership shall not, without the unanimous consent of the
Limited Partners, engage in any business or activity outside the State of
Florida, unless the Partnership shall have first satisfied the following
prerequisites:
(a) The Partnership shall have satisfied the
requirements, if any, imposed by the law of the other state relating to
registration or qualification of foreign limited partnerships doing business in
the other state; and
(b) The Partnership shall have received the opinion of
Qualified Counsel (as defined below) to the effect that the liability of
Limited Partners who do not participate (except as provided in this Agreement)
in the management of the Partnership's business for Partnership obligations
arising under the law of that other state will not exceed the sum of their
unpaid Capital Contributions to the Partnership, plus the amount, if any, of
their prior Capital Contributions that has been returned to them by the
Partnership.
The Partnership may take those actions as may be necessary or
appropriate, in the opinion of Qualified Counsel, in order to permit Qualified
Counsel to render the opinion referred to above (including, without limitation,
the filing of its Certificate in such other state or the execution and filing
of a new certificate that comports with the law of such other state). The
Limited Partners hereby agree to cooperate with the reasonable requests of the
General Partner in order to comply with the requirements of this Section 5.8.
For purposes hereof, "Qualified Counsel" with respect to any state in
which the Partnership desires to do business means any lawyer selected by the
General Partner who has been admitted to practice before the highest court in
that state for at least five (5) years, has a high reputation for ethics and
competence, and regularly engages in a practice in that state that involves
limited partnerships.
The General Partner shall hold the Limited Partners wholly and
completely harmless for all damages, liabilities, costs, and expenses
(including, without limitation, attorneys' fees and related costs incurred to
defend any action or threatened action) that they (or any of them) may incur in
connection with any claim that the Limited Partners are liable for obligations
of the Partnership attributable to causes of action arising in another state as
a result of business done or actions taken in that other state by the
Partnership in contravention of this Section 5.8.
SECTION 5.9 MANAGEMENT AGREEMENT. Notwithstanding anything in this
Agreement to the contrary, the General Partner is authorized to enter into the
Management Agreement with Flordeco, Inc., which is an Affiliate of the General
Partner, and shall be authorized to enter into such modifications and
extensions of the Management Agreement as it determines in its sole discretion.
ARTICLE VI
ROLE OF LIMITED PARTNERS
SECTION 6.1 RIGHTS OR POWERS. The Limited Partners shall not have
any right or power to take part in the management or control of the Partnership
or its business and affairs or to act for or bind the Partnership in any way.
SECTION 6.2 VOTING RIGHTS. The Limited Partners shall have the right
to vote on the matters specifically reserved for their approval or consent that
are set forth in this Agreement.
SECTION 6.3 PROCEDURE FOR CONSENT. In any circumstances requiring
the approval or consent of the Limited Partners as specified in this Agreement,
the approval or consent shall, except as expressly provided to the contrary in
this Agreement, be given or withheld in the sole and absolute discretion of the
Limited Partners and conveyed in writing to the General Partner not later than
thirty (30) days after the approval or consent was requested by the General
Partner. The General Partner may require response within a shorter time, but
not less than ten (10) Business days. Failure to respond in any such time
period shall constitute a vote that is consistent with the General Partner's
recommendation with respect to the proposal. If the General Partner receives
the necessary
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approval or consent of the Limited Partners to the action, the General Partner
shall be authorized and empowered to implement the action without further
authorization by the Limited Partners.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1 IN GENERAL. As of the date of this Agreement, each of
the Partners represents and warrants each matter applicable to that Partner as
set forth in Section 7.2, and those warranties and representations shall
survive the execution of this Agreement.
SECTION 7.2 REPRESENTATIONS AND WARRANTIES. Each Partner hereby
represents and warrants that:
(a) DUE INCORPORATION OR FORMATION; AUTHORIZATION OF
AGREEMENT. If that Partner is a corporation or a partnership, it is duly
organized or duly formed, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation or formation and has the corporate or
partnership power and authority to own its property and carry on its business
as owned and carried on at the date of this Agreement and as contemplated by
this Agreement. That Partner is duly licensed or qualified to do business and
in good standing in each of the jurisdictions in which the failure to be so
licensed or qualified would have a material adverse effect on its financial
condition or its ability to perform its obligations under this Agreement. That
Partner has the individual, corporate, or partnership power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement and, if that Partner is a corporation or partnership, the execution,
delivery, and performance of this Agreement has been duly authorized by all
necessary corporate or partnership action. This Agreement constitutes the
legal, valid, and binding obligation of such Partner.
(b) NO CONFLICT WITH RESTRICTIONS; NO DEFAULT. Neither
the execution, delivery, and performance of this Agreement nor the consummation
by that Partner of the transactions contemplated hereby (i) will conflict with,
violate, or result in a breach of any of the terms, conditions, or provisions
of any law, regulation, order, writ, injunction, decree, determination, or
award of any court, any governmental department, board, agency, or
instrumentality, domestic or foreign, or any arbitrator, applicable to that
Partner or any of its Wholly Owned Affiliates, (ii) will conflict with,
violate, result in a breach of, or constitute a default under any of the terms,
conditions, or provisions of the articles of incorporation, bylaws, or
partnership agreement of that Partner or any of its Wholly Owned Affiliates if
that Partner is a corporation or partnership, or of any material agreement or
instrument to which that Partner or any of its Wholly Owned Affiliates is a
party or by which that Partner or any of its Wholly Owned Affiliates is or may
be bound or to which any of its material properties or assets is subject, (iii)
will conflict with, violate, result in a breach of, constitute a default under
(whether with notice or lapse of time or both), accelerate or permit the
acceleration of the performance required by, give to others any material
interests or rights, or require any consent, authorization, or approval under
any indenture, mortgage, lease agreement, or instrument to which that Partner
or any of its Wholly Owned Affiliates is a party or by which that Partner or
any of its Wholly Owned Affiliates is or may be bound, or (iv) will result in
the creation or imposition of any lien upon any of the material properties or
assets of that Partner or any of its Wholly Owned Affiliates.
(c) GOVERNMENTAL AUTHORIZATIONS. Any registration,
declaration or filing with, or consent, approval, license, permit, or other
authorization or order by, any governmental or regulatory authority, domestic
or foreign, that is required in connection with the valid execution, delivery,
acceptance, and performance by that Partner under this Agreement or the
consummation by that Partner of any transaction contemplated hereby has been
completed, made, or obtained on or before the effective date of this Agreement.
(d) LITIGATION. There are no actions, suits,
proceedings, or investigations pending or, to the knowledge of that Partner or
any of its Wholly Owned Affiliates, threatened against or affecting that
Partner or any of its Wholly Owned Affiliates or any of their properties,
assets, or businesses in any court or before or by any governmental department,
board, agency, or instrumentality, domestic or foreign, or any arbitrator that
could, if adversely determined (or, in the case of an investigation could lead
to any action, suit, or proceeding, which if adversely determined could)
reasonably be expected to materially impair that Partner's ability to perform
its obligations under this Agreement or to have a material adverse effect on
the consolidated financial condition of that Partner; and that Partner or any
of its Wholly Owned Affiliates has not received any currently effective notice
of any default, and that Partner or any of its Wholly Owned Affiliates is not
in default, under any applicable order, writ, injunction, decree, permit,
determination or award of any court, any governmental department, board,
agency, or instrumentality, domestic or foreign, or any arbitrator that could
reasonably be expected to materially impair that Partner's ability to perform
its obligations under this Agreement or to have a material adverse effect on
the consolidated financial condition of that Partner.
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(e) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT. Neither that Partner nor any of its Affiliates is, nor will the
Partnership as a result of that Partner holding an interest in the Partnership
be, an "investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940. Neither that Partner nor any of its Affiliates
is, nor will the Partnership as a result of that Partner holding an interest in
the Partnership be, a "holding company," "an affiliate of a holding company,"
or a "subsidiary of a holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
(f) INVESTIGATION. That Partner is acquiring its
interest in the Partnership based upon its own investigation, and the exercise
by that Partner of its rights and the performance of its obligations under this
Agreement will be based upon its own investigation, analysis, and expertise.
That Partner's acquisition of its interest in the Partnership is being made for
its own account for investment, and not with a view to the sale or distribution
of that interest. In the case of each Limited Partner, that Partner is a
sophisticated investor possessing an expertise in analyzing the benefits and
risks associated with acquiring investments that are similar to the acquisition
of its interest in the Partnership.
ARTICLE VIII
BOOKS AND RECORDS
SECTION 8.1 BOOKS AND RECORDS. The Partnership shall maintain at its
principal place of business separate books of account for the Partnership that
show a true and accurate record of all costs and expenses incurred, all charges
made, all credits made and received, and all income derived in connection with
the conduct of the Partnership and the operation of its business in accordance
with generally accepted accounting principals consistently applied, and, to the
extent inconsistent with those accounting principals, in accordance with this
Agreement. The Partnership shall use the accrual method of accounting in
preparation of its annual reports and for tax purposes and shall keep its books
and records accordingly. Any Partner or his designated representative shall
have the right, at any reasonable time, to have access to and inspect and copy
the contents of such books or records.
SECTION 8.2 ANNUAL REPORTS. Within ninety (90) days after the end of
each Partnership Fiscal Year, the General Partner shall cause to be prepared
and each Partner furnished with:
(i) A copy of the balance sheet of the
Partnership as of the last day of that Fiscal Year; and
(ii) A statement of income or loss for the
Partnership for that Fiscal Year.
SECTION 8.3 TAX INFORMATION. Necessary tax information shall be
delivered to each Partner after the end of each Fiscal Year of the Partnership
together with the annual reports described in Section 8.2.
ARTICLE IX
AMENDMENTS; MEETINGS
SECTION 9.1 AMENDMENTS.
(a) Amendments to this Agreement may be proposed by the
General Partner or by Limited Partners holding twenty-five percent (25%) or
more of the Units. Following a proposal, the General Partner shall submit to
the Limited Partners a verbatim statement of any proposed amendment, providing
that counsel for the Partnership shall have approved of the same in writing as
to form, and the General Partner shall include in any such submission a
recommendation as to the proposed amendment. The General Partner shall seek
the written vote of the Partners on the proposed amendment or shall call a
meeting to vote on the proposal and to transact any other business that it may
deem appropriate. A proposed amendment shall be adopted and be effective as an
amendment to this Agreement if it receives the affirmative vote of a majority
of the Limited Partners.
(b) Notwithstanding Section 9.1(a),
(i) This Agreement shall not be amended without
the consent of each Partner adversely affected if the amendment would (A)
convert a Limited Partner's interest in the Partnership into a General
Partner's interest, (B) modify the limited liability of a Limited Partner, or
(C) alter the interest of a Partner in Profits, Losses, other items, or any
Partnership distributions; and
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(ii) This Agreement may be amended by the General
Partner, without the consent of any of the Limited Partners: (A) to add to the
representations, duties, or obligations of the General Partner or surrender any
right or power granted to the General Partner herein, for the benefit of the
Limited Partners; (B) to cure any ambiguity, to correct or supplement any
provision of this Agreement that may be inconsistent with any other provisions,
or to make any other provision with respect to matters or questions arising
under this Agreement not inconsistent with the intent of this Agreement; and
(C) to change any provision of this Agreement required to be so changed by the
staff of the Securities and Exchange Commission or other federal agency or by a
state "Blue Sky" commissioner or similar official, which change is deemed by
such commissioner, agency, or official to be for the benefit or protection of
the Limited Partners, provided that no amendment shall be adopted pursuant to
this Section 9.1(b)(ii) unless the adoption of the amendment is for the benefit
of or not adverse to the interests of the Limited Partners, and does not
violate Section 9.1(b)(i).
SECTION 9.2 MEETINGS OF THE PARTNERS.
(a) Meetings of the Partners may be called by the General
Partner and shall be called upon the written request of any Limited Partners
holding ten percent (10%) or more of the Units. The call shall state the
nature of the business to be transacted. Notice of a meeting shall be given to
all Partners not less than ten (10) Business Days or more than thirty (30) days
prior to the date of the meeting. Partners may vote in person or by proxy at
the meeting. Whenever the vote or consent of Partners is permitted or required
under the Agreement, the vote or consent may be given at a meeting of Partners
or may be given in accordance with the procedure prescribed in Section 6.3.
Except as otherwise expressly provided in the Agreement, the vote of a majority
of the Partners shall control.
(b) For the purpose of determining the Partners entitled
to vote on, or to vote at, any meeting of the Partners or any adjournment of a
meeting, the General Partner or the Partners requesting the meeting may fix, in
advance, a date as the record date for any such determination. That date shall
not be more than thirty (30) days nor less than ten (10) Business Days before
any such meeting.
(c) Each Limited Partner may authorize any Person or
Persons to act for him by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner
or his attorney-in-fact. No proxy shall be valid after the expiration of 11
months from the date of the proxy unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Limited Partner executing
it.
(d) Each meeting of Partners shall be conducted by the
General Partner or another Person appointed by the General Partner pursuant to
the rules for the conduct of the meeting as the General Partner or the other
Person deems appropriate.
ARTICLE X
TRANSFERS OF UNITS
SECTION 10.1 RESTRICTION ON TRANSFERS. Except as otherwise permitted
by this Agreement, no Unitholder shall Transfer all or any portion of his
Units. In the event that any Unitholder pledges or otherwise encumbers any of
his Units as security for the payment of a Debt, any such pledge or
hypothecation shall be made pursuant to a pledge or hypothecation agreement
that requires the pledgee or secured party to be bound by all of the terms and
conditions of this Article X.
SECTION 10.2 PERMITTED TRANSFERS. Subject to the conditions and
restrictions set forth in Section 10.3, a Unitholder may at any time Transfer
all or any portion of his Units (other than Units, subject to Article XI, that
are held by the General Partner in its capacity as General Partner) (any
Transfer of those Units satisfying those conditions precedent is referred to
herein as a "Permitted Transfer").
SECTION 10.3 CONDITIONS TO PERMITTED TRANSFERS. A Transfer shall not
be treated as a Permitted Transfer under Section 10.2 unless and until the
following conditions are satisfied:
(a) Except in the case of a Transfer of Units at death or
involuntarily by operation of law, the transferor and transferee shall execute
and deliver to the Partnership those documents and instruments of conveyance
necessary or appropriate in the opinion of counsel to the Partnership to effect
the Transfer and to confirm the agreement of the transferee to be bound by the
provisions of this Article X. In the case of a Transfer of Units at death or
involuntarily by operation of law, the Transfer shall be confirmed by
presentation to the Partnership of legal evidence of the Transfer, in form and
substance satisfactory to counsel to the
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Partnership. In all cases, the Partnership shall be reimbursed by the
transferor or transferee for all costs and expenses that it reasonably incurs
in connection with the Transfer.
(b) Except in the case of a Transfer at death or
involuntarily by operation of law, the transferor shall furnish to the
Partnership an opinion of counsel, which counsel and opinion are satisfactory
to the Partnership, that the Transfer will not cause the Partnership to
terminate for federal income tax purposes and the such Transfer will not cause
the application of the rules of Code Sections 168(g)(1)(B) and 168(h)
(generally referred to as the "tax exempt entity leasing rules") or similar
rules to apply to the Partnership, Partnership Property, or the General Partner
and Unitholders.
(c) The transferor and transferee shall furnish the
Partnership with the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the Units
transferred, and any other information reasonably necessary to permit the
Partnership to file all required federal and state tax returns and other
legally required information statements or returns. Without limiting the
generality of the foregoing, the Partnership shall not be required to make any
distribution otherwise provided for in this Agreement with respect to any
transferred Units until it has received that information.
(d) Except in the case of a Transfer of Units at death or
involuntarily by operation of law, either (a) the Units shall be registered
under the Securities Act of 1933, as amended, and any applicable state
securities laws, or (b) the transferor shall provide an opinion of counsel,
which opinion and counsel are satisfactory to the Partnership, to the effect
that the Transfer is exempt from all applicable registration requirements and
that the Transfer will not violate any applicable laws regulating the Transfer
of securities.
(e) Except in the case of a Transfer of Units at death or
involuntarily by operation of law, the transferor shall provide an opinion of
counsel, which opinion and counsel are reasonably satisfactory to the other
Partners, to the effect that the Transfer will not cause the Partnership to be
deemed to be an "investment company" under the Investment Company Act of 1940.
(f) The transferor of the Unit shall represent and
warrant those matters contained in Section 10.7.
SECTION 10.4 PROHIBITED TRANSFERS. Any purported Transfer of Units
that is not a Permitted Transfer shall be null and void and of no force or
effect whatever; provided that, if the Partnership is required to recognize a
Transfer that is not a Permitted Transfer (or if the Partnership, in its sole
discretion, elects to recognize a Transfer that is not a Permitted Transfer),
the interest Transferred shall be strictly limited to the transferor's rights
to allocations and distributions as provided by this Agreement with respect to
the transferred Units, which allocations and distributions may be applied
(without limiting any other legal or equitable rights of the Partnership) to
satisfy the debts, obligations, or liabilities for damages that the transferor
or transferee of the Units may have to the Partnership.
In the case of a Transfer or attempted Transfer of Units that is not a
Permitted Transfer, the parties engaging or attempting to engage in the
Transfer shall be liable to indemnify and hold harmless the Partnership and the
Partners from all cost, liability, and damage that any of the indemnified
Persons may incur (including, without limitation, incremental tax liability and
lawyers' fees and expenses) as a result of the Transfer or attempted Transfer
and efforts to enforce the indemnity granted by this Article X.
SECTION 10.5 RIGHTS OF UNADMITTED ASSIGNEES. A Person who acquires
one or more Units but who is not admitted as a substituted Limited Partner
pursuant to Section 10.6 shall be entitled only to allocations and
distributions with respect to those Units in accordance with this Agreement,
and shall have no right to any information or accounting of the affairs of the
Partnership, shall not be entitled to inspect the books or records of the
Partnership, and shall not have any of the rights of the General Partner or a
Limited Partner under the Act or this Agreement.
SECTION 10.6 ADMISSION OF ASSIGNEES AS PARTNERS. Subject to the
other provisions of this Article X, a transferee of Units may be admitted to
the Partnership as a substituted Limited Partner only upon satisfaction of the
conditions set forth below in this Section 10.6:
(a) The General Partner consents to the admission, which
consent may be given or unreasonably withheld in the sole and absolute
discretion of the General Partner;
(b) The Units with respect to which the transferee is
being admitted were acquired by means of a Permitted Transfer;
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(c) The transferee becomes a party to this Agreement as a
Limited Partner and executes the documents and instruments as the General
Partner may reasonably request (including, without limitation, amendments to
the Certificate) as may be necessary or appropriate to confirm the transferee
as a Limited Partner in the Partnership and the transferee's agreement to be
bound by the terms and conditions of this Agreement;
(d) The transferee pays or reimburses the Partnership for
all reasonable legal, filing, and publication costs that the Partnership incurs
in connection with the admission of the transferee as a Limited Partner with
respect to the transferred Units;
(e) The transferee provides the Partnership with evidence
satisfactory to counsel for the Partnership that the transferee has made each
of the representations and undertaken each of the warranties applicable to it
described in Article VII; and
(f) If the transferee is not an individual of legal
majority, the transferee provides the Partnership with evidence satisfactory to
counsel for the Partnership of the authority of the transferee to become a
Partner and to be bound by the terms and conditions of this Agreement.
SECTION 10.7 COVENANTS; LEGEND.
(a) Each Unitholder hereby covenants, represents, and
agrees with the Partnership for the benefit of the Partnership and all
Unitholders, that (i) he is not currently making a market in Units, (ii) he
will not Transfer any Unit on an established securities market or a secondary
market (or the substantial equivalent of a secondary market) within the meaning
of Code Section 7704(b) (and any Regulations, proposed regulations, revenue
rulings, or other official pronouncements of the Internal Revenue Service or
the Treasury Department that may be promulgated or published under Section
7704(b)), and (iii) in the event those regulations, revenue rulings, or other
pronouncements treat any or all arrangements that facilitate the selling of
partnership interests and that are commonly referred to as "matching services"
as being a secondary market or substantial equivalent of a matching service, he
will not Transfer any Unit through a matching service that is not approved in
advance by the Partnership. Each Unitholder further agrees that he will not
Transfer any Unit to any Person unless that Person agrees to be bound by this
Section 10.7(a) and to Transfer the Units only to Persons who agree to be
similarly bound. The Partnership shall, from time to time and at the request
of a Unitholder, consider whether to approve a matching service and shall
notify all Unitholders of any matching service that is so approved.
(b) Each Unitholder hereby agrees that the following
legend may be placed upon any counterpart of this Agreement, any certificate
representing an interest, or any other document or instrument evidencing
ownership of Units:
The Partnership Units represented by this document have not been
registered under any securities laws, and the transferability of the
Partnership Units is, therefore, restricted. The Partnership Units may not be
sold, assigned, or transferred, nor will any assignee, vendee, transferee, or
endorsee of Partnership Units be recognized as having an interest in those
Partnership Units by the issuer for any purpose, unless (i) a registration
statement under the Securities Act of 1933, as amended, with respect to those
Partnership Units shall then be in effect and the transfer has been qualified
under applicable state securities laws, or (ii) the availability of an
exemption from registration and qualification shall be established to the
satisfaction of counsel for the Partnership.
The Units represented by this document are subject to further
restriction as to their sale, transferability, or assignment as set forth in
the Amended and Restated Agreement of Limited Partnership and agreed to by each
Limited Partner. Said restriction provides, among other things, that no
vendee, transferee, or assignee of a Unitholder shall become a substituted
Limited Partner unless consented to by the General Partner, which consent may
be given or withheld in the sole and absolute discretion of the General
Partner.
SECTION 10.8 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT TO TRANSFERRED
UNITS. If any Unit is sold, assigned, or Transferred during any Fiscal Year in
compliance with the provisions of this Article X, Profits, Losses, each item of
Profits and Losses, and all other items attributable to the Unit for that
Fiscal Year shall be divided and allocated between the transferor and the
transferee by taking into account their varying interests during that Fiscal
Year in accordance with Code Section 706(d), using any conventions permitted by
law and selected by the General Partner. All distributions on or before the
date of the Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making the
allocations and distributions, the Partnership shall recognize the Transfer not
later than the end of the calendar month during which it is given notice of the
Transfer, provided that, if the Partnership is given notice of a Transfer at
least ten (10) Business Days prior to the Transfer, the Partnership shall
recognize the Transfer as of the date of that Transfer, and provided further
that, if the Partnership does not receive a notice stating the date the Unit
was transferred and any other information as the General Partner may reasonably
require
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within thirty (30) days after the end of the Fiscal Year during which the
Transfer occurs, then all of those items shall be allocated, and all
distributions shall be made, to the Person who, according to the books and
records of the Partnership, was the owner of the Unit on the last day of the
Fiscal Year during which the Transfer occurs. Neither the Partnership nor the
General Partner shall incur any liability for making allocations and
distributions in accordance with the provisions of this Section 10.8, whether
or not the General Partner or the Partnership has knowledge of any Transfer of
ownership of any Unit.
ARTICLE XI
GENERAL PARTNERS
SECTION 11.1 ADDITIONAL GENERAL PARTNERS. Except as provided in this
Article XI and Section 13.1, no Person shall be admitted to the Partnership as
a General Partner without the unanimous consent of the Partners.
SECTION 11.2 COVENANT NOT TO WITHDRAW, TRANSFER, OR DISSOLVE. Except
as otherwise permitted by this Agreement, the General Partner hereby covenants
and agrees not to (a) take any action to file a certificate of cancellation or
its equivalent with respect to itself, (b) take any action that would cause a
Voluntary Bankruptcy of the General Partner, (c) withdraw or attempt to
withdraw from the Partnership, (d) exercise any power under the Act to dissolve
the Partnership, (e) Transfer all or any portion of his interest in the
Partnership as a General Partner, or (f) petition for judicial dissolution of
the Partnership. Further, the General Partner hereby covenants and agrees to
continue to carry out the duties of a General Partner under this Agreement
until the Partnership is dissolved and liquidated pursuant to Article XIII.
SECTION 11.3 PERMITTED TRANSFERS.
(a) The General Partner may Transfer all or any part of
its interest in the Partnership as a General Partner (1) at any time to any
other General Partner, (2) at any time to any Person who is the General
Partner's Wholly Owned Affiliate on both the day the General Partner became a
General Partner and the day of the Transfer, (3) at any time involuntarily by
operation of law, or (4) to any Person who is approved by all of the other
General Partners and a majority of the Limited Partners; provided that no
Transfer shall be permitted unless and until (a) all of the conditions set
forth in Section 10.2 are satisfied as if the Partnership interest being
Transferred were a Unit, and (b) the transferor and transferee provide the
Partnership with an opinion of counsel, which opinion and counsel are
acceptable to the other General Partners, if any, to the effect that the
Transfer will not cause the Partnership to become taxable as a corporation for
federal income tax purposes.
(b) A transferee of an interest in the Partnership from a
General Partner shall be admitted as a General Partner with respect to the
interest if, but only if, (1) at the time of the Transfer, the transferee is
otherwise a General Partner, (2) the transferee is a Wholly Owned Affiliate of
the transferring General Partner and all of the other General Partners consent
to the admission, or (3) the admission of the transferee as a General Partner
is approved by all of the other General Partners and a majority of the Limited
Partners.
(c) A transferee who acquires a Partnership interest from
a General Partner by means of a Transfer that is permitted under this Section
11.3, but who is not admitted as a General Partner, shall have no authority to
act for or bind the Partnership, to inspect the Partnership's books, or
otherwise to be treated as a General Partner, but the transferee shall be
treated as a Unitholder who acquired an interest in the Partnership in a
Permitted Transfer under Article X.
SECTION 11.4 PROHIBITED TRANSFERS. Any purported Transfer of any
interest in the Partnership held by a General Partner that is not permitted by
Section 11.3 above shall be null and void and of no force or effect whatever;
provided that, if the Partnership is required to recognize a Transfer that is
not so permitted (or if the Partnership, in its sole discretion, elects to
recognize a Transfer that is not so permitted), the interest transferred shall
be strictly limited to the transferor's rights to allocations and distributions
as provided by this Agreement with respect to the transferred interest, which
allocations and distributions may be applied (without limiting any other legal
or equitable rights of the Partnership) to satisfy the debts, obligations, or
liabilities for damages that the transferor or transferee of the interest may
have to the Partnership.
In the case of a Transfer or attempted Transfer of a Partnership
interest that is not permitted by Section 11.3 above, the parties engaging or
attempting to engage in the Transfer shall be liable to indemnify and hold
harmless the Partnership and the other Partners from all cost, liability, and
damage that any of the indemnified Persons may incur (including, without
limitation, incremental tax liability and lawyers' fees and expenses) as a
result of the Transfer or attempted Transfer and efforts to enforce the
indemnity granted hereby.
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SECTION 11.5 TERMINATION OF STATUS AS GENERAL PARTNER.
(a) A General Partner shall cease to be a General Partner
upon the first to occur of (i) the Bankruptcy of that General Partner, (ii) the
Transfer of a portion of that Partner's interest as a General Partner that
causes that Partner to hold less than twenty-five percent (25%) of the interest
that that Person initially held as a General Partner, (iii) the involuntary
Transfer by operation of law of that General Partner's interest in the
Partnership, (iv) the vote of two-thirds of the Limited Partners to approve a
request by that General Partner to retire, or (vi) the vote of a majority of
the Limited Partners to remove that General Partner after that General Partner
has attempted to make a Transfer of its Partnership interest that is not
permitted by Section 11.3, committed a material breach of this Agreement or its
representations and warranties under this Agreement, or committed any other act
or suffered any other condition that would justify a decree of dissolution of
the Partnership under the laws of the State of Florida. In the event a Person
ceases to be a General Partner without having transferred his entire interest
as a General Partner, that Person shall be treated as an unadmitted transferee
of a Partnership interest as a result of an unpermitted Transfer of an interest
pursuant to Section 11.4.
If a General Partner ceases to be a General Partner for any reason,
that Person shall continue to be liable as a Partner for all debts and
obligations of the Partnership existing at the time that Person ceases to be a
General Partner, regardless of whether, at that time, the debts or liabilities
were known or unknown, actual or contingent. A Person shall not be liable as a
General Partner for Partnership debts and obligations arising after that person
ceases to be a General Partner. Any debts, obligations, or liabilities in
damages to the Partnership of any Person who ceases to be a General Partner
shall be collectible by any legal means and the Partnership is authorized, in
addition to any other remedies at law or in equity, to apply any amounts
otherwise distributable or payable by the Partnership to that Person to satisfy
those debts, obligations, or liabilities.
(b) It is the intention of the Partners that the
Partnership not dissolve as a result of the cessation of any General Partner's
status as a General Partner; provided, however, that if it is determined by a
court of competent jurisdiction that the Partnership has dissolved, the
provisions of Section 13.1 shall govern.
(c) If at the time a Person ceases to be a General
Partner that Person is also a Limited Partner or a Unitholder with respect to
Units not previously held as a General Partner, that event shall not affect
that Person's rights and obligations with respect to those Units.
SECTION 11.6 ELECTION OF NEW GENERAL PARTNERS. Provided the
Partnership has one or more General Partners, any Partner may nominate one or
more Persons for election as additional General Partners. The election of an
additional General Partner shall require an affirmative vote of a majority of
the Partners.
ARTICLE XII
POWER OF ATTORNEY
SECTION 12.1 GENERAL PARTNER AS ATTORNEY-IN-FACT. Each Limited
Partner hereby makes, constitutes, and appoints the General Partner and each
successor General Partner, with full power of substitution and resubstitution,
his true and lawful attorney-in-fact for him and in his name, place, and stead
and for his use and benefit, to sign, execute, certify, acknowledge, swear to,
file, and record (a) all certificates of limited partnership, amended name or
similar certificates, and other certificates and instruments (including
counterparts of this Agreement) the General Partner may deem necessary or
appropriate to be filed by the Partnership under the laws of the State of
Florida or any other state or jurisdiction in which the Partnership is doing or
intends to do business; (b) any and all amendments or changes to this Agreement
and the instruments described in (a), as now or hereafter amended, which the
General Partner may deem necessary or appropriate to effect a change or
modification of the Partnership in accordance with the terms of this Agreement,
including, without limitation, amendments or changes to reflect (i) the
exercise by the General Partner of any power granted to it under this
Agreement; (ii) any amendments adopted by the Partners in accordance with the
terms of this Agreement; (iii) the admission of any substituted Partner; and
(iv) the disposition by any Partner of its interest in the Partnership; (c) all
certificates of cancellation and other instruments the General Partner may deem
necessary or appropriate to effect the dissolution and termination of the
Partnership pursuant to the terms of this Agreement; and (d) any other
instrument that is now or may hereafter be required by law to be filed on
behalf of the Partnership or is deemed necessary or appropriate by the General
Partner to carry out fully the provisions of this Agreement in accordance with
its terms. Each Limited Partner authorizes each attorney-in-fact to take any
further action that attorney-in-fact considers necessary or advisable in
connection with any of the foregoing, hereby giving each attorney-in-fact full
power and authority to do and perform each and every act or thing whatsoever
requisite or advisable to be done in connection with the foregoing as fully as
that Limited Partner might or could do personally, and hereby ratifying and
confirming all that any attorney-in-fact shall lawfully do or cause to be done
by virtue thereof or hereof.
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SECTION 12.2 NATURE AS SPECIAL POWER. The power of attorney granted
pursuant to this Article XII:
(a) Is a special power of attorney coupled with an
interest and is irrevocable;
(b) May be exercised by any attorney-in-fact by listing
the Limited Partners executing any agreement, certificate, instrument, or other
document with the single signature of any attorney-in-fact acting as
attorney-in-fact for those Limited Partners; and
(c) Shall survive the death, disability, legal
incapacity, bankruptcy, insolvency, dissolution, or cessation of existence of a
Limited Partner and shall survive the delivery of an assignment by a Limited
Partner of the whole or a portion of his interest in the Partnership, except
that where the assignment is of the Limited Partner's entire interest in the
Partnership and the assignee, with the consent of the General Partner, is
admitted as a Substituted Limited Partner, the power of attorney shall survive
the delivery of the assignment for the sole purpose of enabling any the
attorney-in-fact to effect the substitution.
ARTICLE XIII
DISSOLUTION AND WINDING UP
SECTION 13.1 LIQUIDATING EVENTS. The Partnership shall dissolve and
commence winding up and liquidating upon the first to occur of any of the
following ("Liquidating Events"):
(a) December 31, 2016;
(b) The vote by Partners holding more than fifty percent
(50%) of the Units to dissolve, wind up, and liquidate the Partnership;
(c) The happening of any other event that makes it
unlawful, impossible, or impractical to carry on the business of the
Partnership; or
(d) The withdrawal or removal of the General Partner, the
assignment by the General Partner of its entire Interest or any other event
that causes the General Partner to cease to be a general partner under the Act,
provided that any such event shall not constitute a Liquidating Event if the
Partnership is continued pursuant to this Section 13.1.
The Partners hereby agree that, notwithstanding any provision of the Act or the
Florida Uniform Partnership Act, the Partnership shall not dissolve prior to
the occurrence of a Liquidating Event. Upon the occurrence of any event set
forth in Section 13.1(d), the Partnership shall not be dissolved or required to
be wound up if (x) at the time of the event there is at least one remaining
General Partner and that General Partner carries on the business of the
Partnership (any remaining General Partner being hereby authorized to carry on
the business of the Partnership), or (y) within ninety (90) days after the
event two-thirds of the Limited Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date of
the event, of one or more additional General Partners. If it is determined, by
a court of competent jurisdiction, that the Partnership has dissolved prior to
the occurrence of a Liquidating Event, or if upon the occurrence of an event
specified in Section 13.1(d), the Partners fail to appoint a substitute General
Partner effective as of the event and to agree to continue the business of the
Partnership as provided in this Section 13.1, then within an additional ninety
(90) days after the determination or the last day of the ninety (90) day
period, as the case may be (the "Reconstitution Period"), a two-thirds majority
of the Partners may elect to reconstitute the Partnership and continue its
business on the same terms and conditions set forth in this Agreement by
forming a new limited partnership on terms identical to those set forth in this
Agreement and having as a general partner a Person elected by that two-thirds
majority. Upon election by a two-thirds majority of the Partners, all Partners
shall be bound thereby and shall be deemed to have consented to the election.
Unless an election is made within the Reconstitution Period, the Partnership
shall wind up its affairs in accordance with Section 13.2. If the election is
made within the Reconstitution Period, then:
(i) The reconstituted limited partnership shall
continue until the occurrence of a Liquidating Event as provided in this
Section 13.1;
(ii) If the successor general partner is not a
former General Partner, then the interest in the Partnership of any former
General Partner shall be treated thenceforth as the interest of a Limited
Partner; and
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(iii) All necessary steps shall be taken to cancel
this Agreement and the Certificate and to enter into a new partnership
agreement and certificate of limited partnership, and the successor general
partner may for this purpose exercise the powers of attorney granted the
General Partner pursuant to Article XII;
provided that the right of a two-thirds majority of the Partners to select a
successor general partner and to reconstitute and continue the business of the
Partnership shall not exist and may not be exercised unless the Partnership has
received an opinion of counsel that the exercise of the right would not result
in the loss of limited liability of any Limited Partner and neither the
Partnership nor the reconstituted partnership would cease to be treated as a
partnership for federal income tax purposes upon the exercise of the right to
continue.
SECTION 13.2 WINDING UP. Upon the occurrence of a Liquidating Event,
the Partnership shall continue solely for the purposes of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors, Partners, and Unitholders and no Partner shall take any
action that is inconsistent with, or not necessary to or appropriate for, the
winding up of the Partnership's business and affairs. To the extent not
inconsistent with the foregoing, all covenants and obligations in this
Agreement shall continue in full force and effect until such time as the
Property has been distributed pursuant to this Section 13.2 and the Certificate
has been cancelled in accordance with the Act. The General Partner (or, in the
event there is no remaining General Partner, any person elected by a majority
of the Limited Partners) shall be responsible for overseeing the winding up and
dissolution of the Partnership, shall take full account of the Partnership's
liabilities and Property, shall cause the Property to be liquidated as promptly
as is consistent with obtaining the fair value thereof, and shall cause the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed in the following order:
(a) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the General
Partner;
(b) Second, to the payment and discharge of all the
partnership's debts and liabilities to General Partner; and
(c) The balance, if any, to the General Partner and
Unitholders in accordance with their Capital Accounts, after giving effect to
all contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII. The General Partner
understands and agrees that by accepting the provisions of this Section 13.2
setting forth the priority of the distribution of the assets of the Partnership
to be made upon its liquidation, the General Partner expressly waives any right
it, as a creditor of the Partnership, might otherwise have under the Act to
receive distributions of assets pari passu with the other creditors of the
Partnership in connection with a distribution of assets of the Partnership in
satisfaction of any liability of the Partnership, and hereby subordinates to
said creditors any such right.
SECTION 13.3 COMPLIANCE WITH CERTAIN REQUIREMENTS OF REGULATIONS;
DEFICIT CAPITAL ACCOUNTS. In the event the Partnership is "liquidated" within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions
shall be made pursuant to this Article XIII to the General Partner and
Unitholders who have positive Capital Accounts in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(2), and (b) if the General Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
distributions, and allocations for all Fiscal Years, including the Fiscal Year
during which the liquidation occurs), the General Partner shall contribute to
the capital of the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3).
If any Unitholder who is not the General Partner has a deficit balance in his
Capital Account (after giving effect to all contributions, distributions, and
allocations for all Fiscal Years, including the Fiscal Year during which the
liquidation occurs), the Unitholder shall have no obligation to make any
contribution to the capital of the Partnership with respect to the deficit, and
the deficit shall not be considered a debt owed to the Partnership or any other
Person for any purpose whatsoever. In the discretion of the General Partner, a
pro rata portion of the distributions that would otherwise be made to the
General Partner and Unitholders pursuant to this Article XIII may be:
(a) Distributed to a trust established for the benefit of
the General Partner and Unitholders for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any contingent
or unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of
any the trust shall be distributed to the General Partner and Unitholders from
time to time, in the reasonable discretion of the General Partner, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the General Partner and Unitholders pursuant
to Section 13.2 hereof; or
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<PAGE> 126
(b) Withheld to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
the withheld amounts shall be distributed to the General Partner and
Unitholders as soon as practicable.
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding
any other provisions of this Article XIII, in the event the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but
no Liquidating Event has occurred, the Property shall not be liquidated, the
Partnership's liabilities shall not be paid or discharged, and the
Partnership's affairs shall not be wound up. Instead, solely for federal
income tax purposes, the Partnership shall be deemed to have distributed the
Property in kind to the General Partner and Unitholders, who shall be deemed to
have assumed and taken subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts and, if the General Partner's
Capital Account has a deficit balance (after giving effect to all
contributions, distributions, and allocations for all Fiscal Years, including
the Fiscal Year during which the Liquidation occurs), the General Partner shall
contribute to the capital of the Partnership the amount necessary to restore
such deficit balance to zero in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(3). Immediately thereafter, the General Partner and
Unitholders shall be deemed to have recontributed the Property in kind to the
Partnership, which shall be deemed to have assumed and taken subject to all
such liabilities.
SECTION 13.5 RIGHTS OF GENERAL PARTNER AND UNITHOLDERS. Except as
otherwise provided in this Agreement, (a) the General Partner and Unitholder
shall look solely to the assets of the Partnership for the return of his
Capital Contribution and shall have no right or power to demand or receive
property other than cash from the Partnership, and (b) no Unitholder shall have
priority over any other Unitholder as to the return of his Capital
Contributions, distributions, or allocations.
SECTION 13.6 NOTICE OF DISSOLUTION. In the event a Liquidating Event
occurs or an event occurs that would, but for provisions of Section 13.1,
result in a dissolution of the Partnership, the General Partner shall, within
thirty (30) days thereafter, provide written notice thereof to each of the
Partners and to all other parties with whom the Partnership regularly conducts
business (as determined in the discretion of the General Partner) and shall
publish notice thereof in a newspaper of general circulation in each place in
which the Partnership regularly conducts business (as determined in the
discretion of the General Partner).
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 NOTICES. Any notice, payment, demand, or communication
required or permitted to be given by any provision of this Agreement shall be
in writing and sent by overnight courier, or by telephone or facsimile, if the
telephone conversation or facsimile is followed by a hard copy of the telephone
conversation or facsimiled communication sent by overnight courier, charges
prepaid and addressed as follows, or to such other address as that Person may
from time to time specify by notice to the Partners:
(a) If to the Partnership, to the Partnership at the
address set forth in Section 1.4;
(b) If to the General Partner, to the address set forth
in Section 2.1; and
(c) If to a Limited Partner, to the address set forth in
Section 2.2.
Any such notice shall be deemed to be delivered, given, and received for all
purposes as of the date so delivered.
SECTION 14.2 BINDING EFFECT. Except as otherwise provided in this
Agreement, every covenant, term and provision of this Agreement shall be
binding upon and inure to the benefit of the Partners and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.
SECTION 14.3 CONSTRUCTION. Every covenant, term, and provision of
this Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner. The terms of this Agreement are intended
to embody the economic relationship among the Partners and shall not be subject
to modification by, or be conformed with, any actions by the Internal Revenue
Service except as this Agreement may be explicitly so amended and except as may
relate specifically to the filing of tax returns.
SECTION 14.4 TIME. Time is of the essence with respect to this
Agreement.
SECTION 14.5 HEADINGS. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define, or limit the scope, extent, or intent of this Agreement or
any provision of this Agreement.
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<PAGE> 127
SECTION 14.6 SEVERABILITY. Every provision of this Agreement is
intended to be severable. If any term or provision of this Agreement is
illegal or invalid for any reason, such illegality or invalidity shall not
affect the validity or legality of the remainder of this Agreement.
SECTION 14.7 INCORPORATION BY REFERENCE. Every exhibit, schedule,
and other appendix attached to this Agreement and referred to herein is
incorporated in this Agreement by this reference.
SECTION 14.8 FURTHER ACTION. Each Partner, upon the request of the
General Partner, agrees to perform all further acts and execute, acknowledge,
and deliver any documents reasonably necessary, appropriate, or desirable to
carry out the provisions of this Agreement.
SECTION 14.9 VARIATION OF PRONOUNS. All pronouns and any variations
shall be deemed to refer to masculine, feminine, or neuter, singular or plural,
as the identity of the Person or Persons may require.
SECTION 14.10 GOVERNING LAW. The laws of the State of Florida shall
govern the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the Partners.
SECTION 14.11 WAIVER OF ACTION FOR PARTITION; NO BILL FOR PARTNERSHIP
ACCOUNTING. Each of the Partners irrevocably waives any right that he may have
to maintain any action for partition with respect to any of the Partnership
Property. To the fullest extent permitted by law, each Partner covenants that
it will not (except with the consent of the General Partner) file a bill for
Partnership accounting.
SECTION 14.12 COUNTERPART EXECUTION. This Agreement may be executed
in any number of counterparts with the same effect as if all of the Partners
had signed the same document. All counterparts shall be construed together and
shall constitute one agreement.
SECTION 14.13 SOLE AND ABSOLUTE DISCRETION. Except as otherwise
provided in this Agreement, all actions the General Partner may take and all
determinations the General Partner may make pursuant to this Agreement may be
taken and made at the sole and absolute discretion of the General Partner.
SECTION 14.14 SPECIFIC PERFORMANCE. Each Partner agrees with the
other Partners that the other Partners would be irreparably damaged if any of
the provisions of this Agreement are not performed in accordance with their
specific terms and that monetary damages would not provide an adequate remedy
in that event. Accordingly, it is agreed that, in addition to any other remedy
to which the nonbreaching Partners may be entitled, at law or in equity, the
nonbreaching Partners shall be entitled to injunctive relief to prevent
breaches of the provisions of this Agreement and specifically to enforce the
terms and provisions of this Agreement in any action instituted in any court of
the United States or any state having subject matter jurisdiction thereof.
IN WITNESS WHEREOF, the parties have entered into this Amended and
Restated Agreement of Limited Partnership as of the day first above set forth.
[signatures follow on separate pages]
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<PAGE> 128
GENERAL PARTNER
INVESTORS TRUST, INC.
By:
------------------------------
Thomas R. Cronin, Sr.
A-31
<PAGE> 129
ORIGINAL LIMITED PARTNER
------------------------------
Michael P. Geml
A-32
<PAGE> 130
LIMITED PARTNERS
The Limited Partners whose names
are set forth on Exhibit A hereto
By:
----------------------------------
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<PAGE> 131
Exhibit A
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FLORDECO, LTD., A
FLORIDA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Names and Addresses of Limited Partners Number of Units
--------------------------------------- ---------------
<S> <C>
</TABLE>
A-34
<PAGE> 132
Exhibit B
PROMISSORY NOTE
Number of Units Purchased: [City], Florida
-------------------------
Face Amount of Promissory Note: $ ________, 1996
(10,000.00 per Unit) ------------------
FOR VALUE RECEIVED, the undersigned (hereinafter referred to as
"Maker"), promises to pay to the order of FLORDECO, LTD., a Florida limited
partnership (the "Partnership")(the Partnership, together with any holder
hereof, referred to hereinafter as the "Holder"), at 3591 Fowler Street, Fort
Myers, Florida 33901, or at such other place as the Holder may designate in
writing, the principal sum of Ten Thousand Dollars ($10,000) per unit of limited
partnership interest of the Partnership ("Unit") being purchased by the Maker,
in accordance with the following provisions:
(a) The Maker agrees that the number of Units to be used in
calculating the amount due under this Promissory Note (this "Note") as
indicated in Paragraph (c) of this Note shall be __________, which corresponds
to the number of Units being purchased by the Maker pursuant to the
Partnership's public offering thereof as described in the Partnership's
prospectus dated __________, 1996 which was made part of the Partnership's
registration statement on Form S-11 declared effective by the Securities and
Exchange Commission.
(b) No interest shall accrue and be payable on the unpaid
principal balance of this Note, except as provided in Paragraph (f) below upon
default hereunder.
(c) Principal shall be due and payable in ten (10) equal annual
installments of One Thousand Dollars ($1,000) per Unit commencing on ________,
1997, and on __________ each year thereafter, with the final installment
payable on ________, 2006. The amount due on each of the ten installments
shall be equal to the dollar amount indicated multiplied by the number of Units
being purchased by the Maker.
However, in the event the Partnership is liquidated, or the
undersigned's interest in the Partnership is liquidated, within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the regulations promulgated by the Department
of the Treasury under the Internal Revenue Code, all unpaid principal,
notwithstanding the due dates set forth above, shall be due and payable prior
to the end of the fiscal year of the Partnership during which such liquidation
occurs (or, if later, within 90 days after the date of such liquidation).
(d) This Note may be prepaid at any time, in whole or in part,
without penalty.
(e) Payment of this Note is secured by the Units purchased with
this Note and the Security Agreement of even date herewith executed by the
Maker in connection with this loan ("Security Agreement"). All of the
agreements, conditions, covenants, provisions, and stipulations contained in
the Security Agreement which are to be kept and performed by the Maker are
hereby incorporated into and made part of this Note to the same extent and with
the same force and effect as if they were fully set forth herein, and Maker
covenants and agrees to keep and perform them, or to cause them to be kept and
performed, strictly in accordance with their terms.
(f) This Note evidences the obligation of the Maker to make
contributions to the capital of the Partnership and is given in consideration
of the Units acquired by the Maker. It is hereby expressly agreed that time is
of the essence hereof and in the event that the Maker fails to pay any amount
of the principal when it becomes due under this Note, then, in addition to any
remedies otherwise available to the Holder hereof pursuant to the terms of the
Amended and Restated Agreement of Limited Partnership of Flordeco, Ltd. (the
"Partnership Agreement") or by law, the Holder shall have the right to
accelerate the maturity date of this Note and to declare the amount of the
total unpaid balance hereof to be immediately due and payable in advance of the
dates set forth above. Furthermore, in the event that the Maker fails to pay
any amount of the principal when it becomes due under this Note, all unpaid
principal under this Note shall bear interest at highest rate permitted under
applicable law and such interest shall begin to accrue commencing on the first
day of such default or breach. Forbearance to
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<PAGE> 133
exercise these rights with respect to the Maker shall not constitute a waiver
of the right as to any subsequent default, breach or failure of the Maker to
perform hereunder. Exercise of the rights provided hereunder shall be without
notice to the Maker, notice of such exercise being hereby waived.
(g) The Maker further agrees to pay all costs of collection,
including, in the case of the principal of this Note or any payment applicable
to the principal as herein provided is not paid at the respective maturity
thereof, whether suit be brought or not, attorneys' fees, court costs,
collection expenses, and other expenses that the Holder may incur or pay in
prosecution of its rights hereunder or in the Partnership Agreement, whether in
judicial proceedings, including bankruptcy court and appellate proceedings, or
whether out of court, such attorneys' fees as a court of competent jurisdiction
deems reasonable.
(h) NEITHER THE HOLDER, THE MAKER OR OTHER PERSON OR ENTITY LIABLE
FOR THE INDEBTEDNESS EVIDENCED HEREBY, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR
PERSONAL REPRESENTATIVE OF THE HOLDER, THE MAKER OR ANY SUCH PERSON OR ENTITY
SHALL SEEK A JURY TRAIL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER
LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS NOTE, ANY RELATED
INSTRUMENT OR AGREEMENT, ANY COLLATERAL FOR THE PAYMENT HEREOF OR THE DEALINGS
OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ENTITIES, OR ANY OF THEM.
NEITHER THE HOLDER, THE MAKER OR ANY SUCH OTHER PERSON OR ENTITY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO,
AND THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO THE OTHER [PARTY THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
(i) The Maker hereby waives all demands, notices, and other
formalities in connection with the payment, collection, and enforcement of this
Note, except as hereinabove expressly provided.
(j) Principal and interest, if any, shall be payable in lawful
money of the United States.
(k) This Note shall be governed by and construed in accordance
with the laws of the State of Florida.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed and
delivered on the date first above written.
WITNESS: MAKER
- ---------------------------------- ----------------------------------
(Signature of Witness) (Signature of Maker)
- ---------------------------------- ----------------------------------
(Print Name) (Print Name)
----------------------------------
(Title, if not an individual)
A-36
<PAGE> 134
EXHIBIT B
INSTRUCTIONS TO PURCHASERS
1. The Partnership recommends that each person subscribing for the
Units carefully read and review the Prospectus and any supplements thereto and,
if such person desires to subscribe for Unit in the Partnership, detach,
complete and sign the Subscription Agreement provided separately and the
signature page (the "Signature Page") to the Amended and Restated Agreement of
Limited Partnership of Flordeco, Ltd. (the "Partnership Agreement"). Upon
acceptance of the subscription and satisfaction of all conditions to the sale
of Units, the Signature Page will be attached to and become part of the
Partnership Agreement.
2. The purchase price per Unit is $12,000 ("Purchase Price") and the
minimum subscription is for five Units ($60,000). Each person subscribing for
Units shall: (i) deliver a completed Subscription Agreement and an executed
Signature Page to the General Partner at 3591 Fowler Street, Fort Myers,
Florida 33901, (ii) simultaneously with the delivery of the Subscription
Agreement and the Signature Page, deliver a check made payable to "First
National Bank of Southwest Florida, Escrow Agent for Flordeco, Ltd.", in an
amount equal to $2,000 per Unit being subscribed for (or provide such funds by
wire transfer to the Partnership's escrow account in the manner described in
the Prospectus), (the "Cash Portion") and (iii) simultaneously with the
delivery of the above, deliver to the Escrow Agent an executed full recourse,
non-interest bearing promissory note and security agreement ("Note") in the
form provided in Exhibit C to the Prospectus in the amount equal to $10,000 per
Unit being subscribed for pursuant to the Subscription Agreement (the "Financed
Portion").
PAYMENT IN FULL OF THE CASH PORTION OF THE PURCHASE PRICE MUST ACCOMPANY
THE COMPLETED SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE, TOGETHER WITH
AN EXECUTED NOTE IN THE FULL AMOUNT OF THE FINANCED PORTION.
3. Be sure that this Subscription Agreement has been properly
completed and that you have filled in the number of Units subscribed for, the
total purchase price for your interests, and the date of execution.
A. Individuals. If the Units are being purchased by an
individual, the individual should sign the Subscription Agreement on
the indicated line, print or type the name in which the Units are to
be registered and supply his or her Social Security number.
B. Joint Ownership. If the Units are being purchased in
joint ownership, check the appropriate registration box, and both
investors must sign the Subscription Agreement and indicated the names
in which they want the Interests registered. In case of joint
ownership, either Social Security number may be used.
C. Individual Retirement Accounts and Other Qualified Plans.
If the Units are being purchased by an Individual Retirement Account
or by Other Qualified Plan, the Subscription Agreement should be
signed by an authorized signer of the bank, trust company or other
fiduciary. Please provide the address of the trustee.
D. Trusts. If the Units are being purchased by a trust,
please furnish the name of the trust and the date of the trust. Also,
provide the name of the trustee and the beneficiary. A copy of the
trust agreement should accompany the Subscription Agreement
E. Corporations. If the Units are being purchased by a
corporation, please furnish a copy of the resolution of the board of
directors authorizing the purchase of the Units.
Trustees, agents or other persons acting in a representative capacity
may be required to furnish an opinion of counsel, acceptable to the
Partnership, evidencing their authority to subscribe for the Units and to
complete the Subscription Agreement and any additional documents which the
Partnership may request evidencing their authority to act in a representative
capacity. Trusts, corporations, partnerships and estates must furnish a
Taxpayer Identification Number.
4. The investor's address should be completed. All correspondence
and cash distributions will be sent to this address.
B-1
<PAGE> 135
FLORDECO, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
------------------
SUBSCRIPTION AGREEMENT
Flordeco, Ltd.
3591 Fowler Street
Fort Myers, Florida 33901
Attention: Thomas R. Cronin, Sr.
Gentlemen:
The undersigned, by signing and delivering this subscription agreement
(the "Subscription Agreement") and the signature page ("Signature Page") to the
Amended and Restated Agreement of Limited Partnership of Flordeco, Ltd. (the
"Partnership Agreement"), hereby tenders this subscription and applies for the
purchase of the number of units of limited partnership interests (the "Units")
of Flordeco, Ltd., a Florida limited partnership (the "Partnership") set forth
below. The undersigned has executed and delivered this Subscription Agreement
in connection with the Partnership's offering of the Units described in its
prospectus dated ______________, 1996, (such prospectus, including any
amendments and supplements thereto, is herein called the "Prospectus").
Pursuant to this Subscription Agreement, the undersigned agrees to
purchase that number of Units specified below at a purchase price of $12,000
per Unit ("Purchase Price") and agrees to become a Limited Partner under the
terms of the Partnership Agreement. In connection with the subscription for
that number of Units specified below, the undersigned agrees to purchase the
Units at a purchase price of $12,000 per Unit, payable as follows: (i)
simultaneously with the execution and delivery of this Subscription Agreement,
the undersigned has delivered a check made payable to "First National Bank of
Southwest Florida, Escrow Agent for Flordeco, Ltd.", or has wired to the escrow
account of the Partnership in the manner described in the Prospectus, an amount
equal to the $2,000 per Unit subscribed for as the cash portion of the Purchase
Price ("Cash Subscription Funds"), and (ii) simultaneously with the execution
and delivery of this Subscription Agreement, the undersigned also has delivered
an executed, full recourse, non-interest bearing promissory note and security
agreement in the form provided in Exhibit C to the Prospectus in an amount
equal to $10,000 per Unit subscribed for as the financed portion of the
Purchase Price.
The undersigned understands that the minimum subscription for the
Units shall be $60,000, unless waived by the General Partner. The undersigned
further understands that the Cash Subscription Funds will be held in escrow by
the Escrow Agent until such time as subscriptions for 100 Units (the "Minimum
Offering") have been accepted and, in the event that the Minimum Offering is
not subscribed for and the payments therefor are not made on or before December
31, 1996, unless otherwise extended by the Partnership to a date no later than
January 31, 1997 (the "Initial Termination Date"), the offering will terminate
and all subscription proceeds will be refunded promptly to the undersigned
without interest or reduction. The undersigned hereby acknowledges receipt of
a copy of the Prospectus, including the Partnership Agreement attached to the
Prospectus as Exhibit A, prior to the execution of this Subscription Agreement,
and hereby specifically accepts and adopts each and every provision of the
Partnership Agreement.
The undersigned represents and warrants to the Partnership as follows:
(1) The undersigned is 21 years of age or over, has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in the Units.
(2) The undersigned is a bona-fide resident of the state set forth
below on the Signature Page of this Subscription Agreement, and if the state of
residency should change prior to acceptance of this subscription, the
undersigned shall promptly notify the Partnership of the change in residence.
B-2
<PAGE> 136
(3) The Units which are the subject of this Subscription Agreement
are being acquired for the undersigned's own account or for the account or
benefit of a member or members of his or her immediate family or in a fiduciary
capacity for the account of another person or entity and not as an agent for
another.
(4) The undersigned, if acting in a representative or fiduciary
capacity for a corporation, partnership, trust, or as a custodian for any
person or entity, has full power and authority to make the representations and
agreements herein and to execute this Subscription Agreement in such capacity
on behalf of such corporation, partnership, trust, person or entity, and to
purchase the Units subscribed for hereunder.
The undersigned understands, recognizes and agrees that :
(1) This subscription may be accepted or rejected in whole or in
part by the General Partner in its sole and absolute
discretion. Further, the General Partner has the right, in
its sole discretion, to waive the minimum subscription amount
and to issue fractional Units.
(2) No federal or state agency has made any finding or
determination regarding the fairness of the offering of the
Units for public investment, the accuracy or adequacy of the
Prospectus, or any recommendation or endorsement of the Units
or an investment in the Units.
(3) This subscription is binding on the undersigned and is
irrevocable on the part of the undersigned during the offering
period (as extended, if applicable), and if the Minimum
Offering is not sold prior to the Initial Termination Date,
subscriptions will be refunded in full, without interest.
(4) The securities laws of some jurisdictions restrict the
transferability of the Units, the Partnership Agreement
further restricts the transferability of the Units, there is
no market for the Units, and it is unlikely that a market will
develop. In addition the sale or transfer of Units may result
in adverse federal income tax consequences. Accordingly, it
may not be possible for the undersigned to liquidate his
investment in the Partnership in the case of an emergency or
for any other reason.
(5) This Subscription Agreement shall not constitute a valid and
binding obligation of the Partnership until accepted by the
General Partner in writing, and that the General Partner has
the right to reject the Subscription Agreement, either in
whole or in part, in its sole discretion.
(6) The undersigned is not entitled to cancel, terminate or revoke
this subscription or any agreements of the undersigned
hereunder and that such subscription and agreements shall
survive the death, incapacity, disability, bankruptcy,
dissolution or termination of the undersigned.
(7) The undersigned agrees to fully indemnify and hold the
Partnership the General Partner, and their officers, directors
or affiliates harmless from any and all claims, actions,
causes of action whatsoever which may result from a breach or
an alleged breach of the representations contained in this
Subscription Agreement.
The undersigned, under penalties of perjury, hereby certify that: (i)
the taxpayer identification number provided herein is the undersigned's true,
correct, and complete taxpayer identification number, and (ii) the undersigned
is not subject to backup withholding either because the undersigned has not
been notified that the undersigned is subject to backup withholding as a result
of a failure to report all interest or dividends, or the Internal Revenue
Service has notified the undersigned that the undersigned is no longer subject
to backup withholding under Section 3406(a)(1)(C) of the Internal Revenue Code.
(If the undersigned has been notified that the undersigned is subject to backup
withholding, the undersigned has stricken the language under clause (ii) of the
preceding sentence before signing).
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933, THE SECURITIES EXCHANGE
ACT OF 1934, OR ANY STATE SECURITIES LAWS.
B-3
<PAGE> 137
Date:
-----------------------------
Number of Units Total Subscription
(Minimum Subscription: $60,000): ($12,000 per Unit):
- ----------------------------------- ---------------------------------------
Please PRINT exact name(s) in which undersigned desires shares to be
registered:
-------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ----------------------------------- ---------------------------------------
(Signature of Individual) (Signature If Held Jointly)
Social Security or Federal Taxpayer Identification Number:
---------------------
Street Address:
----------------------------------------------------------------
City/State/Zip:
----------------------------------------------------------------
*When signing as attorney, trustee, administrator or guardian, please give your
full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. In the case of joint tenants, each
joint owner must sign.
Please indicate the form of ownership the undersigned desires for the shares
(individual, joint tenants with right of survivorship, tenants in common,
trust, corporation, partnership, custodian, etc.):
----------------------------
===============================================================================
TO BE COMPLETED BY THE PARTNERSHIP:
Accepted as of _______________________, 19___ as to ____________________ Units.
FLORDECO, LTD.
By: Investors Trust, Inc.,
General Partner
By:
-------------------------
Allan Fox, President
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<PAGE> 138
EXHIBIT C
PROMISSORY NOTE
Number of Units Purchased: [City], Florida
-------------------------
Face Amount of Promissory Note: $ ________, 1996
(10,000.00 per Unit) ------------------
FOR VALUE RECEIVED, the undersigned (hereinafter referred to as
"Maker"), promises to pay to the order of FLORDECO, LTD., a Florida limited
partnership (the "Partnership")(the Partnership, together with any holder
hereof, referred to hereinafter as the "Holder"), at 3591 Fowler Street, Fort
Myers, Florida 33901, or at such other place as the Holder may designate in
writing, the principal sum of Ten Thousand Dollars ($10,000) per unit of limited
partnership interest of the Partnership ("Unit") being purchased by the Maker,
in accordance with the following provisions:
(a) The Maker agrees that the number of Units to be used in
calculating the amount due under this Promissory Note (this "Note") as
indicated in Paragraph (c) of this Note shall be __________, which corresponds
to the number of Units being purchased by the Maker pursuant to the
Partnership's public offering thereof as described in the Partnership's
prospectus dated __________, 1996 which was made part of the Partnership's
registration statement on Form S-11 declared effective by the Securities and
Exchange Commission.
(b) No interest shall accrue and be payable on the unpaid
principal balance of this Note, except as provided in Paragraph (f) below upon
default hereunder.
(c) Principal shall be due and payable in ten (10) equal annual
installments of One Thousand Dollars ($1,000) per Unit commencing on ________,
1997, and on __________ each year thereafter, with the final installment
payable on ________, 2006. The amount due on each of the ten installments
shall be equal to the dollar amount indicated multiplied by the number of Units
being purchased by the Maker.
However, in the event the Partnership is liquidated, or the
undersigned's interest in the Partnership is liquidated, within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the regulations promulgated by the Department
of the Treasury under the Internal Revenue Code, all unpaid principal,
notwithstanding the due dates set forth above, shall be due and payable prior
to the end of the fiscal year of the Partnership during which such liquidation
occurs (or, if later, within 90 days after the date of such liquidation).
(d) This Note may be prepaid at any time, in whole or in part,
without penalty.
(e) Payment of this Note is secured by the Units purchased with
this Note and the Security Agreement of even date herewith executed by the
Maker in connection with this loan ("Security Agreement"). All of the
agreements, conditions, covenants, provisions, and stipulations contained in
the Security Agreement which are to be kept and performed by the Maker are
hereby incorporated into and made part of this Note to the same extent and with
the same force and effect as if they were fully set forth herein, and Maker
covenants and agrees to keep and perform them, or to cause them to be kept and
performed, strictly in accordance with their terms.
(f) This Note evidences the obligation of the Maker to make
contributions to the capital of the Partnership and is given in consideration
of the Units acquired by the Maker. It is hereby expressly agreed
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<PAGE> 139
that time is of the essence hereof and in the event that the Maker fails to pay
any amount of the principal when it becomes due under this Note, then, in
addition to any remedies otherwise available to the Holder hereof pursuant to
the terms of the Amended and Restated Agreement of Limited Partnership of
Flordeco, Ltd. (the "Partnership Agreement") or by law, the Holder shall have
the right to accelerate the maturity date of this Note and to declare the
amount of the total unpaid balance hereof to be immediately due and payable in
advance of the dates set forth above. Furthermore, in the event that the Maker
fails to pay any amount of the principal when it becomes due under this Note,
all unpaid principal under this Note shall bear interest at the highest rate
permitted under applicable law and such interest shall begin to accrue
commencing on the first day of such default or breach. Forbearance to exercise
these rights with respect to the Maker shall not constitute a waiver of the
right as to any subsequent default, breach or failure of the Maker to perform
hereunder. Exercise of the rights provided hereunder shall be without notice
to the Maker, notice of such exercise being hereby waived.
(g) The Maker further agrees to pay all costs of collection,
including, in the case of the principal of this Note or any payment applicable
to the principal as herein provided is not paid at the respective maturity
thereof, whether suit be brought or not, attorneys' fees, court costs,
collection expenses, and other expenses that the Holder may incur or pay in
prosecution of its rights hereunder or in the Partnership Agreement, whether in
judicial proceedings, including bankruptcy court and appellate proceedings, or
whether out of court, such attorneys' fees as a court of competent jurisdiction
deems reasonable.
(h) NEITHER THE HOLDER, THE MAKER OR OTHER PERSON OR ENTITY LIABLE
FOR THE INDEBTEDNESS EVIDENCED HEREBY, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR
PERSONAL REPRESENTATIVE OF THE HOLDER, THE MAKER OR ANY SUCH PERSON OR ENTITY
SHALL SEEK A JURY TRAIL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER
LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS NOTE, ANY RELATED
INSTRUMENT OR AGREEMENT, ANY COLLATERAL FOR THE PAYMENT HEREOF OR THE DEALINGS
OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ENTITIES, OR ANY OF THEM.
NEITHER THE HOLDER, THE MAKER OR ANY SUCH OTHER PERSON OR ENTITY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO,
AND THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO THE OTHER [PARTY THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
(i) The Maker hereby waives all demands, notices, and other
formalities in connection with the payment, collection, and enforcement of this
Note, except as hereinabove expressly provided.
(j) Principal and interest, if any, shall be payable in lawful
money of the United States.
(k) This Note shall be governed by and construed in accordance
with the laws of the State of Florida.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Maker has caused this Note to be executed and
delivered on the date first above written.
WITNESS: MAKER
- ---------------------------------- ----------------------------------
(Signature of Witness) (Signature of Maker)
- ---------------------------------- ----------------------------------
(Print Name) (Print Name)
----------------------------------
(Title, if not an individual)
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SECURITY AGREEMENT
SECURITY AGREEMENT ("Security Agreement"), made and entered into as of
the ____ day of _________, 1996, by and between FLORDECO, LTD., a Florida
limited partnership (the "Partnership") and the person(s) executing this
Security Agreement ("Debtors").
WHEREAS, the Partnership is offering units of its limited partnership
interests (the "Units") for sale at a purchase price of $12,000 per Unit
("Purchase Price") pursuant to a registration statement on Form S-11 filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended; and
WHEREAS, investors have agreed to pay the Purchase Price for their
Units by simultaneously with the delivery and execution of their subscription
agreement for such Units, tendering a cash payment (or wire transfer) in the
amount of $2,000 per Unit and by delivery of an executed, full recourse
promissory note ("Note") and this Security Agreement in an amount equal to
$10,000 per Unit; and
WHEREAS, the Note evidences the obligation of the Debtor to make
contributions to the capital of the Partnership in consideration of the Units
acquired by Debtor; and
WHEREAS, the Partnership has agreed to accept the Note as partial
payment for the Units acquired by the Debtors on the condition that the Debtors
execute and deliver this Security Agreement to secure the Note by the
collateral described herein.
NOW, THEREFORE, in consideration of the foregoing and to induce
Partnership to sell the Units in exchange for the Note as partial payment
therefor, Debtor hereby agrees as follows:
1. DEFINED TERMS. The following terms shall have the following
meanings:
"Code" means the Uniform Commercial Code from time to time in
effect in the State of Florida.
"Collateral" means the Pledged Units and all Proceeds.
"Event of Default" means the failure of the Debtor to pay any
amount of principal on the Note when it becomes due under the
Note and any other material default under or breach of this Security
Agreement or the Note by the Debtor.
"Liabilities" means the indebtedness evidenced by the Note.
"Note" means that certain Promissory Note dated of even date
herewith made by the Debtor payable to the order of the Partnership in
the principal amount of Ten Thousand Dollars ($10,000) per Unit
acquired by the Debtor in connection with the Partnership's public
offering thereof pursuant to its registration statement on Form S-11
filed with and declared effective by the Securities and Exchange
Commission.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government
(whether national, federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
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"Pledged Units" means the Units pledged by Debtor under this
Security Agreement.
"Pledgee" means the Partnership or any of its assigns.
"Proceeds" means all "proceeds" as such term is defined in
Section 679.306(1), Florida Statutes, and, in any event, shall
include, without limitation, all dividends or other income from the
Pledged Units, collections thereon or distributions with respect
thereto.
2. PLEDGE; GRANT OF SECURITY INTEREST. Debtor hereby grants to
Pledgee a security interest in the Collateral, as collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Liabilities, and, in furtherance
thereof, during the term of this Security Agreement, shall deliver to the
Pledgee, upon request, certificates representing all of the Pledged Units.
3. STOCK POWERS. Concurrently with the delivery to Pledgee of
each certificate representing one or more of the Pledged Units, Debtor shall
deliver to Pledgee an undated assignment separate from certificate covering
such certificate, duly executed in blank by Debtor.
4. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants to Pledgee that:
(a) The Pledged Units constitute all the Units owned by
Debtor;
(c) Debtor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Units, free of any and all liens,
security interests or options ("Liens") in favor of, or claims of, any Person,
except for the Liens established by the Note and this Security Agreement;
(d) Upon delivery to Pledgee of the certificates
evidencing the Pledged Units, the lien granted pursuant to this Security
Agreement will constitute a valid, perfected lien on such Collateral,
enforceable as such against all creditors of Debtor and any Persons purporting
to purchase such Collateral from Debtor; and
(e) Upon the making of notations reflecting the security
interest created by this Security Agreement in the Partnership's register for
the Pledged Units which is not represented by certificates, the lien granted
pursuant to this Security Agreement will constitute a valid, perfected first
priority lien on such Collateral, enforceable as such against all creditors of
Debtor and any persons purporting to purchase such Collateral from Debtor.
5. COVENANTS. Debtor covenants and agrees with Pledgee that,
from and after the date hereof until the Liabilities are paid in full:
(a) If Debtor shall, as a result of its ownership of the
Pledged Units, become entitled to receive, or shall receive, any Unit
certificate (including, without limitation, any certificate representing a
dividend or a distribution in connection with any reclassification, increase,
or reduction of capital or any certificate issued in connection with any
reorganization), option or rights, whether in addition to, in substitution of,
as a conversion of, or in exchange for any of the Pledged Units, or otherwise
in respect thereof, Debtor shall accept the same as the agent of Pledgee, hold
the same in trust for Pledgee and deliver the same forthwith to Pledgee in the
exact form received, duly endorsed by Debtor to Pledgee, if required, together
with undated powers covering such certificate duly executed in blank by Debtor,
to be held by Pledgee, subject to the terms hereof, as additional collateral
security for the Liabilities. Any sums paid upon, or in respect of, the
Pledged Units upon the liquidation or dissolution of the Partnership shall be
paid over to Pledgee to be held by it hereunder as additional collateral
security for the Liabilities. In case any
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distribution of capital shall be made on, or in respect of, the Pledged Units
or any property shall be distributed upon or with respect to the Pledged Units
pursuant to the recapitalization or reclassification of the capital of the
Partnership or pursuant to the reorganization thereof, the property so
distributed shall be delivered to Pledgee to be held by it hereunder as
additional collateral security for the Liabilities. If any sums of money or
property so paid or distributed in respect of the Pledged Units shall be
received by Debtor, Debtor shall, until such money or property is paid or
delivered to Pledgee, hold such money or property in trust for Pledgee,
segregated from other funds of Debtor, as additional collateral security for
the Liabilities.
(b) Without the prior written consent of Pledgee, Debtor
will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Collateral, or (iii) create, incur or
permit to exist any Lien or option in favor of, or any claim of any Person with
respect to, any of the Collateral, or any interest therein. Pledgor will
defend the right, title, and interest of Pledgee in and to the Collateral
against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written
request of Pledgee, and at the sole expense of Debtor, Debtor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as Pledgee may reasonably request for the purposes of obtaining
or preserving the full benefits of this Security Agreement and of the rights
and powers herein granted. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument, or chattel paper
shall be immediately delivered to Pledgee, duly endorsed in a manner
satisfactory to Pledgee, to be held as Collateral pursuant to this Security
Agreement.
(d) Debtor agrees to pay, and to save Pledgee harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other taxes that may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Security Agreement.
6. CASH DISTRIBUTIONS; VOTING RIGHTS. Unless an Event of Default
shall have occurred and be continuing and Pledgee shall have given notice to
Debtor of Pledgee's intent to exercise its corresponding rights pursuant to
Section 7 below, Debtor shall be permitted to receive all cash distributions
paid in the normal course of business of the Partnership in respect of the
Pledged Units and to exercise all voting and corporate rights with respect to
the Pledged Units, provided, however, that no vote shall be cast or partnership
right exercised or other action taken which, in Pledgee's reasonable judgment,
would impair the Collateral or which would be inconsistent with, or result in
any violation of, any provision of the Note, this Security Agreement, or any
document, instrument, or agreement evidencing or securing the Liabilities.
7. RIGHTS OF THE PLEDGEE.
(a) If an Event of Default shall occur and be continuing
and Pledgee shall give notice of its intent to exercise such rights to Debtor,
(i) Pledgee shall have the right to receive any and all cash distributions paid
in respect of the Pledged Units and make application thereof to the Liabilities
in such order as Pledgee may determine, and (ii) all of the Pledged Units shall
be registered in the name of Pledgee or its nominee and Pledgee or its nominee
may thereafter exercise (A) all voting, partnership, and other rights
pertaining to such of the Pledged Units at any meeting of unitholders of
Pledgee or otherwise and (B) any and all rights of conversion, exchange,
subscription, and any other rights, privileges, or options pertaining to such
Pledged Units as if it were the absolute owner thereof (including, without
limitation, the right to exchange, at its discretion, any and all of the
Pledged Units upon the merger, consolidation, reorganization, recapitalization,
or other fundamental change in the partnership structure of Partnership, or
upon the exercise by Debtor or Pledgee of any right, privilege, or option
pertaining to such Pledged Units and in connection therewith, the right to
deposit and deliver any and all of the Pledged Units with any committee,
depositary,
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<PAGE> 144
transfer agent, registrar, or other designated agency upon such terms and
conditions as it may determine), all without liability except to account for
property actually received by it, but Pledgee shall have no duty to Debtor to
exercise any such right, privilege, or option and shall not be responsible for
any failure to do so or delay in so doing.
(b) The rights of Pledgee hereunder shall not be
conditioned or contingent upon the pursuit by Pledgee of any right or remedy
against any Person which may be or become liable in respect of all or any part
of the Liabilities or against any collateral security therefor, guarantee
therefor or right of offset with respect thereto. Pledgee shall not be liable
for any failure to demand, collect, or realize upon all or any part of the
Collateral or for any delay in doing so, nor shall Pledgee be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
Debtor or any other Person or to take any other action whatsoever with regard
to the Collateral or any part thereof.
8. REMEDIES. If an Event of Default shall occur and be
continuing, Pledgee may exercise, in addition to all other rights and remedies
granted in this Security Agreement and in any other instrument or agreement
securing, evidencing, or relating to the Liabilities, all rights and remedies
of a secured party under the Code. Without limiting the generality of the
foregoing, Pledgee, without demand of performance or other demand, presentment,
protest, advertisement, or notice of any kind (except any notice required by
law referred to below) to or upon Debtor or any other Person (all and each of
which demands, defenses, advertisements, and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate, and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Pledgee shall have the right upon any such public sale or sales, and upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in Debtor, which right or
equity is hereby waived or released. Pledgee shall apply any Proceeds from
time to time held by it and the proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all reasonable
costs and expenses of every kind incurred in respect thereof or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of Pledgee hereunder, including, without limitation,
reasonable attorneys' fees and disbursements of counsel to Pledgee, to the
payment in whole or in part of the Liabilities, in such order as Pledgee may
elect, and only after such application and after the payment by Pledgee of any
other amount required by any provision of law, including, without limitation,
Section 679.504(1)(c) of the Code, need Pledgee account for the surplus, if
any, to Debtor. Debtor waives all claims, damages, and demands it may acquire
against Pledgee arising out of the exercise by it of any rights hereunder. If
any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least ten (10) days before such sale or other disposition. Debtor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
Collateral are insufficient to pay the Liabilities and the fees and
disbursements of any attorneys employed by Pledgee to collect such deficiency.
9. PRIVATE SALES.
(a) Debtor recognizes that no public market is likely to
develop for the Pledged Units and that it is unlikely that such Pledged Units
will be registered under the Exchange Act of 1934, as amended (the "Exchange
Act"), and as a result thereof Pledgee may be unable to effect a public sale of
any or all of the Pledged Units, by reason of certain prohibitions contained in
the Securities Act of 1933 (the "Securities Act"), the Exchange Act, and
applicable state securities laws or otherwise, and may be compelled to resort
to one or more private sales thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the distribution or
resale thereof. Debtor acknowledges and agrees that any such private sale may
result in prices
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and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. Pledgee shall be
under no obligation to delay a sale of any of the Pledged Units for the period
of time necessary to permit the registration of such securities for public sale
under the Securities Act, or under applicable state securities laws.
(b) Debtor further agrees to use its best efforts to do
or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Units pursuant to this Section 9
valid and binding and in compliance with any and all other requirements of
applicable law. Debtor further agrees that a breach of any of the covenants
contained in this Section 9 will cause irreparable injury to Pledgee, that
Pledgee has no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 9 shall be
specifically enforceable against Debtor and Debtor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no default has occurred under this Security
Agreement, the Note, or any other document, instrument, or agreement evidencing
or securing the Liabilities.
10. LIMITATION ON DUTIES REGARDING COLLATERAL. Pledgee's sole
duty with respect to the custody, safekeeping, and physical preservation of the
Collateral in its possession, under Section 679.207 of the Code or otherwise,
shall be to deal with it in the same manner as Pledgee deals with similar
securities and property for its own account. Neither Pledgee nor any of its
respective directors, officers, employees, or agents shall be liable for
failure to demand, collect, or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral under the request of Debtor or otherwise.
11. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
constitute powers coupled with an interest.
12. SEVERABILITY. Any provision of this Security Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. SECTION HEADINGS. The section headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
14. NO WAIVER; CUMULATIVE REMEDIES. Pledgee shall by any act
(except by a written instrument pursuant to Section 15 hereof) be deemed to
have waived any right or remedy hereunder or to have acquiesced in any default
or in any breach of any of the terms and conditions hereof. No failure to
exercise, nor any delay in exercising, on the part of Pledgee, any right,
power, or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power, or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege. A waiver by Pledgee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that Pledgee
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently, and are not
exclusive of any other rights or remedies provided by law.
15. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW.
None of the terms or provisions of this Security Agreement may be amended,
supplemented, or otherwise modified except by a written instrument executed by
Debtor, the Partnership and any other Pledgee, provided that any provision
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of this Security Agreement may be waived by Pledgee in a letter or agreement
executed by Pledgee. This Security Agreement shall be binding upon Debtor and
its rights and duties hereunder may not be assigned or delegated. This
Security Agreement shall inure to the benefit of Pledgee and its successors and
assigns. This Security Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Florida.
16. NOTICES. Notices by Pledgee to Debtor may be given and shall
be considered effective in the manner and at the time provided in the
Partnership Agreement, addressed or transmitted to Debtor or Pledgee at
Debtor's address or transmission number set forth on the signature page of the
Partnership Agreement. Debtor and Pledgee may change its address or
transmission number by written notice to Pledgee.
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement
to be duly executed and delivered as of the date first above written.
WITNESSES:
- -------------------------------- ----------------------------------
(Signature)
----------------------------------
- --------------------------------- (Print Name)
----------------------------------
(Title, if not an individual)
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===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE PARTNERSHIP. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN
THE UNITS OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION TO ANY PERSON IN ANY JURISDICTION OR UNDER ANY CIRCUMSTANCES IN
WHICH SUCH OFFERING WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . 7
Risk Factors . . . . . . . . . . . . . . . 15
Estimated Use of Proceeds . . . . . . . . . 27
Compensation to General Partner and
Its Affiliates . . . . . . . . . . . . . 29
Conflicts of Interest . . . . . . . . . . . 32
Fiduciary Responsibilities of
General Partner . . . . . . . . . . . . 35
Partnership Distributions and Allocations . 36
Prior Performance . . . . . . . . . . . . . 37
Capitalization . . . . . . . . . . . . . . 39
Management's Discussion and
Analysis of Financial Condition . . . . . 39
Management . . . . . . . . . . . . . . . . 40
Investment Objectives and Policies . . . . 43
The Partnership . . . . . . . . . . . . . . 50
Federal Income Tax Considerations . . . . . 51
ERISA Considerations . . . . . . . . . . . 72
Summary of the Partnership Agreement . . . 73
Reports to Limited Partners . . . . . . . . 76
Plan of Distribution . . . . . . . . . . . 77
Sales Materials . . . . . . . . . . . . . . 80
Available Information . . . . . . . . . . . 80
Legal Matters . . . . . . . . . . . . . . . 81
Experts . . . . . . . . . . . . . . . . . . 81
Glossary . . . . . . . . . . . . . . . . . 81
Index to Financial Statements . . . . . . . F-1
Limited Partnership Agreement . . . . . . . Exhibit A
Subscription Agreement . . . . . . . . . . Exhibit B
Promissory Note . . . . . . . . . . . . . . Exhibit C
</TABLE>
UNTIL ___________________ (90 DAYS AFTER COMMENCEMENT OF THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
AN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
$12,000,000
FLORDECO, LTD.
1,000 Units of
Limited Partnership Interests
------------------
PROSPECTUS
------------------
August ____, 1996
===============================================================================
<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is the estimated fees and expenses expected to be
incurred in connection with the issuance and distribution of the Units
registered hereby.
<TABLE>
<S> <C>
SEC Registration Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,138
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Costs of Printing and Engraving . . . . . . . . . . . . . . . . . . . . . . 7,500
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000
=========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
With the exception of the sale of the initial limited partnership
interest sold to the Initial Limited Partner in order to form the Partnership,
the Partnership has not sold any of its securities, nor does there exist any
arrangement to sell the Partnership's securities, to any person or class of
persons at a price varying from that at which the Units are to be offered to
the general public pursuant to this Registration Statement.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the formation and organization of the Partnership,
the Partnership sold a limited partnership interest in it to the Initial
Limited Partner. This issuance was made in reliance on the exemptions provided
by Section 3(b) or 4(2) of the Securities Act of 1933, as amended. No
underwriters were involved in the placement of these securities.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 5.5 (a) and (b) of the Partnership Agreement provides that
the Partnership, its receiver, or its trustee (in the case of its receiver or
trustee, to the extent of Partnership Property) shall : (A) indemnify, save
harmless, and pay all judgments and claims against the General Partner or
officer or director of the General Partner's for its own acts of negligence or
relating to any liability or damage incurred by reason of any act performed or
omitted to be performed by the General Partner, officer, or director in
connection with the business of the Partnership, including attorneys' fees
incurred by the General Partner, officer, or director in connection with the
defense of any action based on any such act or omission, which attorneys' fees
may be paid as incurred, including all such liabilities under federal and state
securities laws (including the Securities Act of 1933, as amended) as permitted
by law; (B) indemnify and hold harmless, to the maximum extent permitted by
law, the General Partner and Unitholder from and against any and all
liabilities, sums paid in settlement of claims (if such settlement is consented
to by the General Partner), obligations, charges, actions (formal or informal),
claims (including, without limitation, claims for personal injury under any
theory or for real or personal property damage), liens, taxes, administrative
proceedings, losses, damages (including, without limitation, punitive damages),
penalties, fines, court costs, administrative service fees, response and
remediation costs, stabilization costs, encapsulation costs, treatment,
storage, or disposal costs, groundwater monitoring or environmental study,
sampling, or monitoring costs, other causes of action, and any other costs and
reasonable expenses (including, without limitation, reasonable attorneys',
experts', and consultants' fees and disbursements and investigating,
laboratory, and data review fees) imposed upon or incurred by the
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<PAGE> 149
General Partner or Unitholder (whether or not indemnified against by any other
party) arising from and after the date of this Agreement directly or indirectly
out of: (1) the past, present, or future treatment, storage, disposal,
generation, use, transport, movement, presence, release, threatened release,
spill, installation, sale, emission, injection, leaching, dumping, escaping, or
seeping of any Hazardous Substances, material containing or alleged to contain
Hazardous Substances (as defined in the Partnership Agreement) at or from any
past, present, or future properties, or assets of the Partnership; or (2) the
violation or alleged violation by the Partnership or any third party of any
Environmental Laws (as defined in the Partnership Agreement) with regard to the
past, present, or future ownership, operation, use, or occupying of any
property or asset of the Partnership.
Section 5.5 (c) of the Partnership Agreement provides that in the
event of any action by a Unitholder against the General Partner, including a
Partnership derivative suit, the Partnership shall indemnify, save harmless,
and pay all expenses of the General Partner, including attorneys' fees,
incurred in the defense of that action, if the General Partner is successful in
the action.
Section 5.5 (d) of the Partnership Agreement provides that the
Partnership shall indemnify, save harmless and pay all expenses, costs, or
liabilities of the General Partner who for the benefit of the Partnership makes
any deposit, acquires any option, or makes any other similar payment or assumes
any obligations in connection with any property proposed to be acquired by the
Partnership and who suffers any financial loss as the result of that action.
Notwithstanding the provisions of Sections 5.5(a), 5.5(b), 5.5(c), and
5.5(d) of the Partnership Agreement, Sections 5.5(e) of the Partnership
Agreement provides that neither the General Partner nor any Unitholder shall be
indemnified from (i) any liability for fraud, bad faith, willful misconduct, or
gross negligence.
The Partnership Agreement also provides that in the event that any
provision in Sections 5.5(a), 5.5(b), 5.5(c), and 5.5(d) of the Partnership
Agreement is determined to be invalid in whole or in part, that Section shall
be enforced to the maximum extent permitted by law.
ITEM 34. TREATMENT OF PROCEEDS OF STOCK BEING REGISTERED.
Not Applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Filed with this Registration Statement.
Balance Sheet of Flordeco, Ltd. as of May 31, 1996.
Balance Sheet of Investors Trust, Inc., as of May 31, 1996.
Notes to Financial Statements
(b) Exhibits filed with this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
1.1 Form of Subscription Agreement (included as Exhibit B in the Prospectus and incorporated herein by reference)
1.2 Form of Escrow Agreement by and between Investors Trust, Inc. and First National Bank of Southwest Florida *
</TABLE>
II-2
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
1.3 Form of Promissory Note and Security Agreement (included as Exhibit C in Prospectus and incorporated herein by
reference)
3.1 Certificate of Limited Partnership of Flordeco, Ltd. *
3.2 Currently existing Agreement of Limited Partnership of Flordeco, Ltd. *
3.3 Form of Amended and Restated Agreement of Limited Partnership of Flordeco, Ltd. (included as Exhibit A in the
Prospectus and incorporated herein by reference)
4.1 See Exhibits 3.1, 3.2 and 3.3 for provisions of Certificate of Limited Partnership of Flordeco, Ltd., currently
existing Agreement of Limited Partnership of Flordeco, Ltd., and Form of Amended and Restated Agreement of
Limited Partnership of Flordeco, Ltd. (included as Exhibit A in the Prospectus and incorporated herein by
reference)
5.1 Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Re: Legality (contained in Exhibit 8.1 to the
Registration Statement) *
8.1 Tax Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. *
10.1 Management Agreement by and between Flordeco, Inc. and Flordeco, Ltd. *
23.1 Consent of Coopers & Lybrand
23.2 Consent of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. (contained in Exhibit 8.1 to the Registration
Statement) *
24.1 Power of Attorney (contained in the Signature section of the Registration Statement) *
</TABLE>
- -----------------------
* Previously Filed
ITEM 36. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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 as follows: (a) to file
any prospectuses required by Section 10(a)(3) of the Act, as post-effective
amendments to the Registration Statement; (b) that for purposes of determining
any liability under the Act each such post effective amendment may be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at that time may be deemed to be the initial
bona fide offering thereof; (c) that all post effective amendments will comply
with applicable forms, rules, and regulations of the Commission in effect at
the time such post-effective amendments and filed, and (d) to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain at the termination of the offering.
The Registrant undertakes to send to each Limited Partner at least on
an annual basis a detailed statement of any transactions with the General
Partner or its affiliates, and of fees, commissions, compensation and other
benefits paid, or accrued to the General Partner or its affiliates for the
fiscal year completed, showing the amount paid or accrued to each recipient and
the services performed.
The Registrant undertakes to provide to the Limited Partners the
financial statements required by Form 10-K for the first full fiscal year of
operations of the Partnership.
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<PAGE> 151
The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing each
property not identified in the Prospectus at such time as there arises a
reasonable probability that such property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least one every
three months, with the information contained in such amendment provided
simultaneously to the existing Limited Partners. Each sticker supplement
should disclose all compensation and fees received by the General Partner and
its affiliates in connection with any such acquisition. The post-effective
amendment shall include audited financial statements meeting the requirements
of Rule 3-14 of Regulation S-X only for properties acquired during the
distribution period. Notwithstanding the foregoing, however, this undertaking
is hereby modified to provide that, when a property is acquired from the FDIC
or other federal governmental agency with similar responsibilities under law,
and audited financial statements of the property are not available and it is
not reasonably, or practicable to obtain an audit of the financial statements,
then a waiver of the required audited financial statements will be requested
from the Commission and, if granted, the post-effective amendment will include
alternative financial statements or information which may include the
following: unaudited financial statements, or discussion and analysis of such
unaudited financial statement which indicates the inability to obtain an audit,
a description of the procedures followed by the General Partner to evaluate the
operating results of the property, and a representation of the General Partner
that it has analyzed such information as provided directly from the FDIC or
other federal governmental agency with similar responsibilities under law, and
has determined that such information appears reasonable, stating the basis
therefor. Subject to the foregoing sentence. The Registrant also undertakes
to file, after the end of the distribution period, a current report on Form 8-K
containing the financial statements and any additional information required by
Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a
binding purchase agreement) made after the end of the distribution period
involving the use of 10% or more (on a cumulative basis) of the net proceeds of
the offering, and to provide the information contained in such report to the
Limited Partners at lease once each quarter of the distribution period of the
offering has ended.
II-4
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Fort Myers, State of
Florida, on the 30th day of July, 1996.
FLORDECO, LTD.
By: INVESTORS TRUST, INC.,
General Partner
By: /s/ Allan Fox
------------------------------------
Allan Fox
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Allan Fox President and Director July 30, 1996
- ------------------------------------- (Principal Executive Officer)
Allan Fox
/s/ Thomas R. Cronin, Sr. Secretary, Treasurer and Director July 30, 1996
- ------------------------------------- (Principal Accounting Officer and
Thomas R. Cronin, Sr. Principal Financial Officer)
* Director July 30, 1996
- -------------------------------------
Dr. Gerald Laboda
* Vice President and Director July 30, 1996
- -------------------------------------
Thomas R. Cronin, Jr.
</TABLE>
- --------------
*Signed by Thomas R. Cronin, Sr. pursuant to power of attorney filed with the
Registration Statement on March 22, 1996.
<PAGE> 153
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------ ---------------------- -------------
<S> <C>
1.1 Form of Subscription Agreement (included as Exhibit B in the Prospectus
and incorporated herein by reference)
1.2 Form of Escrow Agreement by and between Investors Trust, Inc. and First National
Bank of Southwest Florida *
1.3 Form of Promissory Note and Security Agreement (included as Exhibit C in
the Prospectus and incorporated herein by reference)
3.1 Certificate of Limited Partnership of Flordeco, Ltd. *
3.2 Currently existing Agreement of Limited Partnership of Flordeco, Ltd. *
3.3 Form of Amended and Restated Agreement of Limited Partnership of
Flordeco, Ltd. (included as Exhibit A in the Prospectus and incorporated
herein by reference)
4.1 See Exhibits 3.1, 3.2 and 3.3 for provisions of Certificate of Limited
Partnership of Flordeco, Ltd., currently existing Agreement of Limited
Partnership of Flordeco, Ltd., and Form of Amended and Restated Agreement
of Limited Partnership of Flordeco, Ltd. (included as Exhibit A in the
Prospectus and incorporated herein by reference)
5.1 Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Re: Legality
(contained in Exhibit 8.1 to the Registration Statement) *
8.1 Tax Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. *
10.1 Management Agreement by and between Flordeco, Inc. and Flordeco, Ltd. *
23.1 Consent of Coopers & Lybrand
23.2 Consent of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. (contained
in Exhibit 8.1 to the Registration Statement) *
24.1 Power of Attorney (contained in the Signature section of the Registration
Statement) *
</TABLE>
- ------------------
* Previously Filed
<PAGE> 1
EXHIBIT 23.1
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Amendment 2 to
Form S-11 (File No. 333-2820) of our report dated August 5, 1996, on our audit
of the balance sheet of Flordeco, Ltd. and our report dated August 5, 1996 on
our audit of the balance sheet of Investor's Trust, Inc. We also consent to
the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
Fort Myers, Florida
August 5, 1996
