<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended SEPTEMBER 30, 1999.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to ___________
Commission File Number: 0-22569 (Irvine Apartment Communities, L.P.)
1-13721 (IAC Capital Trust)
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
----------------------------------------------------------
(Exact Name of Registrants as Specified in Their Charters)
Delaware 33-0587829
Delaware 91-6452946
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification Number)
550 Newport Center Drive, Suite 300, Newport Beach, California 92660
--------------------------------------------------------------------
(Address of principal executive offices)
(949) 720-5500
--------------
(Registrants' telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter time as required), and
(2) have been subject to such filing requirements for the past 90 days.
Irvine Apartment Communities, L.P.: Yes [X] No [ ]
IAC Capital Trust: Yes [X] No [ ]
Indicate the number of units outstanding of each of the issuer's classes of
common partnership units, as of the latest practical date. Irvine Apartment
Communities, L.P.: units of common partnership interest - 45,202,827 units as of
November 12, 1999.
================================================================================
<PAGE> 2
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements - Irvine Apartment Communities, L.P.
- Consolidated Balance Sheets as of September 30, 1999 and December
31, 1998 1
- Consolidated Statements of Operations for the three and nine months
ended September 30, 1999 and 1998 2
- Consolidated Statements of Changes in Partners' Capital for the nine
months ended September 30, 1999 and 1998 3
- Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 4
Financial Statements - IAC Capital Trust
_ Balance Sheets as of September 30, 1999 and December 31, 1998 5
_ Statements of Operations and Equity for the three months ended
September 30, 1999 and 1998, the nine months ended September 30,
1999 and for the period January 20, 1998 (commencement of
operations) to September 30, 1998 6
_ Statements of Cash Flows for the nine months ended September 30,
1999 and for the period January 20, 1998 (commencement of
operations) to September 30, 1998 7
Notes to Consolidated Financial Statements 8 to 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 14 to 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
</TABLE>
<PAGE> 3
Irvine Apartment Communities, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land $ 400,233 $ 248,105
Buildings and improvements 1,624,598 1,172,877
- ---------------------------------------------------------------------------------------------------------------------------------
2,024,831 1,420,982
Accumulated depreciation (312,612) (281,449)
- ---------------------------------------------------------------------------------------------------------------------------------
1,712,219 1,139,533
Under development, including land 229,919 205,371
- ---------------------------------------------------------------------------------------------------------------------------------
1,942,138 1,344,904
Cash and cash equivalents 73,510 4,888
Restricted cash 1,896 1,653
Deferred financing costs, net 11,865 12,159
Other assets 34,205 11,020
- ---------------------------------------------------------------------------------------------------------------------------------
$ 2,063,614 $ 1,374,624
=================================================================================================================================
LIABILITIES
Mortgages and notes payable $ 895,923 $ 751,818
Accounts payable and accrued liabilities 51,039 38,871
Security deposits 10,604 9,467
- ---------------------------------------------------------------------------------------------------------------------------------
957,566 800,156
REDEEMABLE PREFERRED INTERESTS
Redeemable Series A preferred limited partner units, 6,000 preferred partnership units outstanding 144,133 144,097
Redeemable Series B preferred limited partner units, 2,000 preferred partnership units outstanding 48,697 48,692
- ---------------------------------------------------------------------------------------------------------------------------------
192,830 192,789
- ---------------------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL
General partner, 20,176 common partnership units at September 30, 1999 and 20,164 at December 31, 1998 682,448 195,858
Common limited partners, 25,027 common partnership units at September 30, 1999 and December 31, 1998 230,770 185,821
- ---------------------------------------------------------------------------------------------------------------------------------
913,218 381,679
- ---------------------------------------------------------------------------------------------------------------------------------
$ 2,063,614 $ 1,374,624
=================================================================================================================================
</TABLE>
See accompanying notes.
Page 1
<PAGE> 4
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
(unaudited, in thousands, except per unit amounts) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Rental income $179,950 $155,778 $62,036 $54,663
Other income 5,427 4,401 2,094 1,753
Interest income 881 1,234 569 121
- --------------------------------------------------------------------------------------------------------------------------
186,258 161,413 64,699 56,537
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property expenses 39,463 36,003 13,693 12,090
Real estate taxes 14,324 12,629 5,034 4,471
Interest expense, net 22,427 20,530 8,184 7,118
Amortization of deferred financing costs 1,399 1,435 472 479
Depreciation and amortization 31,653 24,879 12,318 8,578
General and administrative 11,631 6,559 2,690 2,232
- --------------------------------------------------------------------------------------------------------------------------
120,897 102,035 42,391 34,968
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM AND REDEEMABLE
PREFERRED INTERESTS 65,361 59,378 22,308 21,569
Extraordinary item related to debt extinguishment (42,451)
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE REDEEMABLE PREFERRED INTERESTS 65,361 16,927 22,308 21,569
Redeemable preferred interests 12,563 8,628 4,188 3,094
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $52,798 $8,299 $18,120 $18,475
==========================================================================================================================
ALLOCATION OF NET INCOME:
General Partner $23,565 $3,682 $8,087 $8,226
Common Limited Partners $29,233 $4,617 $10,033 $10,249
=========================================================================================================================
EARNINGS PER COMMON UNIT:
Basic and diluted $1.17 $0.18 $0.40 $0.41
=========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON UNITS OUTSTANDING:
Basic 45,201 44,971 45,203 45,079
Diluted 45,201 45,065 45,203 45,153
=========================================================================================================================
</TABLE>
See accompanying notes.
Page 2
<PAGE> 5
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Irvine Apartment
Irvine Apartment Communities, Inc.
(unaudited, in thousands) Communities LLC (predecessor) Limited Partners Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL
Balance at January 1, 1998 $ 210,920 $ 210,307 $ 421,227
Net income 3,682 4,617 8,299
Contributions 6,109 3,047 9,156
Distributions (22,679) (28,322) (51,001)
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $ 198,032 $ 189,649 $ 387,681
========================================================================================================================
Balance at January 1, 1999 $ 195,858 $ 185,821 $ 381,679
Net income $ 9,408 14,157 29,233 52,798
Contributions 394 394
Distributions (7,142) (7,768) (18,494) (33,404)
Merger Transaction (Note 6) 680,182 (202,641) 34,210 511,751
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 $ 682,448 $ 0 $ 230,770 $ 913,218
========================================================================================================================
</TABLE>
See accompanying notes.
Page 3
<PAGE> 6
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(unaudited, in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $52,798 $8,299
Adjustments to reconcile net income to net cash provided by operating activities:
Write-off of deferred financing costs 8,314
Amortization of deferred financing costs 1,399 1,435
Depreciation and amortization 31,653 24,879
Redeemable preferred interest 12,563 8,628
Increase (decrease) in cash attributable to changes in assets and liabilities:
Restricted cash (243) (172)
Other assets 1,760 (7,224)
Accounts payable and accrued liabilities 14,778 13,333
Security deposits 1,137 1,621
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 115,845 59,113
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (4,800) (3,572)
Capital investments in real estate assets (114,016) (176,081)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (118,816) (179,653)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and notes payable 185,643 478,190
Payments on mortgages and notes payable (66,978) (446,404)
Advances from affiliate 71,700
Payment to affiliate (71,700)
Additions to deferred financing costs (1,105) (3,180)
Net proceeds from issuance of redeemable preferred limited partner units 144,035
Distributions to redeemable preferred limited partner unit holders (12,563) (8,628)
Contributions from partners 8,916
Distributions to partners (33,404) (51,001)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 71,593 121,928
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 68,622 1,388
Cash and Cash Equivalents at Beginning of Period 4,888 4,624
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $73,510 $6,012
======================================================================================================================
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $16,407 $15,405
======================================================================================================================
</TABLE>
See accompanying notes.
Page 4
<PAGE> 7
IAC Capital Trust
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 5 $ 5
Investment in Subsidiary 150,000 150,000
- -------------------------------------------------------------------------------------------------------------------------------
$ 150,005 $ 150,005
===============================================================================================================================
LIABILITIES AND EQUITY
Redeemable Preferred Securities, 25,000,000 securities authorized
Redeemable Series A Preferred Securities, 6,900,000 securities authorized,
6,000,000 securities issued and outstanding $ 150,000 $ 150,000
Equity
Common Securities, 20,000 securities authorized, 200 securities issued and outstanding 5 5
- -------------------------------------------------------------------------------------------------------------------------------
$ 150,005 $ 150,005
===============================================================================================================================
</TABLE>
See accompanying notes.
Page 5
<PAGE> 8
IAC Capital Trust
STATEMENTS OF OPERATIONS AND EQUITY
<TABLE>
<CAPTION>
For the Period
January 20, 1998
(commencement
Nine Months Ended of operations) to Three Months Ended September 30,
(unaudited, in thousands, except per security amounts) September 30, 1999 September 30, 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment in subsidiary $9,281 $8,628 $3,093 $3,094
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE REDEEMABLE PREFERRED INTEREST 9,281 8,628 3,093 3,094
Redeemable preferred interest 9,281 8,628 3,093 3,094
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 0 $ 0 $ 0 $ 0
================================================================================================================================
EARNINGS PER SECURITY:
Basic and diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
================================================================================================================================
Equity - beginning of period $ 5
Issuance of common securities $ 5
Net income 0 0
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY - END OF PERIOD $ 5 $ 5
================================================================================================================================
</TABLE>
See accompanying notes.
Page 6
<PAGE> 9
IAC Capital Trust
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
January 20, 1998
(commencement
Nine Months Ended of operations) to
(unaudited, in thousands) September 30, 1999 September 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 0 $ 0
Adjustments to reconcile net income to net cash provided by operating
activities:
Redeemable preferred interest 9,281 8,628
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 9,281 8,628
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary (150,000)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities 0 (150,000)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common securities 5
Proceeds from issuance of redeemable preferred securities 150,000
Distributions to preferred securities holders (9,281) (8,628)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities (9,281) 141,377
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 0 5
Cash and Cash Equivalents at beginning of period 5 0
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5 $ 5
========================================================================================================================
</TABLE>
See accompanying notes.
Page 7
<PAGE> 10
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION
Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Partnership"), was formed on November 15, 1993. In connection with an initial
public offering of common shares on December 8, 1993, Irvine Apartment
Communities, Inc. ("IAC, Inc.") obtained a general partnership interest in and
became the sole managing general partner of the Partnership. The Irvine Company
("TIC") transferred 42 apartment communities and a 99% interest in a limited
partnership which owns one apartment community to the Partnership. On June 7,
1999, IAC, Inc. was merged with and into TIC Acquisition LLC (the "Acquiror"), a
Delaware limited liability company indirectly wholly owned by TIC (the
"Merger"), with the Acquiror remaining as the surviving entity and renamed
Irvine Apartment Communities LLC ("IACLLC"). As a result of the Merger and a
related transaction in which TIC acquired an additional 74,523 common limited
partnership units, TIC and certain of its affiliates beneficially own and
control all of the outstanding common partnership units in the Partnership and
IACLLC became the sole general partner of the Partnership. At September 30,
1999, IACLLC had a 44.6% general partnership interest and TIC and certain of its
affiliates had a 55.4% common limited partnership interest in the Partnership.
The Partnership's management and operating decisions are under the unilateral
control of IACLLC.
The Partnership owns, operates and develops apartment communities in Orange
County, California and, beginning in 1997, other locations in California. As of
September 30, 1999, the Partnership owned 65 apartment communities representing
17,166 operating apartment units and 2,315 units under development
(collectively, the "Properties"). In May 1997, the Partnership broke ground on
its first property outside of the Irvine Ranch, an apartment community located
in Northern California's Silicon Valley. In March 1998, the Partnership and
Western National Property Management announced the formation of a strategic
alliance that, in April 1998, assumed all property management responsibilities
for the Partnership's Southern California portfolio. The new entity, Irvine
Apartment Management Company ("IAMC"), is owned 51% by the Partnership and 49%
by Western National Property Management. Effective January 1, 1999, IAMC's
property management responsibilities were expanded to include the Partnership's
entire portfolio.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Partnership. The Trust exists for the sole purpose of issuing preferred
securities and investing the proceeds in preferred limited partner units of the
Partnership.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements of the Partnership include the
consolidated accounts of its financially controlled subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
The Trust's investment in subsidiary relates to the redeemable Series A
preferred limited partner units in the Partnership. The Trust has less than a
controlling interest in the Partnership and accounts for its investment using
the equity method.
Page 8
<PAGE> 11
During the fourth quarter of 1998, the Partnership adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect the results of operations or financial position of the
Partnership.
The Partnership operates and develops apartment communities in California which
generate rental and other income through the leasing of apartment units to a
diverse base of renters. The Partnership separately evaluates the performance of
each of its apartment communities. However, because each of the apartment
communities has similar economic characteristics, facilities, services and
tenants, the apartment communities have been aggregated into a single dominant
apartment communities segment.
The Partnership evaluates performance and allocates resources primarily based on
the net operating income ("NOI") of individual apartment communities. NOI is
defined by the Partnership as rental and other income less property expenses and
real estate taxes. Accordingly, NOI excludes certain expenses included in the
determination of net income. NOI from apartment communities totaled $131,590,000
and $111,547,000 for the nine months ended September 30, 1999 and 1998,
respectively, and $45,403,000 and $39,855,000 for the three months ended
September 30, 1999 and 1998, respectively. All other segment disclosures are
included in the Partnership's Annual Report on Form 10-K/A for the year ended
December 31, 1998.
Profits and losses of the Partnership are generally allocated to the general
partner and to the common limited partners based on their respective ownership
interests in the Partnership. The holders of the Series A redeemable preferred
limited partner units and redeemable preferred securities are entitled to
distributions/dividends at an annual rate of 8 1/4% of the stated value per
unit/security. The stated value of each unit/security is $25. The holders of the
Series B redeemable preferred limited partner units are entitled to
distributions at an annual rate of 8 3/4% of the stated value per unit. The
stated value of each unit is $25.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
September 30, 1999 and December 31, 1998, and the revenues and expenses for the
three and nine months ended September 30, 1999 and 1998. Actual results could
differ from those estimates.
Certain amounts in the 1998 financial statements have been reclassified to
conform with financial statement presentations in 1999.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. All such adjustments are of a normal, recurring nature. Operating
results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. These financial statements should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Partnership's and the Trust's Annual Report on Form 10-K/A for the year ended
December 31, 1998.
Page 9
<PAGE> 12
NOTE 3 - MORTGAGES AND NOTES PAYABLE
The Partnership's unsecured revolving credit facility and $100 million unsecured
term loan were amended in June 1999. The unsecured revolving credit facility and
unsecured term loan were amended and restated to accommodate the Merger and to
allow TIC and certain of its affiliates to beneficially own and control all of
the outstanding common partnership units in the Partnership and IACLLC to become
the sole general partner of the Partnership.
Tax-Exempt Mortgage Bond Financings: In September 1999, the Partnership
completed a $32 million offering of tax-exempt mortgage bond financings (the
"Bonds") for the construction of a 201-unit apartment community (the "Project")
at the Partnership's Park Place property. The Bonds represent loans payable that
are collateralized by a deed of trust granting a security interest in the
Project. Payment of principal and interest on the Bonds is secured by an
irrevocable letter of credit issued by Bank of America, National Association. As
a result, the Bonds were assigned the ratings of AA-/A1+, Aa1/P1 and AA/F1+ from
Standard & Poor's, Moody's and Fitch IBCA, respectively. Monthly principal and
interest payments are made to a trustee, which in turn pays the bondholders when
interest is due. The Bonds bear interest at a weekly-remarketed tax-exempt rate
and are due September 2029. The Bonds had an average floating interest rate
inclusive of fees of 4.2% in September 1999. As of September 30, 1999, the
Partnership has received proceeds of $6.6 million that represents the land and
transaction costs related to the Project. The remaining $25.4 million of
proceeds (included as a receivable in other assets) is held by a trustee and
will be funded for construction of the Project as costs are incurred.
Conventional Mortgage Financing: In September 1999, the Partnership obtained
$115 million of conventional mortgage financing from a financial institution.
The mortgage financing is secured by three of the Partnership's apartment
communities. The financing is due in monthly installments, bears interest at a
fixed rate of 7.37% and matures in September 2010. Proceeds from the financing
were used to repay the advances from affiliate (see Note 7) and for general
construction purposes.
On October 12, 1999, the Partnership obtained $70 million of conventional
mortgage financing from a financial institution. The mortgage financing is
secured by three of the Partnership's apartment communities. The financing is
due in monthly installments, bears interest at a fixed rate of 7.15% and matures
in October 2009. Proceeds from the financing will be used for general
construction purposes.
Unsecured Line of Credit: The Partnership's amended $125 million unsecured
revolving credit facility currently bears interest at LIBOR plus 0.65% or prime
and matures in June 2001. The interest rates under the credit facility are
adjusted up or down based on credit ratings on the Partnership's senior
unsecured long-term indebtedness. The Partnership may also enter into letters of
credit under the facility. Borrowings under the credit facility, which are
guaranteed by the general partner, are available to finance the Partnership's
ongoing rental property development and for general working capital needs. The
general partner and the Partnership must comply with certain affirmative and
negative covenants, including limitations on distributions, and the maintenance
of certain net worth, cash flow and financial ratios. At September 30, 1999, the
general partner and the Partnership were in compliance with all of these
covenants. At September 30, 1999, the general partner had letters of credit
under the facility totaling $63.5 million related to land and building purchases
(see "Capital Investments in New Development"). The letters of credit reduce the
remaining amount available under the line of credit. As of September 30, 1999,
there was no outstanding balance under the line of credit and $61.5 million was
available.
Page 10
<PAGE> 13
Shelf Registration Statement: On May 14, 1997, the Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. On
October 1, 1997, the Partnership issued $100 million aggregate principal amount
of 7% senior unsecured notes pursuant to its shelf registration statement. In
June 1999, the Partnership cancelled the remaining availability of $250 million
under the shelf registration statement, including the Prospectus Supplement
dated April 9, 1998 filed for the future issuance of Medium-Term Notes. The
Partnership no longer plans to issue additional securities under the shelf
registration statement.
NOTE 4 - PARTNERS' CAPITAL
The Partnership paid cash distributions of $0.385 per common partnership unit in
the first quarter of 1999. The Partnership did not make any distributions on the
common partnership units in the second quarter of 1999. The Partnership paid
cash distributions of $0.354 per common partnership unit in the third quarter of
1999. During each of the first and second quarters of 1998, the Partnership paid
a cash dividend of $0.375 per common partnership unit. During the third quarter
of 1998, the Partnership paid a cash dividend of $0.385 per common partnership
unit.
RECONCILIATION OF COMMON PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
(in thousands, except
percentages) Nine Months Ended September 30, 1999 Nine Months Ended September 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
TIC TIC
and certain and certain
IAC, of its IAC, of its
IACLLC Inc. affiliates Other Total Inc. affiliates Other Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of 20,164 24,952 75 45,191 19,901 24,844 75 44,820
period
Stock awards issued and
options exercised 12 12 38 38
Dividend reinvestment and
additional cash investment 191 108 299
plan
Merger Transaction (Note 6) 20,176 (20,176) 75 (75)
- -------------------------------------------------------------------------------------------------------------------------
Balance at end of period 20,176 25,027 45,203 20,130 24,952 75 45,157
- -------------------------------------------------------------------------------------------------------------------------
Ownership interest at end of 44.6% 55.4% 100% 44.6% 55.2% 0.2% 100%
period
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5 - MINORITY REDEEMABLE PREFERRED INTERESTS
In January 1998, the Trust issued 6.0 million of 8 1/4% Series A Preferred
Securities. The proceeds of $150 million were used to purchase an equivalent
amount of 8 1/4% Series A Preferred Limited Partner Units in the Partnership.
The Partnership used the $150 million of proceeds, net of costs and offering
expenses, all of which were paid by the Partnership, to repay the outstanding
balance on the Partnership's unsecured credit facility and to fund development.
In November 1998, the Partnership issued 2.0 million of 8 3/4% Series B
Preferred Limited Partner Units. The Partnership used the net proceeds to reduce
the outstanding balance on its unsecured line of credit.
The Partnership and the Trust paid cash distributions/dividends of $0.52 per
Series A preferred limited partner unit (or preferred security) on March 31,
1999, June 30, 1999, and September 30, 1999, respectively. The Partnership paid
cash distributions of $0.55 per Series B preferred limited partner unit on March
31, 1999, June 30, 1999, and September 30, 1999, respectively. During the first
quarter of 1998, the Partnership and the Trust each paid a cash
distribution/dividend of $0.42 per Series A preferred limited partner unit (or
preferred security). During each of the
Page 11
<PAGE> 14
second and third quarters of 1998, the Partnership and the Trust each paid cash
distributions/dividends of $0.52 per Series A preferred limited partner unit (or
preferred security).
NOTE 6 - MERGER BETWEEN IAC, INC. AND THE ACQUIROR
On June 7, 1999, pursuant to the Merger, each outstanding share of IAC, Inc.'s
common stock was converted into the right to receive $34 in cash. The Merger and
related transactions were accounted for using the purchase method of accounting
in accordance with GAAP. Accordingly, the assets and liabilities of the
Partnership were adjusted to fair value. The step-up in basis related to
IACLLC's and TIC's investment in the Partnership of $511.8 million approximates
the fair value of the net assets acquired and was allocated to the assets of the
Partnership using push-down accounting based on the excess of their estimated
fair value over their historical carrying amount. Accordingly, $131.9 million of
the step-up in basis was allocated to land and $379.9 million was allocated to
buildings and improvements.
In conjunction with the Merger, IAC, Inc. and the Partnership entered into a
separate agreement whereby IAC, Inc. agreed to reimburse the Partnership for all
costs of the Merger incurred on IAC, Inc.'s behalf during 1999. In June 1999,
the Partnership was reimbursed for $6.6 million of Merger costs, of which $2.6
million had been incurred and expensed during the first quarter of 1999 and $4.0
million was incurred during the second quarter of 1999. Additionally, the
Partnership agreed to pay in cash the difference between $34 per share and the
exercise price of the vested stock options of IAC, Inc. which were outstanding
at the time of the Merger. During the second quarter of 1999, the Partnership's
cash payments related to vested stock options totaled $4.1 million, of which
$1.8 million was capitalized to real estate under development and $2.3 million
was charged to operations as general and administrative expenses.
A more detailed description of the Merger is included in the Partnership's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
June 22, 1999.
NOTE 7 - CERTAIN TRANSACTIONS WITH RELATED PARTIES
Included in general and administrative expenses are charges from TIC pursuant to
an administrative services agreement covering services for risk management,
income taxes, human resources and other services totaling $112,000 and $142,000
for the nine months ended September 30, 1999 and 1998, respectively, and $12,000
and $42,000 for the three months ended September 30, 1999 and 1998,
respectively. TIC and the Partnership jointly purchase employee health care
insurance and property and casualty insurance. The Partnership incurred rent
totaling $454,000 and $366,000 for the nine months ended September 30, 1999 and
1998, respectively, and $165,000 and $123,000 for the three months ended
September 30, 1999 and 1998, respectively, related to leases with TIC that
expire at the end of 2003. IAMC incurred rent totaling $53,000 and $148,000 for
the three and nine months ended September 30, 1999, respectively, and $51,000
and $103,000 for the three and nine months ended September 30, 1998,
respectively, related to a lease with TIC. For the three and nine months ended
September 30, 1998, TIC contributed $1,293,000 and $3,763,000, respectively, in
connection with common limited partnership unit and stock issuances under the
dividend reinvestment and additional cash investment plan. TIC made no
contributions under the dividend reinvestment and additional cash investment
plan in 1999.
During the second and third quarters of 1999, all preacquisition costs which had
been incurred by the Partnership related to future development sites were
transferred at book value to TIC for the development and eventual operation of
the sites. As of September 30, 1999, TIC has reimbursed the Partnership for all
of the costs incurred to date totaling approximately $21.7 million.
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<PAGE> 15
Included in accounts payable and accrued liabilities at September 30, 1999 is
approximately $1.3 million due to TIC. The amount represents a payable to TIC
for the reimbursement by TIC of development costs in excess of the amount
incurred by the Partnership, net of amounts owed to the Partnership for general
and administrative costs and other expenses incurred by the Partnership on
behalf of TIC.
In June 1999, TIC advanced the Partnership $46 million for the repayment of the
outstanding balance on the Partnership's unsecured line of credit. The advance
accrues interest at 4.87%. During the third quarter of 1999, an additional $25.7
million was advanced to the Partnership by TIC. In September 1999, the
Partnership repaid the total advance from TIC of $71.7 from the proceeds of the
$115 million loan. For the three and nine months ended September 30, 1999, the
Partnership incurred approximately $628,000 and $775,000 of interest costs
related to the advance.
Prior to the Merger, one of IAC, Inc.'s directors was president and chief
executive officer of a bank which participates in the Partnership's credit
facility and acts as trustee for the unsecured notes payable. Based on the
bank's percentage participation in the credit facility, the amount of interest
and fees paid to the bank totaled $93,000 and $122,000 for the three and six
months ended June 30, 1999, respectively, and $113,000 and $214,000 for the
three and nine months ended September 30, 1998, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion compares the activities of the Partnership for the
three and nine month periods ended September 30, 1999 (unaudited) with the
activities of the Partnership for the three and nine month periods ended
September 30, 1998 (unaudited). The Trust is a limited purpose financing vehicle
established by the Partnership and exists for the sole purpose of issuing
preferred securities and investing the proceeds thereof in preferred limited
partnership units of the Partnership.
The following discussion should be read in conjunction with all the financial
statements appearing elsewhere in this report, as well as the information
presented in the Partnership's and the Trust's Annual Report on Form 10-K/A for
the year ended December 31, 1998.
Certain information set forth below is forward looking and involves various
risks and uncertainties. Such information is based upon a number of estimates
and assumptions that inherently are subject to business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Partnership's control.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998.
The Partnership's income after payment of minority redeemable preferred
interests was $18.1 million for the three months ended September 30, 1999, down
slightly from $18.5 million for the same period of 1998. The Partnership's
net income decreased slightly in 1999 due to the increase in minority redeemable
preferred interest resulting from the issuance of preferred securities in
November 1998. The decrease was offset, in part, by contributions of newly
delivered rental units from its development program, properties that stabilized
during 1999 and 1998 and an acquisition in 1998, as well as an increase in
rental rates within its stabilized portfolio and a slight increase in physical
occupancy.
Page 14
<PAGE> 17
<TABLE>
<CAPTION>
REVENUE AND EXPENSE DATA
Three Months Ended September 30,
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES STABILIZED BEFORE 1998 (MORE THAN TWO YEARS)
(a)
Number of communities 51 51
Number of units at end of period 14,991 14,991
Operating revenues $54,780 $51,833
Property expenses $11,798 $11,162
Real estate taxes $ 4,135 $ 4,052
Depreciation and amortization of real estate assets $10,261 $ 7,602
COMMUNITIES STABILIZED IN 1998 (LESS THAN TWO YEARS) (b)
(c)
Number of communities 4
Number of units at end of period 984
Operating revenues $ 4,943
Property expenses $ 933
Real estate taxes $ 428
Depreciation and amortization of real estate assets $ 1,063
LEASE-UP COMMUNITIES (c)(d)
Number of communities 4
Number of units at end of period 1,191
Operating revenues $ 4,407
Property expenses $ 962
Real estate taxes $ 471
Depreciation and amortization of real estate assets $ 829
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents "same store" communities.
(b) Represents three communities (768 units) that reached stabilized occupancy
(95%) at different dates in 1998 and a 216-unit property acquired during
1998.
(c) No year to year comparison is provided since the properties were not all
stabilized for comparable periods.
(d) Represents two communities that started lease-up at different dates in 1998
and two properties that started lease-up in 1999.
OPERATING REVENUES (rental and other income) increased by 13.7% to $64.1 million
in the third quarter of 1999, up from $56.4 million in the same period of 1998.
Operating revenues rose in 1999 because of higher rental rates and a larger
average number of rental units in service, primarily as a result of new
development. Newly delivered units, along with unit growth in the Partnership's
portfolio stabilized less than two years, added $9.4 million to operating
revenues from eight properties in the third quarter of 1999. Operating revenues
generated by communities stabilized more than two years increased 5.7% in 1999
due to an improvement in the portfolio's average rental rate and an increase in
average physical occupancy to 94.7% from 94.0%. The average monthly rental rate
for these communities increased 4.5% to $1,243 in the third quarter of 1999,
from $1,190 in the third quarter of 1998.
PROPERTY EXPENSES increased by 13.3% to $13.7 million in the third quarter of
1999, up from $12.1 million in the same period of 1998. The 1999 increase
reflects incremental expenses from newly delivered rental units and communities
stabilized during 1998. Property expenses for communities stabilized more than
two years increased slightly by $0.6 million to $11.8 million in the third
quarter of 1999. Average monthly property expenses generated by these
communities increased to $262 per unit in the third quarter of 1999 from $248
per unit in the third quarter of 1998. Newly delivered units and communities
stabilized less than two years added $1.9 million to property expenses from
eight properties in the third quarter of 1999. To improve operating efficiency
and reduce operating costs, the Partnership formed IAMC in April 1998 to manage
the Partnership's properties. The personnel and office
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<PAGE> 18
costs of IAMC are included in property expenses. For comparative purposes,
management fees prior to the formation of IAMC have been included in property
expenses.
REAL ESTATE TAXES totaled $5.0 million in the third quarter of 1999 and $4.5
million in the same period of 1998. Real estate taxes increased in the third
quarter of 1999 due primarily to the addition of new rental units.
NET INTEREST EXPENSE increased to $8.2 million in the third quarter of 1999
compared to $7.1 million in the same period of 1998. Total interest incurred was
$12.2 million in the third quarter of 1999 and $10.2 million in the same period
of 1998. Total interest incurred increased due to the impact of the
Partnership's unsecured term loan which was outstanding for the entire quarter
and the impact of the tax-exempt mortgage bonds outstanding during the quarter,
partially offset by decreased borrowings on the unsecured line of credit during
the quarter. Capitalized interest totaled $3.9 million in the third quarter of
1999 and $3.1 million in the same period of 1998. The increase in capitalized
interest in the third quarter of 1999 was due to the increase in the average
qualifying asset balance for projects under development. The Partnership
capitalizes interest on projects actively under development using qualifying
asset balances and applicable weighted average interest rates.
AMORTIZATION OF DEFERRED FINANCING COSTS was $0.5 million in the third quarter
of 1999 and 1998.
DEPRECIATION AND AMORTIZATION EXPENSE increased 43.6% to $12.3 million in the
third quarter of 1999, up from $8.6 million in the same period of 1998. The
increase primarily reflects the completion and delivery of newly developed
rental units.
GENERAL AND ADMINISTRATIVE EXPENSE increased to $2.7 million in the third
quarter of 1999, up from $2.2 million in the same period of 1998. The increase
in 1999 was the result of the increased salary expenses due to personnel changes
during the third quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
The Partnership's income after payment of minority redeemable preferred
interests but before extraordinary item was $52.8 million for the nine months
ended September 30, 1999, up from $50.8 million for the same period of 1998. The
Partnership's net income improved in 1999 due to the contributions of newly
delivered rental units from its development program, properties that stabilized
during 1999 and 1998 and an acquisition in 1998, as well as an increase in
rental rates within its stabilized portfolio and a slight increase in physical
occupancy. These improvements were offset, in part, by an increase in minority
redeemable preferred interest due to the issuance of preferred securities in
January and November 1998 and an increase in general and administrative expenses
due to the payment of vested stock options in conjunction with the Merger.
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<PAGE> 19
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES STABILIZED BEFORE 1998 (MORE THAN TWO YEARS)(a)
Number of communities 51 51
Number of units at end of period 14,991 14,991
Operating revenues $160,486 $151,531
Property expenses $ 34,212 $ 33,923
Real estate taxes $ 12,015 $ 11,911
Depreciation and amortization of real estate assets $ 26,462 $ 22,939
COMMUNITIES STABILIZED IN 1998 (LESS THAN TWO YEARS)(b)(c)
Number of communities 4
Number of units at end of period 984
Operating revenues $ 14,540
Property expenses $ 2,778
Real estate taxes $ 1,249
Depreciation and amortization of real estate assets $ 2,889
LEASE-UP COMMUNITIES(c)(d)
Number of communities 4
Number of units at end of period 1,191
Operating revenues $ 10,351
Property expenses $ 2,473
Real estate taxes $ 1,060
Depreciation and amortization of real estate assets $ 1,812
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents "same store" communities.
(b) Represents three communities (768 units) that reached stabilized occupancy
(95%) at different dates in 1998 and a 216-unit property acquired during
1998.
(c) No year to year comparison is provided since the properties were not all
stabilized for comparable periods.
(d) Represents two communities that started lease-up at different dates in 1998
and two properties that started lease-up in 1999.
OPERATING REVENUES (rental and other income) increased by 15.7% to $185.4
million in the first nine months of 1999, up from $160.2 million in the same
period of 1998. Operating revenues rose in 1999 because of higher rental rates
and a larger average number of rental units in service, primarily as a result of
new development. Newly delivered units, along with unit growth in the
Partnership's portfolio stabilized less than two years, added $24.9 million to
operating revenues from eight properties in the first nine months of 1999.
Operating revenues generated by communities stabilized more than two years
increased 5.9% in 1999 due to an improvement in the portfolio's average rental
rate and an increase in average physical occupancy to 94.4% from 93.9%. The
average monthly rental rate for these communities increased 4.9% to $1,231 in
the first nine months of 1999, from $1,173 in the first nine months of 1998.
PROPERTY EXPENSES increased by 9.6% to $39.5 million in the first nine months of
1999, up from $36.0 million in the same period of 1998. The 1999 increase
reflects incremental expenses from newly delivered rental units and communities
stabilized during 1998. Property expenses for communities stabilized more than
two years increased slightly by $0.3 million to $34.2 million in the first nine
months of 1999. Average monthly property expenses generated by these communities
increased to $254 per unit in the first nine months of 1999 from $251 per unit
in the first nine months of 1998. Newly delivered units and communities
stabilized less than two years added $5.3 million to property expenses from
eight properties in the first nine months of 1999. To improve operating
efficiency and reduce operating costs, the Partnership formed IAMC in April 1998
to manage the Partnership's properties. The
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<PAGE> 20
personnel and office costs of IAMC are included in property expenses. For
comparative purposes, management fees prior to the formation of IAMC have been
included in property expenses.
REAL ESTATE TAXES totaled $14.3 million in the first nine months of 1999 and
$12.6 million in the same period of 1998. Real estate taxes increased in the
first nine months of 1999 due primarily to the addition of new rental units.
NET INTEREST EXPENSE increased to $22.4 million in the first nine months of 1999
compared to $20.5 million in the same period of 1998. Total interest incurred
was $34.8 million in the first nine months of 1999 and $29.4 million in the same
period of 1998. The increase in interest incurred in the first nine months of
1999 was primarily due to the unsecured term loan which was outstanding for the
entire period and the tax-exempt mortgage financings, a portion of which was
outstanding for the entire period. Capitalized interest totaled $12.3 million in
the first nine months of 1999 and $8.9 million in the same period of 1998. The
increase in capitalized interest in the first nine months of 1999 was due to the
increase in the average qualifying asset balance for projects under development.
The Partnership capitalizes interest on projects actively under development
using qualifying asset balances and applicable weighted average interest rates.
AMORTIZATION OF DEFERRED FINANCING COSTS was $1.4 million in the first nine
months of 1999 and 1998.
DEPRECIATION AND AMORTIZATION EXPENSE increased 27.2% to $31.7 million in the
first nine months of 1999, up from $24.9 million in the same period of 1998. The
increase primarily reflects the completion and delivery of newly developed
rental units.
GENERAL AND ADMINISTRATIVE EXPENSE increased to $11.6 million in the first nine
months of 1999, up from $6.6 million in the same period of 1998. The increase in
1999 was the result of payments of vested stock options in conjunction with the
Merger, increased salary expenses due to personnel changes and the write-off of
certain abandoned costs.
EXTRAORDINARY ITEM of $42.5 million in the first nine months of 1998 represents
charges associated with the Partnership's June 1998 debt refinancing
transaction. The charges consisted of the write-off of deferred financing costs,
prepayment costs and costs relating to the unwinding of certain swap agreements.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership believes that cash provided by operations will be adequate to
meet both operating requirements and payment of distributions by the Partnership
to the preferred limited partners in both the short and long term.
LIQUIDITY: The Partnership expects to meet its short-term and long-term
liquidity requirements, such as construction costs and scheduled debt
maturities, through the refinancing of long-term debt or borrowings from
financial institutions. The Partnership's unsecured revolving credit facility
and $100 million unsecured term loan were amended in June 1999. The unsecured
revolving credit facility and unsecured term loan were amended and restated to
accommodate the Merger and to allow TIC and certain of its affiliates to
beneficially own and control all of the outstanding common partnership units in
the Partnership and IACLLC to become the sole general partner of the
Partnership. The Partnership's amended $125 million unsecured revolving credit
facility currently bears interest at LIBOR plus 0.65% or prime and matures in
June 2001. The interest rates under the credit facility are adjusted up or down
based on the credit ratings on the Partnership's senior unsecured long-term
indebtedness. Availability under the credit facility was $61.5 million at
September 30, 1999.
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<PAGE> 21
SHELF REGISTRATION STATEMENTS: On May 14, 1997, the Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. On
October 1, 1997, the Partnership issued $100 million aggregate principal amount
of 7% senior unsecured notes pursuant to its shelf registration statement. In
June 1999, the Partnership cancelled the remaining availability of $250 million
under the shelf registration statement, including the Prospectus Supplement
dated April 9, 1998 filed for the future issuance of Medium-Term Notes. The
Partnership no longer plans to issue additional securities under the shelf
registration statement.
PREFERRED INTERESTS: In January 1998, the Trust issued 6.0 million 8 1/4% Series
A Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Partnership. The Partnership used the $150 million of proceeds, net of costs and
expenses, all of which where paid by the Partnership, to repay all outstanding
borrowings under the credit facility and to fund development and an acquisition.
In November 1998, the Partnership issued 2.0 million of 8 3/4% Series B
Preferred Limited Partner Units. The Partnership used the net proceeds to reduce
the outstanding balance on its unsecured line of credit.
DEBT: The Partnership's conventional debt bears interest at fixed interest
rates. Interest rates on conventional mortgage debt were reduced to then-current
market rates at the time of IAC, Inc.'s December 1993 initial public offering
through interest rate buy-down agreements that are scheduled to expire at
various dates prior to loan maturity that range from 2000 to 2008. The weighted
average effective interest rate on the Partnership's debt, including the
non-cash charges of amortization of deferred financing costs, was 6.19% at
September 30, 1999. In June 1998, the Partnership completed a $334 million
offering of unsecured tax-exempt debt at an average interest rate of 4.93% in
three tranches ranging from 10 to 15 years. Proceeds from the offering were used
to repay the Partnership's existing tax-exempt mortgage debt and to pay costs
associated with prepayment penalties and the unwinding of certain swap
agreements.
<TABLE>
<CAPTION>
DEBT STRUCTURE AT SEPTEMBER 30, 1999
Debt Weighted Average
(dollars in millions) Balance Interest Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings $242.4 7.24%
Mortgage notes payable to The Irvine Company ......... 48.8 5.75%
Tax-exempt assessment district debt .................. 5.3 6.29%
Unsecured tax-exempt bond financings ................. 334.2 4.93%
Unsecured notes payable .............................. 99.3 7.10%
Unsecured term loan .................................. 100.0 6.47%
- ------------------------------------------------------------------------------------------------
Total fixed rate debt 830.0 6.11%
- ------------------------------------------------------------------------------------------------
Variable rate debt
Tax-exempt mortgage bond financings 50.0 4.31%
Tax-exempt assessment district debt 15.9 4.59%
Unsecured line of credit
- ------------------------------------------------------------------------------------------------
Total variable rate debt 65.9 4.38%
- ------------------------------------------------------------------------------------------------
Total debt $895.9 5.98%
================================================================================================
</TABLE>
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<PAGE> 22
OPERATING ACTIVITIES: Cash provided by operating activities was $90.5 million
and $59.1 million in the first nine months of 1999 and 1998, respectively. Cash
provided by operating activities increased in the first nine months of 1999
compared to the same period in 1998 due to an extraordinary item related to debt
extinguishment in the first nine months of 1998, higher revenues from newly
developed and acquired apartment units, as well as an increase in revenues
within the Partnership's stabilized portfolio achieved through higher rental
rates and occupancy.
INVESTING ACTIVITIES: Cash used in investing activities was $118.8 million and
$179.7 million in the first nine months of 1999 and 1998, respectively. This
decrease reflects no acquisitions in the first nine months of 1999 as compared
to 1998.
FINANCING ACTIVITIES: Cash provided by financing activities was $97.0 million
and $121.9 million in the first nine months of 1999 and 1998, respectively. In
1998, the Partnership received net proceeds of $144 million from the issuance of
8 1/4% Series A Preferred Limited Partner Units and proceeds of $144 million
from its unsecured line of credit. The proceeds from the Series A Preferred
Securities were used to pay a portion of the outstanding borrowings under the
credit facility and for development. The Partnership received proceeds of $334.2
million from the issuance of tax-exempt bonds in June 1998. These proceeds were
used to repay existing tax-exempt mortgage bonds and to pay costs associated
with the offering. During 1999, the Partnership received advances from TIC
totaling $71.7 million. These proceeds were used to pay all outstanding
borrowings under the credit facility and for development. In September 1999, the
Partnership received proceeds of $6.6 million from the issuance of tax-exempt
mortgage bond financings and received proceeds of $115 million from a financial
institution. These proceeds were used to pay all outstanding advances from TIC
and also for development. The Partnership (and the Trust) made distributions of
$9.3 million to holders of the Trust's Series A Preferred Securities in the
first nine months of 1999 compared to $8.6 million in the first nine months of
1998. In addition, the Partnership made distributions of $3.3 million to holders
of the Partnership's Series B Preferred Limited Partner interests in the first
nine months of 1999.
CAPITAL EXPENDITURES
Capital expenditures consist of capital improvements and investments in real
estate assets. Capital improvements to operating real estate assets totaled $4.8
million and $3.6 million in the first nine months of 1999 and 1998,
respectively. Capital investments in real estate assets totaled $114.0 million
and $176.1 million in the first nine months of 1999 and 1998, respectively.
These investments consisted of new development and nonrecurring capital
replacements.
RECURRING CAPITAL IMPROVEMENTS WITHIN ALL STABILIZED COMMUNITIES: The following
table details expenditures for recurring capital improvements for all stabilized
communities for the first nine months of 1999.
<TABLE>
<CAPTION>
Nine Months Ended
(dollars in thousands) September 30, 1999
- ----------------------------------------------------------------------------
<S> <C>
Carpet replacements $ 1,579
Exterior building enhancements, siding and stucco 799
Upgrades, renovations and major building items 381
Appliances, water heaters and air conditioning 267
Roofing, concrete and pavement 935
Equipment and other 839
- ----------------------------------------------------------------------------
Total $ 4,800
============================================================================
</TABLE>
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RECURRING CAPITAL IMPROVEMENTS WITHIN COMMUNITIES STABILIZED BEFORE 1998:
Expenditures for recurring capital improvements within communities stabilized
before 1998 totaled $4.7 million and $3.6 million in the first nine months of
1999 and 1998, respectively. Average recurring capital improvements per unit
were $312 and $238 in the first nine months of 1999 and 1998, respectively.
Expenditures for recurring capital improvements for the full year 1999 are
expected to be similar to full year 1998 levels. The Partnership has a policy of
capitalizing expenditures related to new assets, acquisitions, the material
enhancement of the value of an existing asset, or the substantial extension of
an existing asset's useful life.
RECURRING CAPITAL IMPROVEMENTS WITHIN COMMUNITIES STABILIZED IN OR AFTER 1998:
Expenditures for recurring capital improvements within communities stabilized in
or after 1998 totaled $120,000 for the first nine months of 1999. Expenditures
for recurring capital improvements are expected to be $144,000 for the full year
1999.
NONRECURRING CAPITAL REPLACEMENTS: Nonrecurring capital replacements consist of
special programs to upgrade and enhance a community to achieve higher rental
rates. Expenditures for nonrecurring capital replacements totaled $4.4 million
in the first nine months of 1999. These expenditures were made at six
properties. Costs to complete the special programs at the six properties are
expected to be approximately $6.9 million which will be spent over the next two
years.
CAPITAL INVESTMENTS IN NEW DEVELOPMENT: Currently, the Partnership has seven
apartment communities under development or construction that will require total
expenditures of approximately $546 million, of which $256 million had been
incurred as of September 30, 1999. Funding for these developments is expected to
come from borrowings from financial institutions, including the Partnership's
$125 million unsecured revolving credit facility (of which $61.5 million was
available as of September 30, 1999), and refinancing of long-term debt. The
Partnership has no plans for future development beyond the seven apartment
communities currently under development.
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
Total
Commencement Estimated
Commencement of Leasing Costs
Apartment Community Location Units of Construction Activity (in millions)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
On Ranch:
Park Place Irvine 1,226 9/98 $219
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Off Ranch:
Arcadia at Stonecrest(1) San Diego 336 4/98 2/99 44
La Jolla Palms La Jolla 232 5/98 50
The Villas at Bair Island
Marina Redwood City 155 6/98 11/99 40
1221 Ocean Avenue Santa Monica 120 8/98 10/99 86
Lonestar Redwood City 206 11/98 49
Olson Ranch Sunnyvale 300 11/98 58
- --------------------------------------------------------------------------------------------------------------------
1,349 327
- --------------------------------------------------------------------------------------------------------------------
Total 2,575 $546
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This property was in lease-up at September 30, 1999, with 260 units
delivered and 234 units occupied.
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The timing of future commencement and completion of construction, the
commencement of leasing activity and initial stabilized occupancy and estimated
costs of apartment communities that are in development are only estimates.
Actual results will depend on numerous factors, many of which are beyond the
control of the Partnership. These include the extent and timing of economic
growth in the Partnership's rental markets; future trends in the pricing of
construction materials and labor; product design changes; entitlement decisions
by local government authorities; weather patterns; changes in interest rate
levels; and other changes in capital markets. No assurance can be given that the
timing or estimates set forth in the foregoing table will not vary substantially
from actual results.
IRVINE RANCH MASTER PLAN
The Irvine Company is a real estate investment and community development firm
engaged in the long-term development of the Irvine Ranch. The urbanization of
the Irvine Ranch began in the 1960s with the adoption of the pioneering
comprehensive Master Plan for future community development which originally
constituted a large map of the Irvine Ranch and a series of supporting maps
detailing land uses. Subsequently, The Irvine Company worked closely with the
various local jurisdictions which govern the Irvine Ranch to adopt general plans
for the future development of their jurisdictions. The Irvine Company's overall
Master Plan was refined to accord with the approved general plans and the
residential, commercial, industrial, environmental and aesthetic balance desired
by each jurisdiction. As a result, today the Irvine Ranch Master Plan is a
compilation of the various interlocking general plans described above. The
Irvine Company continuously engages in planning activities and the Master Plan
refinement process is ongoing. The Irvine Company works closely with local
government representatives, community residents and other civic and
environmental groups to obtain the necessary local support and entitlement for
its developments. The goal of the Master Plan was and remains to create
innovative urban and suburban environments through the well-planned, coordinated
development of residential communities and employment centers (which include
major business and retail centers, and research and development and industrial
parks) as well as civic, cultural, recreational, educational and other
supportive facilities, all with an emphasis on improving the quality of life and
achieving long-term balanced regional economic growth.
The success of the Irvine Ranch as a master-planned development is, in the large
part, attributable to the early creation of a broad employment base. The Irvine
Company has emphasized the promotion of job creation on the Irvine Ranch and has
been involved in creating four major employment centers on the Irvine Ranch,
each easily accessible by apartment residents and the surrounding area. The
Irvine Company has been the sole developer of the Irvine Spectrum, a 5,000-acre
research, technology and employment center which houses more than 2,200
companies and approximately 44,000 employees and includes 25 million square feet
of research and development and office space. The Irvine Business Complex, which
surrounds the John Wayne airport, houses over 100,000 employees and includes
more than 24 million square feet of office and other commercial space and over
14 million square feet of industrial space. Newport Center contains over 4.5
million square feet of office space, a 1.3 million square-foot regional mall
(Fashion Island), a tennis club and two country clubs. In addition, The Irvine
Company donated land to the University of California at Irvine, a 1,489-acre
campus which currently has more than 17,700 students and 6,200 employees. The
proximity of the Irvine Ranch properties to these employment centers makes them
attractive residential locations.
YEAR 2000 PROJECT
GENERAL: As is the case with many computer and microprocessor-based systems,
certain of the Partnership's systems use two digit date fields which recognize
dates using the assumption that the first two digits are "19" (i.e., the number
"99" is recognized as the year "1999"). Because of the nature of its operations,
the Partnership does not believe that its business, results of operations or
financial condition will be materially adversely affected by a failure of these
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systems. Nonetheless, the Partnership has initiated a plan to assess (and
remediate, as necessary) its computer and microprocessor-based systems.
STATE OF YEAR 2000 READINESS: The Partnership's Year 2000 project is divided
into four general exposure types--infrastructure and hardware, applications
software, third-party suppliers and customers ("third parties"), and process
control and instrumentation ("PC&I"). The general resolution phases common to
all sections are: (1) compiling potential Year 2000-sensitive items; (2)
assigning priorities to identified items; (3) assessing the Year 2000 compliance
of items determined to be material to the Partnership; (4) repairing or
replacing material items that are determined not to be Year 2000 compliant; and
(5) testing material items.
The completion percentages of the general resolution phases are based on the
level of effort expended to date versus the level of effort estimated to be
necessary to complete the task.
The infrastructure section consists of the routers, hubs, switches and related
components necessary to maintain communication with our properties, remote
offices and business partners. It also consists of all the hardware elements of
our file and application servers and personal computers. As of September 30,
1999, 100% of all infrastructure systems were believed to be Year 2000
compliant. By October 1999, 100% of all hardware systems were evaluated to be
Year 2000 compliant. The Partnership will conduct additional testing in November
of 1999.
The application section is broken into two types of applications, off-the-shelf
packages and custom-written software. By October 1999, 100% of all off-the-shelf
software had been upgraded to the latest Year 2000 compliant versions with the
exception of one application that will be replaced with a Year 2000 compliant
version during the fourth quarter of 1999. The custom-written applications are
also believed to be 100% Year 2000 compliant. The server applications will be
tested in the middle of the fourth quarter of 1999 to confirm their Year 2000
readiness. As of September 30, 1999, the Partnership had completed the testing
of its desktop computers and had made the necessary repairs and replacements on
60% of such desktop computers. The remaining 40% will be completed in November
of 1999.
The third parties section consists of identifying and prioritizing critical
suppliers and communicating with them about their plans and progress in
addressing the Year 2000 issue. The state of readiness of the Partnership's
third parties is based primarily on representations from such parties. The
Partnership has queried 100% of its significant suppliers and subcontractors
that do not share information systems with the Partnership. The Partnership has
received written Year 2000 status letters from all of the significant suppliers
and subcontractors queried. Of the significant suppliers and subcontractors
queried, 100% had a plan to remediate any Year 2000 issues and 100% had begun
assessing their systems, however, the completion percentages of their plans have
not been determined. Follow-up inquiries are scheduled through the remainder of
1999, at which time the Partnership will implement contingency plans or other
alternatives, as necessary, depending on the third parties' Year 2000 readiness.
To date, the Partnership is not aware of any third parties with a Year 2000
issue that would materially impact the Partnership's results of operations,
liquidity, or capital resources. However, the Partnership has no means of
ensuring that third parties will be Year 2000 ready.
The PC&I section includes the hardware, software and associated embedded chips
that are used in the operation of all facilities operated by the Partnership.
PC&I equipment includes security systems, lighting systems, HVAC systems and
sprinkler systems. As of October 1999, the Partnership had assessed all the
equipment at all the properties and determined the equipment to be 100% Year
2000 compliant. The Partnership will conduct additional testing in November of
1999.
COSTS: The Partnership has incurred less than $50,000 in connection with its
Year 2000 remediation efforts. The Partnership estimates its future costs
related to its Year 2000 remediation efforts to be less than $100,000. Overall,
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<PAGE> 26
the Partnership does not expect its Year 2000 expenditures to be material to the
Partnership's business, results of operations or financial condition.
RISK AND CONTINGENCY PLANNING: Management of the Partnership believes it has a
program in place to adequately resolve the Year 2000 issue in a timely manner.
As noted above, the Partnership has not yet completed all necessary resolution
phases of the Year 2000 project. In the event that the Partnership does not
complete any additional phases related to its infrastructure, applications
software or PC&I, the Partnership does not believe that there will be a material
adverse effect on its business, results of operations or financial condition. A
Year 2000 failure by an important third party could materially disrupt the
Partnership's operations. For example, a Year 2000 failure by one or more of the
financial institutions or utility companies with which the Partnership does
business could cause the Partnership to lose access to its funds or could
restrict the Partnership's ability to borrow or operate a property. A Year 2000
failure by a trustee or transfer agent or by The Depository Trust Company could
restrict the Partnership's ability to pay interest on its bonds or to pay
dividends or distributions on its preferred securities. In addition, disruption
in the economy generally resulting from Year 2000 issues could also materially
adversely affect the Partnership. The Partnership could be subject to litigation
relating to the adverse effects resulting from the Year 2000 issue. The amount
of potential liability and lost revenue cannot be reasonably estimated at this
time. In the event the Partnership does not complete all resolution phases of
the Year 2000 project, the Partnership has created manual procedures as a
contingency plan until a resolution can be established.
The Partnership's assessment of its risks, and its expectations as to future
Year 2000 compliance, are forward-looking statements.
IMPACT OF INFLATION
The Partnership's business is affected by general economic conditions, including
the impact of inflation and interest rates. Substantially all of the
Partnership's leases allow, at time of renewal, for adjustments in the rent
payable thereunder, and thus may enable the Partnership to seek increases in
rents. Substantially all leases are for a period of one year or less. The
short-term nature of these leases generally serves to minimize the risk to the
Partnership of the adverse effects of inflation. For construction, the
Partnership enters into various contracts for the development and construction
of new apartment communities. These are fixed-fee contracts and thus partially
insulate the Partnership from inflationary risk.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Refer to the Partnership's Annual Report on Form 10-K/A for the year
ended December 31, 1998 for detailed disclosure about quantitative and
qualitative disclosures about market risk. Quantitative and qualitative
disclosures about market risk have not materially changed since December
31, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. 3.1: Third Amended and Restated Agreement of Limited
Partnership of Irvine Apartment Communities, L.P.
dated June 9, 1999
Exhibit No. 27.1: Financial Data Schedule for Irvine Apartment
Communities, L.P.
Exhibit No. 27.2: Financial Data Schedule for IAC Capital Trust.
(b) During the third quarter of 1999, the Partnership filed no
current reports on Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities LLC
its sole general partner
Date: November 12, 1999 By: /s/ MICHAEL D. MCKEE
-----------------------------------------
Michael D. McKee
Vice Chairman,
Chief Financial Officer and Secretary
IAC CAPITAL TRUST
Date: November 12, 1999 By: /s/ DAVID A. PATTY
-----------------------------------------
David A. Patty
Regular Trustee
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EXHIBIT INDEX
Exhibit No. 3.1: Third Amended and Restated Agreement of Limited
Partnership of Irvine Apartment Communities, L.P.
dated June 9, 1999
Exhibit No. 27.1: Financial Data Schedule for Irvine Apartment
Communities, L.P.
Exhibit No. 27.2: Financial Data Schedule for IAC Capital Trust.
<PAGE> 1
EXHIBIT 3.1
-----------------------------------------------------
THIRD AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
OF
IRVINE APARTMENT COMMUNITIES, L.P.
(a Delaware limited partnership)
-----------------------------------------------------
Dated as of JUNE 9, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE 1. DEFINED TERMS ..............................................................................................2
ARTICLE 2. ORGANIZATIONAL MATTERS.....................................................................................16
Section 2.1. Formation; Continuation.......................................................................16
Section 2.2. Name .........................................................................................16
Section 2.3. Registered Office and Agent; Principal Office.................................................16
Section 2.4. Power of Attorney.............................................................................16
Section 2.5. Term .........................................................................................17
ARTICLE 3. PURPOSE ...................................................................................................17
Section 3.1. Purpose and Business..........................................................................18
Section 3.2. Powers .......................................................................................18
Section 3.3. Partnership Only for Purposes Specified.......................................................18
Section 3.4. Representations and Warranties by the Parties.................................................18
ARTICLE 4. CAPITAL CONTRIBUTIONS......................................................................................18
Section 4.1. Capital Contributions of the Partners.........................................................20
Section 4.2. Additional Capital Contribution and Loans Generally...........................................20
Section 4.3. [Reserved]....................................................................................20
Section 4.4. Loans by Third Parties........................................................................20
Section 4.5. Additional Funding and Capital Contributions..................................................20
Section 4.6. [Reserved] ...................................................................................20
Section 4.7. No Third Party Beneficiary....................................................................23
Section 4.8. [Reserved]....................................................................................23
ARTICLE 5. DISTRIBUTIONS .............................................................................................24
Section 5.1. Requirements and Characterization of Distributions............................................24
Section 5.2. Distributions in Kind.........................................................................24
Section 5.3. Distributions Upon Liquidation................................................................25
Section 5.4. Restricted Distributions......................................................................25
Section 5.5. No Material Alterations.......................................................................25
ARTICLE 6. ALLOCATIONS ...............................................................................................25
Section 6.1. Allocations in General........................................................................25
Section 6.2. Additional Allocation Provisions..............................................................25
Section 6.3. Tax Allocations...............................................................................28
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 7. MANAGEMENT AND OPERATIONS OF BUSINESS......................................................................28
Section 7.1. Management ...................................................................................28
Section 7.2. Certificate of Limited Partnership............................................................31
Section 7.3. Restrictions on General Partner's Authority...................................................32
Section 7.4. Reimbursement of the General Partner; Reimbursement of Limited Partners.......................34
Section 7.5. Outside Activities of the General Partner.....................................................35
Section 7.6. Contracts with Affiliates.....................................................................35
Section 7.7. Indemnification...............................................................................36
Section 7.8. Liability of the General Partner..............................................................38
Section 7.9. Other Matters Concerning the General Partner..................................................39
Section 7.10. Title to Partnership Assets..................................................................40
Section 7.11. Reliance by Third Parties....................................................................40
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................................................41
Section 8.1. Limitation of Liability.......................................................................41
Section 8.2. Management of Business........................................................................41
Section 8.3. Outside Activities of Limited Partners........................................................41
Section 8.4. Return of Capital.............................................................................41
Section 8.5. Rights of Limited Partners Relating to the Partnership........................................42
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS.....................................................................42
Section 9.1. Records and Accounting........................................................................42
Section 9.2. Reports ......................................................................................42
ARTICLE 10. TAX MATTERS ..............................................................................................43
Section 10.1. Preparation of Tax Returns; Tax Accounting...................................................43
Section 10.2. Tax Elections................................................................................43
Section 10.3. Tax Matters Partner..........................................................................43
Section 10.4. Withholding..................................................................................44
ARTICLE 11. TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER.....................................................44
Section 11.1. Transfer ....................................................................................44
Section 11.2. Transfer of General Partner's Interest.......................................................44
Section 11.3. Limited Partners'Rights to Transfer..........................................................45
Section 11.4. Substituted Limited Partners.................................................................46
Section 11.5. Assignees ...................................................................................47
Section 11.6. General Provisions...........................................................................47
Section 11.7. Removal of General Partner...................................................................48
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 12. ADMISSION OF PARTNERS.....................................................................................49
Section 12.1. Admission of Successor General Partner.......................................................49
Section 12.2. Admission of Additional Limited Partners.....................................................49
Section 12.3. Amendment of Agreement and Certificate of Limited Partnership................................50
Section 12.4. Limit on Number of Partners..................................................................50
ARTICLE 13. DISSOLUTION, LIQUIDATION AND TERMINATION..................................................................50
Section 13.1. Dissolution..................................................................................50
Section 13.2. Winding Up...................................................................................51
Section 13.3. [Reserved]...................................................................................53
Section 13.4. Rights of Limited Partners...................................................................53
Section 13.5. Notice of Dissolution........................................................................53
Section 13.6. Termination of Partnership and Cancellation of Certificate of Limited Partnership............53
Section 13.7. Reasonable Time for Winding-Up...............................................................53
Section 13.8. Waiver of Partition..........................................................................53
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..............................................................53
Section 14.1. Amendments...................................................................................53
Section 14.2. Meetings of the Common Limited Partners......................................................54
Section 14.3. Meetings of Preferred Limited Partners.......................................................54
ARTICLE 15. GENERAL PROVISIONS........................................................................................55
Section 15.1. Addresses and Notice.........................................................................55
Section 15.2. Titles and Captions..........................................................................55
Section 15.3. Pronouns and Plurals.........................................................................55
Section 15.4. Further Action...............................................................................55
Section 15.5. Binding Effect...............................................................................55
Section 15.6. Waiver ......................................................................................55
Section 15.7. Counterparts.................................................................................55
Section 15.8. Applicable Law...............................................................................56
Section 15.9. Entire Agreement.............................................................................56
Section 15.10. Invalidity of Provisions....................................................................56
Section 15.11. Certificates for Preferred Limited Partner Interests Issued to IAC Capital Trust............56
</TABLE>
iii
<PAGE> 5
EXHIBITS:
Exhibit A - Partners, Contributions and Partnership Interests
Exhibit B - Form of Common Limited Partner Unit Certificate
Exhibit C - Designation of Series A Preferred Limited Partner Units
Exhibit D - Designation of Series B Preferred Limited Partner Units
iv
<PAGE> 6
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
IRVINE APARTMENT COMMUNITIES, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
June 9, 1999 is entered into by and among Irvine Apartment Communities LLC, a
Delaware limited liability company, as the General Partner, and the Persons
whose names are set forth on Exhibit A as attached hereto, as the Limited
Partners, together with any other Persons who become Partners in the Partnership
as provided herein.
W I T N E S S E T H:
WHEREAS, on November 15, 1993, Irvine Apartment Communities, Inc. and
The Irvine Company formed a Delaware limited partnership under the name "Irvine
Apartment Communities, L.P." (the "Partnership");
WHEREAS, effective as of December 1, 1993, (i) Irvine Apartment
Communities, Inc. and The Irvine Company made additional contributions to the
Partnership and admitted additional Common Limited Partners to the Partnership;
and (ii) Irvine Apartment Communities, Inc., The Irvine Company and such Limited
Partners entered into the Amended and Restated Agreement of Limited Partnership
dated as of December 1, 1993 (the "First Amendment and Restatement");
WHEREAS, the First Amendment and Restatement was amended by agreements
dated as of April 20, 1995, July 18, 1995, August 9, 1995, March 20, 1996, May
1, 1996, June 30, 1996, February 4, 1997, July 25, 1997 and December 1, 1997 and
pursuant to certain of such amendments and agreements dated as of March 7, 1995,
June 21, 1996, July 3, 1996 and July 30, 1996 certain Additional Limited
Partners and Substituted Limited Partners were admitted to the Partnership as
Common Limited Partners;
WHEREAS, on January 20, 1998, the First Amendment and Restatement was
amended and restated by the Second Amended and Restated Agreement of Limited
Partnership of Irvine Apartment Communities, L.P., which, among other things,
provided for the issuance from time to time of preferred limited partner
interests in series (the "Second Amendment and Restatement");
WHEREAS, the Second Amendment and Restatement was amended by Amendment
No. 1 dated as of October 30, 1998 to the Second Amendment and Restatement (as
so amended, the "Prior Agreement");
WHEREAS, as of the date hereof the interests of the current Partners in
the Partnership are as set forth in Exhibit A attached hereto;
<PAGE> 7
WHEREAS, the parties desire to amend the Prior Agreement pursuant to
Section 14.1 thereof to, among other things, (i) acknowledge the succession of
Irvine Apartment Communities LLC as General Partner by virtue of its merger with
Irvine Apartment Communities, Inc. and (ii) to delete certain provisions and
related definitions and exhibits relating to certain events and transactions
which have occurred or never will occur and which do not affect the Partnership
or the distributions and allocations provided for herein on an ongoing basis;
and in connection therewith to amend and restate the Prior Agreement in its
entirety; and
WHEREAS, the parties hereto desire to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
in accordance with the provisions of this Agreement, which supersedes, amends
and restates the Prior Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE 1.
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7.A hereof.
"Additional Funds" has the meaning set forth in Section 4.5.A hereof.
"Additional Limited Partner" means a Person admitted to the Partnership
as either a Preferred Limited Partner or Common Limited Partner pursuant to
Sections 4.5.D and 12.2 hereof and who is shown as such on the books and records
of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner 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) decreased by 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 is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
2
<PAGE> 8
"Adjustment Date" means the date of a Capital Contribution pursuant to
Section 4.5 hereof.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent" means Bank of America National Trust and Savings Association in
its capacity as administrative agent for the Banks under the Loan Agreement.
"Agreement" means this Third Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time,
including pursuant to a Designation Instrument.
"Apartment Community Project" means any multifamily rental apartment
community, including the structure, buildings and other facilities, and any
construction and improvement activities undertaken with respect thereto.
"Appraisal" means, with respect to any assets, the written opinion of
an independent third party experienced in the valuation of similar assets,
selected by the General Partner in good faith, such selection to be subject to
the reasonable approval of The Irvine Company, for so long as The Irvine Company
is a holder of a Common Limited Partner Interest representing at least a 10%
Junior Percentage Interest, and thereafter, to the extent there is an Original
Limited Partner, the Original Limited Partner holding the largest Junior
Percentage Interest in the Partnership, provided that for purposes of clause (c)
of the definition of Gross Asset Value, the independent third party shall be
selected by the distributee if the distributee is other than the General
Partner.
"Assignee" means a Person to whom one or more Limited Partner Units
have been transferred in a manner permitted under this Agreement, but who has
not become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(a) the Partnership's Net Income or Net Loss (as the case may
be) for such period (without regard to adjustments resulting from
special allocations described in Section 6.2.B hereof),
(b) Depreciation and all other noncash charges or accruals to
the extent deducted in determining Net Income or Net Loss for such
period,
3
<PAGE> 9
(c) the excess, if any, of the net cash proceeds from the
sale, exchange, disposition, or refinancing of Partnership property for
such period over the gain (or loss, as the case may be) recognized from
such sale, exchange, disposition, or refinancing during such period
(excluding Terminating Capital Transactions), and
(d) all other cash received (including amounts previously
accrued as Net Income and amounts of deferred income) or any amounts
borrowed by the Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(a) all principal debt payments made during such period by the
Partnership,
(b) capital expenditures made by the Partnership during such
period,
(c) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in
clause (ii)(b),
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period (including amounts
paid in respect of expenses previously accrued),
(e) any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period, and
(f) the amount of any working capital accounts and other cash
or cash equivalents which the General Partner determines to be
necessary or appropriate in its sole discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made, or reserves established, after commencement of the dissolution, and
liquidation of the Partnership.
"Banks" means, collectively, the lenders that are or, pursuant to
Section 11.19 thereof, become party to the Loan Agreement.
"Capital Account" means, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be added
such Partner's Capital Contributions, such Partner's share of Net
Income and any items in the nature of income or gain which are
specially allocated pursuant to Section 6.2 hereof, and the principal
amount of any Partnership liabilities assumed by such Partner or which
are secured by any property distributed to such Partner.
(b) From each Partner's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to
4
<PAGE> 10
any provision of this Agreement, such Partner's distributive share of
Net Losses and any items in the nature of expenses or losses which are
specially allocated pursuant to Section 6.2 hereof, and the principal
amount of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
(c) In the event any 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 is attributable to the transferred interest.
(d) In determining the amount of any liability for purposes of
subsections (a) and (b) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
(e) The provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b) and 1.704-2, and shall be interpreted and applied in
a manner consistent with such Regulations. If the General Partner shall
determine that it is prudent to modify the manner in which the Capital
Accounts are maintained in order to comply with such Regulations, the
General Partner may make such modification provided that such
modification will not have a material effect on the amounts
distributable to any Partner without such Partner's consent. The
General Partner also shall make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the
Partners 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)(q).
"Capital Contribution" means, with respect to any Partner, any cash or
the Gross Asset Value of any Contributed Property which such Partner contributes
to the Partnership pursuant to Sections 4.1, 4.2 or 4.5 hereof or is deemed to
contribute pursuant to Sections 4.5.F and 4.5.H(1) hereof, as such Gross Asset
Value may be determined from time to time.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable Regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Common Limited Partner" means any Person named as a Common Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Common Limited Partner in the Partnership.
5
<PAGE> 11
"Common Limited Partner Interest" means a Partnership Interest of a
Common Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Common Limited Partners. A Common Limited Partner
Interest may be expressed as a number of Partnership Units (each a "Common
Limited Partner Unit"). Each Common Limited Partner Interest shall be a security
governed by Division 8 of Delaware Uniform Commercial Code.
"Consent" means the consent to or approval of a proposed action by a
Partner given in accordance with Section 14.2 or Section 14.3 hereof.
"Consent of the Common Limited Partners" means the Consent of a
Majority-In-Interest of the Common Limited Partners, which Consent shall be
obtained prior to the taking of any action for which it is required by this
Agreement and may be given or withheld by a Majority-In-Interest of the Common
Limited Partners, in their sole discretion.
"Contributed Properties" means each Property or other asset, but
excluding cash, contributed or deemed contributed to the Partnership (or deemed
contributed to the Partnership on termination and reconstitution thereof
pursuant to Section 708 of the Code).
"Debt" means, as to any Person, as of any date of determination, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; and (iii) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by any lien on any property owned by such Person, to the extent
attributable to such Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof.
"Declaration of Trust" means the Declaration of Trust of IAC Capital
Trust dated as of October 31, 1997, as amended and restated by the Amended and
Restated Declaration of Trust of IAC Capital Trust dated as of January 20, 1998,
as such agreement may be amended, modified or restated from time to time.
"Depreciation" means, for each Partnership Year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such 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 such year, Depreciation shall be in an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
bears to such beginning adjusted tax basis; provided, however, that if the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the General
Partner.
"Designation Instrument" means with respect to a series of Preferred
Limited Partner Interests, an instrument executed by the General Partner at the
time of issuance of such series of Preferred Limited Partner Interests, setting
forth the rights, powers and duties of such series as
6
<PAGE> 12
established by the General Partner pursuant to Section 4.5.F of this Agreement.
The General Partner shall identify each such Designation Instrument as the next
consecutively lettered Exhibit to this Agreement (the first such Designation
Instruments being Exhibit C and Exhibit D hereto) and shall deliver a conformed
copy thereof to each Limited Partner, provided that the failure to deliver a
conformed copy to a Limited Partner shall not in any way invalidate the issuance
of such series of Preferred Limited Partner Interests or give any Limited
Partner any rights under this Agreement other than the right to obtain a
conformed copy of such Designation Instrument.
"Election Notice" has the meaning set forth in Section 4.5.G hereof.
"Existing Property Partnership" means the San Rafael Apartments Limited
Partnership.
"Existing Property Partnership Interest" shall mean the interest of the
Partnership as a 1% general partner and a 98% limited partner in the Existing
Property Partnership.
"Funding Debt" means any Debt incurred by or on behalf of the General
Partner for the purpose of providing funds to the Partnership.
"Funding Notice" has the meaning set forth in Section 4.5.B hereof.
"General Partner" means Irvine Apartment Communities LLC (formerly
known as TIC Acquisition LLC), as successor to Irvine Apartment Communities,
Inc., or its successor as general partner of the Partnership in its capacity as
general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner that is the general partner interest hereunder. A General
Partner Interest may be expressed as a number of Partnership Units (each a
"General Partner Unit").
"General Partner Loan" has the meaning set forth in Section 4.5.C
hereof.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be (i) in the case of assets
included in Exhibit A the gross fair market value of such assets as
agreed by the Partners and as set forth in Exhibit A under the heading
"Gross Asset Value of Contributed Property", and (ii) in the case of
any other assets that are contributed to the Partnership, their gross
fair market value as agreed by the General Partner, the contributing
Partner and the Irvine Person, if any, holding the largest Junior
Percentage Interest in the Partnership. The sub-allocation of any Gross
Asset Value determined pursuant to clauses (i) or (ii) within any group
of assets shall be determined by agreement of the General Partner, the
contributing Partner and the Irvine Person, if any, holding the largest
Junior Percentage Interest in the Partnership in accordance with the
principles of Section 1060 of the Code. In any case in which the
General Partner, the contributing Partner and the Irvine Person, if
any, holding the largest Junior Percentage Interest in the Partnership
are unable to agree as to the gross fair
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market value of any asset or assets such Gross Asset Value shall be
determined by Appraisal in accordance with such principles.
(b) The Gross Asset Values of all Partnership assets
immediately prior to the occurrence of any event described in (i),
(ii), (iii), (iv) or (v) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the General
Partner using such reasonable method of valuation as it may adopt, as
of the following times:
(i) the acquisition of an additional interest in the
Partnership by a new or existing Partner in exchange for more
than a de minimis Capital Contribution, if the General Partner
reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of the
Partners in the Partnership;
(ii) the distribution by the Partnership to a Partner
of more than a de minimis amount of Partnership property as
consideration for an interest in the Partnership, if the
General Partner reasonably determines that such adjustment is
necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General
Partner pursuant to Section 11.7.C hereof; and
(v) at such other times as the General Partner shall
reasonably determine necessary or advisable in order to comply
with Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed
to a Partner shall be the gross fair market value of such asset on the
date of distribution as determined by the distributee and the General
Partner provided, however, if the distributee is the General Partner,
or if the distributee and the General Partner cannot agree on such a
determination, by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall
not be adjusted pursuant to this subparagraph (d) to the extent that
the General Partner reasonably determines that an adjustment pursuant
to subparagraph (b) is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to
this subparagraph (d).
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<PAGE> 14
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (a), (b) or (d), such
Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing
Net Income and Net Losses.
"IAC Capital Trust" means IAC Capital Trust, a Delaware business trust
formed pursuant to the Declaration of Trust and the Business Trust Act of the
State of Delaware (12 Del. Code Section 3801 et seq.).
"IRS" means the Internal Revenue Service.
"Immediate Family" of any individual means, such individual's estate
and heirs, spouse and children (whether natural or adoptive or by marriage) and
any trust or estate, the beneficiaries of which include such Person or any of
the foregoing.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof, (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment, or (h) an appointment referred to in clause (g) is not vacated
within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of (A) its status as the General Partner, or (B) such Person's status as
a director of the General Partner or an officer or employee of the Partnership
or the General Partner, or (C) such Person's status as a director of The Irvine
Company, (ii) other Persons (including Affiliates of the General Partner or
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<PAGE> 15
the Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole
discretion, and (iii) any Irvine Person.
"Initial Public Offering" means the offering of the predecessor general
partner's common stock pursuant to the Form S-11 Registration Statement (No.
33-68830) filed by the General Partner with the Securities and Exchange
Commission.
"Irvine Persons" means (i) The Irvine Company and its Affiliates, (ii)
Donald L. Bren and his Affiliates and Immediate Family, and any successors
thereto by descent or devise and (iii) the current and future shareholders of
The Irvine Company, and any Affiliates of any current and future shareholders of
the Irvine Company and the Immediate Family of such shareholders.
"Junior Partnership Interests" means the General Partner Interest and
the Common Limited Partner Interests.
"Junior Percentage Interest" means, as to the General Partner and each
Common Limited Partner, its interest in the Partnership as determined by
dividing, as applicable, the number of General Partner Units or Common Limited
Partner Units owned by such Partner by the aggregate number of General Partner
Units and Common Limited Partner Units then outstanding and as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time.
"Limited Partner" means a Common Limited Partner or a Preferred Limited
Partner, and "Limited Partners" means the Common Limited Partners and the
Preferred Limited Partners.
"Limited Partner Interest" means a Common Limited Partner Interest or a
Preferred Limited Partner Interest, and "Limited Partner Interests" means the
Common Limited Partner Interests and the Preferred Limited Partner Interests.
"Limited Partner Units" means the Common Limited Partner Units and the
Preferred Limited Partner Units.
"Liquidating Events" has the meaning set forth in Section 13.1 hereof.
"Liquidation Preference Amount" means with respect to any Preferred
Limited Partner Interest, the amount payable with respect to such Preferred
Limited Partner Interest (as established by the General Partner at the time of
issuance thereof and set forth in the Designation Instrument with respect to
such Preferred Limited Partner Interest made a part of this Agreement as set
forth in Section 4.5.F hereof) upon the voluntary or involuntary dissolution,
liquidation, winding-up or termination of the Partnership, or upon the stated
maturity of such Preferred Limited Partner Interest or upon the earlier
redemption of such Preferred Limited Partner Interests, as the case may be,
other than in any such case any accrued and unpaid distributions payable at such
time.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
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"Loan Agreement" means that certain Acquisition Term Loan Agreement
dated as of March 16, 1999 among The Irvine Company, Agent and the Banks.
"Majority-In-Interest of the Common Limited Partners" means those
Common Limited Partners holding in the aggregate more than fifty percent (50%)
of the Percentage Interests of the Common Limited Partners, as a class.
"Net Income" and "Net Loss" means, for each Partnership Year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such year, 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:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Net Income
(or Net Loss) pursuant to this definition of Net Income or Net Loss
shall be added to (or subtracted from) such taxable income (or loss);
(b) Any expenditure of the Partnership described in Code
Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B)
expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) not
otherwise taken into account in computing Net Income (or Net Loss)
pursuant to this definition of Net Income (or Net Loss), shall be
subtracted from (or added to) such taxable income (or loss);
(c) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraph (b) or subparagraph (c) of
the definition of Gross Asset Value, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost
recovery deductions that would otherwise be taken into account in
computing such taxable income or loss, there shall be taken into
account Depreciation for such Partnership Year;
(f) 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 Regulation 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
Partner's interest in the Partnership, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Net Income or Net Loss; and
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<PAGE> 17
(g) Notwithstanding any other provision of this definition of
Net Income or Net Loss, any item which is specially allocated pursuant
to Section 6.2 hereof shall not be taken into account in computing Net
Income or Net Loss. The amounts of the items of Partnership income,
gain, loss or deduction available to be specially allocated pursuant to
Section 6.2 hereof shall be determined by applying rules analogous to
those set forth in this definition of Net Income or Net Loss.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Offering Costs" means the aggregate amounts expended by the IAC
Capital Trust which related to offerings of shares of capital stock of the IAC
Capital Trust, the net proceeds of which were used to make a contribution to the
Partnership, to the extent that such expenses were not reimbursed by the
Partnership or previously reflected in the Capital Account of the IAC Capital
Trust.
"Original Limited Partner" means (i) a Common Limited Partner who was a
Partner on the Effective Date, (ii) an Affiliate of a Common Limited Partner
described in clause (i) of this definition or an Irvine Person that acquires one
or more Common Limited Partner Units pursuant to Section 11.3.A hereof or (iii)
a Person that acquired one or more Common Limited Partner Units from an Original
Limited Partner pursuant to a Pledge.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all
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<PAGE> 18
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules and Regulations Section
1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash under Section 5.1 hereof
with respect to a class or series of Partnership Interests.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Article 4 hereof. The
ownership of Partnership Units shall be evidenced by such form of certificate
for units as the General Partner adopts from time to time on behalf of the
Partnership. Any such certificate may, from time to time, be simultaneously
cancelled and replaced with a certificate in such revised form as the General
Partner may adopt on behalf of the Partnership pursuant to the preceding
sentence. Partnership Units shall be either General Partner Units, Preferred
Limited Partner Units or Common Limited Partner Units and, without limitation on
the authority of the General Partner set forth in Article 4 hereof, the General
Partner may designate, in accordance with the provisions of this Agreement,
Limited Partner Units, when issued, as Common Limited Partner Units or Preferred
Limited Partner Units and may designate one of more series of Preferred Limited
Partner Units.
"Partnership Year" means the taxable year of the Partnership, which
shall be the fiscal year ending December 31, until such time as the Code
requires a change of the taxable year.
"Percentage Interest" means, as to each Partner as the context may
require, (i) with respect to any class or series of Partnership Units held by
such Partner, its interest in such class or series of Partnership Units as
determined by dividing the Partnership Units of such class or series owned by
such Partner by the total number of Partnership Units of such class or series
then outstanding as specified in Exhibit A attached hereto, as such Exhibit may
be amended from time to time, or (ii) its interest in the Junior Partnership
Interests determined as set forth in the definition of Junior Percentage
Interest.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" means the pledge by a Limited Partner of all or any portion of
a Partnership Interest to a Person, which is not an Affiliate of such Limited
Partner, as collateral or security for a bona fide loan or other extension of
credit, and the transfer of such pledged Partnership Interest to such Person in
connection with the exercise of remedies under such loan or extension or credit.
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"Pledge Agreement" means that certain Pledge Agreement of even date
with the Loan Agreement executed by The Irvine Company and the Investment
Partnerships (as defined in the Pledge Agreement) in favor of Agent and the
Banks.
"Preferred Limited Partner" means a Person named as a Preferred Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Preferred Limited Partner in the Partnership.
"Preferred Limited Partner Interest" means a Partnership Interest
issued from time to time pursuant to Section 4.5.F of this Agreement that is
designated by the General Partner at the time of its issuance as a Preferred
Limited Partner Interest. In accordance with Section 4.5.F hereof, Preferred
Limited Partner Interests may be issued in series with each such series having
such designations, powers, preferences and relative, participating, optional or
other special rights, powers and privileges, including voting and conversion
rights and rights, powers and privileges senior to the General Partner Interest
and the Common Limited Partner Interests as shall be determined by the General
Partner at the time of issuance subject to the requirements of Section 4.5
hereof and set forth in a Designation Instrument. A Preferred Limited Partner
Interest of a series may be expressed as a number of Partnership Units (each a
"Preferred Limited Partner Unit").
"Prior Agreement" has the meaning set forth in the fifth WHEREAS clause
of this Agreement, which Prior Agreement is amended and restated in its entirety
by this Agreement.
"Prior Agreement Effective Date" means December 1, 1993.
"Pro Rata Contribution" has the meaning set forth in Section 4.5.G
hereof.
"Pro Rata Participation" has the meaning set forth in Section 4.5.G
hereof.
"Property" shall mean any property or assets of the Partnership
including, without limitation, any Apartment Community Project in which the
Partnership or any Property Partnership, directly or indirectly, acquires
ownership of a fee or leasehold interest.
"Property Partnership" shall mean and include the Existing Property
Partnership and any partnership or other entity in which the Partnership is or
becomes a partner or other equity participant and which is formed for the
purpose of acquiring, developing or owning a Property or a proposed Property.
"Property Partnership Agreement" shall mean and include the partnership
agreement of the Existing Property Partnership and any partnership agreement or
any joint venture or other similar agreement (as any of the foregoing may be
amended, modified or supplemented from to time) under which a Property
Partnership is constituted or by which it is governed.
"Property Partnership Interests" shall mean and include the Existing
Property Partnership Interest and, with respect to any Property Partnership in
which the Partnership becomes a partner
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<PAGE> 20
or other equity participant after the date hereof, the interest or interests of
the Partnership as a partner or other equity participant in such Property
Partnership.
"Property Trustee" shall mean the entity acting as Property Trustee
under the Declaration of Trust.
"Qualified Transferee" means an "Accredited Investor" as defined in
Rule 501 promulgated under the Securities Act.
"Regulations" means the applicable income tax regulations under the
Code whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 6.2.B(8)
hereof.
"REIT" means a real estate investment trust under Section 856 of the
Code.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as either
a Preferred Limited Partner or Common Limited Partner to the Partnership
pursuant to Section 11.4 hereof.
"SVC" means Stonecrest Village Company, LLC, a California limited
liability company.
"Tax Item" means, with respect to each Partnership Year, each item of
income, gain, loss, credit and deduction of the Partnership for purposes of the
Code and the Regulations.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Transfer" means any sale, assignment, bequest, conveyance, devise,
gift, encumbrance, hypothecation, mortgage, exchange, transfer or other
disposition or act of alienation, whether voluntary or involuntary, or by
operation of law.
"Twelve-Month Period" means the twelve-month period ending on the day
before the first anniversary of the Effective Date or on a subsequent
anniversary thereof.
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ARTICLE 2.
ORGANIZATIONAL MATTERS
Section 2.1. Formation; Continuation. The Partnership is a limited partnership
formed and continued pursuant to the provisions of the Act and upon the terms
and conditions set forth in the Prior Agreement. The Partners hereby continue
the Partnership pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement which amends and restates the Prior
Agreement in its entirety as of the date hereof. Except as expressly provided
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2. Name. The name of the Partnership is Irvine Apartment Communities,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner.
Section 2.3. Registered Office and Agent; Principal Office. The address of the
registered office of the Partnership in the State of Delaware is located at 1209
Orange Street, Wilmington, Delaware 19801, and the registered agent for service
of process on the Partnership in the State of Delaware at such registered office
is the Corporation Trust Company. The principal office of the Partnership is
located at 550 Newport Center Drive, Newport Beach, California 92660 or such
other place as the General Partner may from time to time designate by notice to
the Limited Partners. The Partnership may maintain offices at such other place
or places within or outside the State of Delaware as the General Partner deems
advisable.
Section 2.4. Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the Certificate
and all amendments or restatements thereof) that the General Partner or the
Liquidator deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or own property; (b)
all instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a certificate of cancellation; (d) all
conveyances and other instruments or documents that the
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<PAGE> 22
General Partner deems appropriate or necessary to reflect the distribution or
exchange of assets of the Partnership pursuant to the terms of this Agreement;
(e) all instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described in, Article
11, 12 or 13 hereof or the Capital Contribution of any Partner; and (f) all
certificates, documents and other instruments relating to the determination of
the rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole discretion of the General Partner, to make, evidence,
give, confirm or ratify any vote, consent, approval, agreement or other action
which is made or given by the Partners hereunder or is consistent with the terms
of this Agreement or appropriate or necessary, in the sole discretion of the
General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article 14 hereof or
as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner to act as
contemplated by this Agreement in any filing or other action by it on behalf of
the Partnership, and it shall survive and not be affected by the subsequent
Incapacity of any Limited Partner or Assignee and the Transfer of all or any
portion of a Limited Partner's or Assignee's Partnership Units and shall extend
to a Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each Limited Partner or Assignee hereby agrees to be bound by
any representation made by the General Partner, acting in good faith pursuant to
such power of attorney, and each Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner, taken in good faith under such power of attorney.
Each Limited Partner or Assignee shall execute and deliver to the General
Partner or the Liquidator, within fifteen (15) days after receipt of the General
Partner's or Liquidator's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator, as the
case may be, deems necessary to effectuate this Agreement and the purposes of
the Partnership.
Section 2.5. Term. The term of the Partnership commenced on November 15, 1993,
the date the original Certificate was filed in the office of the Secretary of
State of Delaware in accordance with the Act, and shall continue until December
31, 2092, unless the Partnership is dissolved sooner pursuant to the provisions
of Article 13 hereof or as otherwise provided by law.
ARTICLE 3.
PURPOSE
Section 3.1. Purpose and Business. The purpose and nature of the Partnership is
(i) to conduct the business of the ownership, construction, development and
operation of multifamily rental
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<PAGE> 23
apartment communities, (ii) to enter into any partnership, joint venture or
other similar arrangement to engage in any business permitted by clause (i), or
to own interests in any entity engaged in any business permitted by clause (i)
and (iii) to do anything necessary or incidental to the foregoing.
Section 3.2. Powers. The Partnership shall be empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership, provided
that the Partnership shall not take, or refrain from taking, any action which,
in the judgment of the General Partner, in its sole discretion, could violate
any law or regulation of any governmental body or agency having jurisdiction
over the General Partner or its securities or the Partnership, unless such
action (or inaction) shall have been specifically consented to by the General
Partner in writing.
Section 3.3. Partnership Only for Purposes Specified. The Partnership shall be a
partnership only for the purposes specified in Section 3.1 hereof, and this
Agreement shall not be deemed to create a partnership among the Partners with
respect to any activities whatsoever other than the activities within the
purposes of the Partnership as specified in Section 3.1 hereof. Except as
otherwise provided in this Agreement, no Partner shall have any authority to act
for, bind, commit or assume any obligation or responsibility on behalf of the
Partnership, its properties or any other Partner. No Partner, in its capacity as
a Partner under this Agreement, shall be responsible or liable for any Debt or
other obligation of another Partner, nor shall the Partnership be responsible or
liable for any Debt or other obligation of any Partner, incurred either before
or after the execution and delivery of this Agreement by such Partner, except as
to those responsibilities, liabilities, Debt or obligations incurred pursuant to
and as limited by the terms of this Agreement and the Act.
Section 3.4. Representations and Warranties by the Parties
A. Each Person that is an individual, as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner, as the case may be,
shall represent and warrant to each other Partner that (i) the consummation of
the transactions contemplated by this Agreement to be performed by such Partner
will not result in a breach or violation of, or a default under, any material
agreement by which such Partner or any of such Partner's property is or are
bound, or any statute, regulation, order or other law to which such Partner is
subject, (ii) such Partner is not a "foreign person" within the meaning of Code
Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), and (iii) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms.
B. Each Person that is not an individual represents and warrants to
each other Partner as a condition to becoming a Limited Partner that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership agreement, trust
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agreement, charter or by-laws, as the case may be, any material agreement by
which such Partner or any of such Partner's properties or any of its partners,
beneficiaries, trustees or shareholders, as the case may be, is or are bound, or
any statute, regulation, order or other law to which such Partner or any of its
partners, trustees, beneficiaries or shareholders, as the case may be, is or are
subject, (iii) such Partner is neither a "foreign person" within the meaning of
Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), and (iv) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms.
C. Each Partner represents, warrants and agrees that it has acquired
and continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances except as permitted under Article 11
hereof. Each Partner further represents and warrants that it is a sophisticated
investor, able and accustomed to handling sophisticated financial matters for
itself, particularly real estate investments, and that it has a sufficiently
high net worth that it does not anticipate a need for the funds it has invested
in the Partnership in what it understands to be a highly speculative and
illiquid investment.
D. The representations and warranties contained in Sections 3.4.A,
3.4.B and 3.4.C hereof shall survive the execution and delivery of this
Agreement by each Partner (and a Person's being admitted as a Substituted
Limited Partner or an Additional Limited Partner pursuant to Sections 11.4 or
12.2 hereof) and the dissolution, liquidation and termination of the
Partnership.
E. Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4.
CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Partners. At the time of the execution
of this Agreement, the Capital Contributions of the Partners are as set forth in
Exhibit A to this Agreement. To the extent the Partnership acquires in the
future any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in an amendment to Exhibit A. Each Partner shall own
Partnership Units in the amount set forth for such Partner in Exhibit A, as the
same may be amended from time to time, and shall have a Percentage Interest in
the Junior Partnership Interests or in a series of Preferred Limited Partnership
Interests as set forth for such Partner in Exhibit A, as the same may be
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amended from time to time, which Percentage Interest shall be adjusted in
Exhibit A from time to time by the General Partner to the extent necessary to
reflect accurately sales, exchanges or other Transfers, redemptions, Capital
Contributions, the issuance of additional Partnership Units, or similar events
having an effect on a Partner's Percentage Interest.
Section 4.2. Additional Capital Contribution and Loans Generally. Except as
otherwise required by law, the Partners shall have no obligation to make any
additional Capital Contributions or loans to the Partnership.
Section 4.3. [Reserved].
Section 4.4. Loans by Third Parties. Subject to Section 4.5 hereof, the
Partnership may incur Debt, or enter into other similar credit, guarantee,
financing or refinancing arrangements for any purpose (including, without
limitation, in connection with any further acquisition of Properties) from any
Person upon such terms as the General Partner determines appropriate.
Section 4.5. Additional Funding and Capital Contributions
A. General. The General Partner may, at any time and from time to time
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition of additional Properties or for such other purposes as the
General Partner may determine. Additional Funds may be raised by the
Partnership, at the election of the General Partner, in any manner provided in,
and in accordance with, the terms of this Section 4.5. Except as set forth in
this Section 4.5, no Person shall have any preemptive, preferential,
participation or similar right or rights to subscribe for or acquire any
Partnership Interest. Capital Contributions received pursuant to Section 11.7.C
will not be subject to Section 4.5.A.
B. Notice of Additional Capital Contributions. Except as provided in
the last sentence of Section 4.5.G, the General Partner shall give written
notice (the "Funding Notice") to the Original Limited Partners of the need for
Additional Funds and the anticipated source(s) thereof.
C. General Partner Loans. The General Partner, subject to Section 4.5.G
below, may enter into a Funding Debt and lend the Additional Funds to the
Partnership (a "General Partner Loan"). If the General Partner enters into such
a Funding Debt, the General Partner Loan will consist of the net proceeds from
such Funding Debt and, to the extent permitted by law, will be on the same terms
and conditions, including interest rate and repayment schedule, and providing
for the reimbursement of costs and expenses, as shall be applicable with respect
to or incurred in connection with such Funding Debt. Otherwise, all General
Partner Loans made pursuant to this Section 4.5 shall be on terms and conditions
no less favorable to the Partnership than would be available to the Partnership
from any third party.
D. Additional Limited Partners. The General Partner on behalf of the
Partnership may raise all or any portion of the Additional Funds by accepting
additional Capital Contributions (i) in the case of cash, subject to Section
4.5.G, from any Partners or any third party or (ii) in the case of property
other than cash, from any Partner and/or third parties, and
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either (A) in the case of Partners, increasing such Partner's Partnership
Interest, or (b) in the case of a third party, admitting such third party as an
Additional Limited Partner. Subject to the terms of this Section 4.5 and to the
definition of Gross Asset Value, the General Partner shall determine in good
faith the amount, terms and conditions of such additional Capital Contributions.
E. [Reserved].
F. Issuances of Additional Limited Partner Interests. In accordance
with this Section 4.5, the General Partner is hereby authorized, without the
consent of the Limited Partners, other than as provided in Section 7.3.D hereof
or in a Designation Instrument, to cause the Partnership from time to time to
issue to the Partners (including the General Partner) or other Persons Common
Limited Partner Interests and Preferred Limited Partner Interests. Preferred
Limited Partner Interests may be issued in one or more series, with such rights
and powers senior to the General Partner Interest and the Common Limited Partner
Interests and such other rights, powers and duties as shall be determined by the
General Partner in its sole and absolute discretion subject to the Act and
Delaware law and as set forth in a Designation Instrument, including, without
limitation, (i) the allocations of Tax Items to Preferred Limited Partner
Interests as a class or to a specific series of Preferred Limited Partner
Interests, (ii) the rights of a series of Preferred Limited Partner Interests to
share in Partnership distributions of Available Cash, and (iii) the rights of a
series of Preferred Limited Partner Interests upon dissolution, liquidation,
winding-up or termination of the Partnership, including, without limitation, the
Liquidation Preference Amount with respect to such series. Upon issuance of a
series of Preferred Limited Partner Interests, the Designation Instrument
applicable to such series shall constitute an amendment to this Agreement and
shall become a part hereof whether or not actually attached to this Agreement.
G. Participation Rights of Partners. The Funding Notice delivered by
the General Partner prior to its making or accepting (on behalf of the
Partnership) any additional cash Capital Contributions pursuant to Section
4.5.A, 4.5.D or, if any Preferred Limited Partner Interests are convertible
into, or exercisable or exchangeable for, Common Limited Partner Interests,
4.5.F hereof shall contain the total amount of additional Capital Contributions
sought to be made to the Partnership, and the terms and conditions pertaining
thereto. Except as provided in the last sentence of this Section 4.5.G, each
Original Limited Partner then holding a Common Limited Partner Interest may
elect to make an additional Capital Contribution not to exceed the product of
(i) the total amount of additional Capital Contributions being sought, and (ii)
such Partner's Junior Percentage Interest (with such product deemed the "Pro
Rata Contribution"). The Funding Notice delivered by the General Partner prior
to its making any loans to the Partnership pursuant to Section 4.5.C herein
shall contain the total amount of the loan to be made to the Partnership. Each
Original Limited Partner then holding a Common Limited Partner Interest may
elect to participate in such loan in an amount not to exceed the product of (i)
the total amount of the loan, and (ii) such Limited Partner's Junior Percentage
Interest (with such product deemed the "Pro Rata Participation"). Such election
shall be made, if at all, by providing written notice thereof (the "Election
Notice") to the General Partner within fifteen (15) days after delivery of the
Funding Notice. Failure to respond to such notice shall be deemed to be an
election by such Original Limited Partner not to make such Capital Contribution
or participate in
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such loan. Such Election Notice shall contain the amount of the additional
Capital Contribution or the loan participation, if any, the Original Limited
Partner is to make (such additional Capital Contribution not to exceed the
respective Pro Rata Contribution of such Original Limited Partner and such loan
participation not to exceed the respective Pro Rata Participation of such
Original Limited Partner) equal to all or any portion of its Pro Rata
Contribution or Pro Rata Participation. No Original Limited Partner shall have
any participation right under this Section 4.5.G in connection with the
Partnership raising Additional Funds through the issuance of Preferred Limited
Partner Interest to IAC Capital Trust unless such Preferred Limited Partner
Interests are convertible into, or exercisable or exchangeable for, Common
Limited Partner Interests and as a result no Funding Notice need be given to the
Original Limited Partners in connection therewith.
H. Percentage Interest Adjustments.
(1) Upon the acceptance of additional cash Capital Contributions
pursuant to this Section 4.5, the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution. Solely for purposes of calculating the number of
Partnership Units to be issued to the IAC Capital Trust in connection with a
contribution to the Partnership of the net proceeds from an offering of shares
of capital stock of the IAC Capital Trust, such cash Capital Contributions will
be deemed to equal the cash contributed by the IAC Capital Trust plus the
Offering Costs attributable to the cash contributed to the Partnership.
(2) Upon the acceptance of additional Capital Contributions pursuant
to this Section 4.5 in the form of Property other than cash, the amount of the
Capital Contribution shall be equal to the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
such Property is subject, and the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution.
(3) Upon the acceptance of additional Capital Contributions pursuant
to this Section 4.5 in the form of cash and other Property, the amount of the
Capital Contribution shall be equal to the sum of (A) the amount of cash
contributed on the Adjustment Date and (B) the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
the Property is subject, and the Percentage Interests of the Partners shall be
adjusted based on the number of Partnership Units issued in connection with such
Capital Contribution.
I. Pledge of Additional Units. Notwithstanding anything contained
herein to the contrary, for so long as any Obligations (as defined in the Loan
Agreement) remain outstanding under the Loan Agreement, the Partnership, and the
General Partner on behalf of the Partnership, shall not issue, without in each
such instance first obtaining the written consent of Agent (which may be
granted, denied or conditioned in Agent's sole and absolute discretion), any
Preferred Limited Partner Interests or Partnership Interests (or Partnership
Units therefor) unless such
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newly issued Preferred Limited Partnership Interests or Partnership Interests
(and attendant Partnership Units) are subject to the lien and security interests
of the Pledge Agreement. This Section 4.5.I is intended to be for the sole
benefit of Agent and the Banks.
Section 4.6. [Reserved].
Section 4.7. No Third Party Beneficiary. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners.
Section 4.8. [Reserved].
ARTICLE 5.
DISTRIBUTIONS
Section 5.1. Requirements and Characterization of Distributions. The General
Partner shall cause the Partnership to distribute quarterly all, or such portion
as the General Partner may in its discretion determine, including, but not
limited to, as a consequence of such reserves as the General Partner may deem
appropriate, of Available Cash generated by the Partnership during such quarter
to the Partners who are Partners on the applicable Partnership Record Date with
respect to such quarter in the following order of priority:
(i) First, to the Preferred Limited Partners in such amount as
is required for the Partnership to pay all distributions with respect
to the Preferred Limited Partner Units held by such Preferred Limited
Partners due or payable in accordance with the Designation Instrument
or Instruments for such Preferred Limited Partner Units through the
last day of such quarter (or the last day of the quarterly period set
forth in such Designation Instrument or Instruments); such
distributions to be made to the Preferred Limited Partners in such
order of priority and with such preferences as have been established
with respect to such Preferred Limited Partner Units as set forth in
the Designation Instrument or Instruments; and
(ii) Then, to the General Partner and the Common Limited
Partners in accordance with their respective Junior Percentage
Interests on such Partnership Record Date.
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Subject to the prior rights of holders of Preferred Limited Partner Units with
respect to distributions of Available Cash, the General Partner in its sole
discretion may distribute to the General Partner and the Common Limited Partners
Available Cash (excluding amounts previously distributed to Preferred Limited
Partners as provided above) in accordance with their Junior Percentage Interests
on a more or less frequent basis and provide for an appropriate record date.
Notwithstanding anything to the contrary contained herein, in no event
shall any Partner receive a distribution of Available Cash in respect of Junior
Partnership Interests with respect to any quarter or other period until such
time as the Partnership has distributed to the Preferred Limited Partners an
amount sufficient to pay all distributions payable with respect to the Preferred
Limited Partner Interests held by such Preferred Limited Partners in accordance
with the Designation Instrument or Instruments through the last day of the most
recently ended quarterly period set forth in each such Designation Instrument.
Section 5.2. Distributions in Kind. No right is given to any Partner to demand
and receive property other than cash. The General Partner may determine, in its
sole discretion but subject to the rights of Preferred Limited Partner
Interests, to make a distribution in kind to the General Partner and the Common
Limited Partners of Partnership assets, and such assets shall be distributed in
such a fashion as to ensure that the fair market value is distributed and
allocated in accordance with Articles 5, 6 and 10 hereof.
Section 5.3. Distributions Upon Liquidation. Proceeds from a Terminating Capital
Transaction, and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership, shall be distributed to the
Partners in accordance with Section 13.2.
Section 5.4. Restricted Distributions. Notwithstanding any provision to the
contrary contained herein, the Partnership, and the General Partner on behalf of
the Partnership, shall not make a distribution to any Partner on account of its
interest in the Partnership if such distribution would violate Section 17-607 of
the Act or other applicable law.
Section 5.5. No Material Alterations. For so long as any Obligations (as defined
in the Loan Agreement) remain outstanding under the Loan Agreement, the
Partnership, and the General Partner on behalf of the Partnership, shall not
amend, modify or revise the provisions of this Article 5 concerning
distributions to the Common Limited Partners in any manner materially adverse to
the Banks without, in each such instance, first obtaining the written consent of
Agent, which may be granted, denied or conditioned in Agent's sole and absolute
discretion. This Section 5.5 is intended to be for the sole benefit of Agent and
the Banks.
ARTICLE 6.
ALLOCATIONS
Section 6.1. Allocations in General. Except as otherwise provided in this
Article 6, and subject to Section 11.6.C, Net Income and Net Loss will be
allocated to each of the Partners at
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the end of each calendar month using the interim closing of the books method and
taking into account varying interests in accordance with the greater part of the
month convention consistent with Section 11.6.C.
Section 6.2. Additional Allocation Provisions
A. Special Allocations
For each Partnership Year there shall be a special allocation to the
Original Limited Partners (other than SVC and any Person (including the Members
of SVC) to whom SVC Transfers its Common Limited Partner Interests) which when
added to amounts allocated under Section 6.1 and 6.3.B will result in a total
allocation to such Original Limited Partners of (i) all remaining low-income
housing tax credits of the Existing Property Partnership, determined solely by
reference to the adjusted tax basis of the assets of the Existing Property
Partnership at June 30, 1995, allocated to the Partnership with respect to the
Existing Property Partnership Interest and (ii) all Depreciation allocated to
the Partnership with respect to the Existing Property Partnership Interest
determined solely by reference to the adjusted tax basis of the assets of the
Existing Property Partnership at June 30, 1995; it being understood that any
additional low-income housing tax credits becoming available to the Existing
Property Partnership, and any additional Depreciation resulting from increases
to the adjusted tax basis of the assets of the Existing Property Partnership, in
each case from and after July 1, 1995, shall not be subject to the special
allocation provided for in this clause (3). Except as provided in this Section
6.2.A, Depreciation shall be allocated in accordance with Section 6.1 and 6.3.B.
B. Regulatory Allocations
Notwithstanding the foregoing provisions of this Article 6:
(1) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), if there is a net decrease in Partnership
Minimum Gain during any Partnership Year, each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain, as determined under 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 Partner pursuant thereto.
The items to be allocated shall be determined in accordance with Regulations
Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.2.B(1) is intended to
qualify as a "minimum gain chargeback" within the meaning of Regulation Section
1.704-2(f) and shall be interpreted consistently therewith.
(2) Partner Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4) or in Section 6.2.B(1) hereof, if there is a
net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Partnership Year, each Partner who has a share of the Partner Minimum
Gain attributable to such 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 such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
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Minimum Gain attributable to such 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 Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(i)(4) and
1.704-2(j)(2). This Section 6.2.B(2) is intended to qualify as a "chargeback of
partner nonrecourse debt minimum gain" within the meaning of Regulation Section
1.704-2(i) and shall be interpreted consistently therewith.
(3) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any
Nonrecourse Deductions for any Partnership Year shall be specially allocated to
the Partners in accordance with their Percentage Interests. Any Partner
Nonrecourse Deductions for any Partnership Year shall be allocated to each
Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable,
in accordance with Regulations Section 1.704-2(i).
(4) Qualified Income Offset. If any Partner unexpectedly receives an
adjustment, allocation or distribution described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall
be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to
the Partner in an amount and manner sufficient to eliminate, to the extent
required by such Regulations, the Adjusted Capital Account Deficit of the
Partner as quickly as possible, provided that an allocation pursuant to this
Section 6.2.B(4) shall be made if and only to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations provided in
this Article 6 have been tentatively made as if this Section 6.2.B(4) were not
in the Agreement. It is intended that this Section 6.2.B(4) qualify and be
construed as a "qualified income offset" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(5) Gross Income Allocation. If any Partner has a deficit Capital
Account at the end of any Partnership Year which is in excess of the sum of (1)
the amount (if any) such Partner is obligated to restore to the Partnership, and
(2) the amount such Partner 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),
each such Partner shall be specially allocated items of Partnership income and
gain in the amount of such excess as quickly as possible to eliminate such
deficit, provided that an allocation pursuant to this Section 6.2.B(5) shall be
made if and only to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.2.B(5) and Section
6.2.B(4) were not in the Agreement.
(6) Limitation on Allocation of Net Loss. To the extent any
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Partner, such allocation of Net Loss shall be reallocated
among the other Partners in accordance with their respective Partnership
Interests, subject to the limitations of this Section 6.2.B(6).
(7) 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
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required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4) to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their Percentage
Interests in the Partnership in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such distribution
was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(8) Curative Allocation. The allocations set forth in Sections
6.2.B(1), (2), (3), (4), (5), (6) and (7) hereof (the "Regulatory Allocations")
are intended to comply with certain regulatory requirements, including the
requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the
provisions of Sections 6.1 and 6.2.A, the Regulatory Allocations shall be taken
into account in allocating other items of income, gain, loss and deduction among
the Partners so that, to the extent possible without violating the requirements
giving rise to the Regulatory Allocations, the net amount of such allocations of
other items and the Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the Regulatory
Allocations had not occurred.
C. Excess Nonrecourse Liability Allocation. For purposes of determining
a Partner's proportional share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Regulations Sections 1.752-3(a)(3), each
Partner's interest in Partnership profits shall be such Partner's Common
Percentage Interest.
D. Priority Allocation With Respect to Preferred Limited Partner
Interests. Notwithstanding any other provision of this Agreement, for each
Partnership Year, Partnership gross income shall be specially allocated to the
Preferred Limited Partners in an amount equal to the distributions received by
the Preferred Limited Partners pursuant to Section 5.1(i) hereof for such
Partnership Year (other than any distributions that are treated as being in
satisfaction of the Liquidation Preference Amount for any Preferred Limited
Partner Interest).
E. Special Allocation in Year of Terminating Capital Transaction.
Notwithstanding Section 6.1, but subject to the other provisions of this Article
6, Net Income (or if necessary, items of Partnership gross income) arising in
the year of a Terminating Capital Transaction shall be specially allocated to
the IAC Capital Trust in an amount equal to the Offering Costs, to the extent
the IAC Capital Trust's Capital Account has not previously been adjusted to
account for such amounts.
Section 6.3. Tax Allocations
A. In General. Except as otherwise provided in this Section 6.3, for
income tax purposes each Tax Item shall be allocated among the Partners in the
same manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.1 and 6.2 hereof.
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B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.3.A above, Tax Items with respect to Property of the Partnership that
is contributed to the Partnership with a Gross Asset Value that differs from its
basis in the hands of the contributing Partner immediately preceding the date of
contribution shall be allocated for income tax purposes pursuant to Regulations
promulgated under Section 704(c) of the Code to the extent of such difference
and thereafter in accordance with Section 6.3.A. The General Partner shall make
allocations in accordance with the traditional method of accounting with respect
to gain on such property if the Regulations under Section 704(c) of the Code are
applicable to the Contributed Properties of the Partnership.
ARTICLE 7.
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1. Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on loans and borrowing
money to permit the Partnership to make distributions to its Partners in such
amounts as will permit IAC Capital Trust (so long as IAC Capital Trust qualifies
as a REIT) to avoid the payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the Code) and to make
distributions to its stockholders sufficient to permit IAC Capital Trust to
maintain REIT status), the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of indebtedness
(including the securing of same by deed to secure debt, mortgage, deed of trust
or other lien or encumbrance on the Partnership's assets) and the incurring of
any obligations it deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including the
exercise or grant of any conversion, option, privilege, or subscription right or
any other right available in connection with
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any assets at any time held by the Partnership) or the merger or other
combination of the Partnership with or into another entity (all of the foregoing
subject to any prior approval only to the extent required by Section 7.3
hereof), provided that, in the event of any sale, exchange, disposition or other
transfer of any Property of the Partnership, or the merger or other combination
of the Partnership with or into another entity, the Partnership shall no later
than the end of the calendar quarter in which such sale, exchange, disposition,
other transfer, merger or combination becomes a taxable event to the General
Partner or any of the Common Limited Partners effect a distribution of cash pro
rata by Junior Percentage Interests, in addition to any other distribution with
respect to the Junior Partnership Interests, in an amount such that the pro rata
share thereof received by each such Partner shall equal or exceed the total
liability of such Partner for federal, state and local income and franchise
taxes resulting from such sale, exchange, disposition, other transfer, merger or
combination and from such distribution as determined in accordance with the
books and records of the Partnership (which determination will be conclusive and
binding absent manifest error).
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the Partnership's Subsidiaries)
and the repayment of obligations of the Partnership and its Subsidiaries and any
other Person in which it has an equity investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers useful or
necessary to the conduct of the Partnership's operations or the implementation
of the General Partner's powers under this Agreement, including contracting with
contractors, developers, consultants, accountants, legal counsel, other
professional advisors and other agents and the payment of their expenses and
compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership, any division of the
Partnership or the General Partner (including, without limitation, employees
designated as officers having titles such as "president", "vice president",
"secretary" and "treasurer" of the Partnership, any division of the
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Partnership or the General Partner), and agents, outside attorneys, accountants,
consultants and contractors of the Partnership, any division of the Partnership
or the General Partner and the determination of their compensation and other
terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships, joint
ventures or other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of property
to, its Subsidiaries and any other Person in which it has an equity investment
from time to time);
(13) the control of any matters affecting the rights and obligations
of the Partnership, including the settlement, compromise, submission to
arbitration or any other form of dispute resolution, or abandonment of, any
claim, cause of action, liability, debt or damages, due or owing to or from the
Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
and the representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any other
Person (including, without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or investment held
by the Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the Partnership
does not have an interest, pursuant to contractual or other arrangements with
such Person;
(18) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or legal instruments or agreements in writing necessary or
appropriate in the judgment of the General Partner for the accomplishment of any
of the powers of the General Partner enumerated in this Agreement; and
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(19) the issuance of additional Partnership Units as appropriate in
connection with Capital Contributions by Additional Limited Partners and
additional Capital Contributions by Partners pursuant to Article 4 hereof.
B. Except as provided in Section 7.3 hereof, each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the Properties of the Partnership and (ii)
liability insurance for the Indemnitees hereunder.
D. At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to establish and maintain any and all
reserves, working capital accounts and other cash or cash equivalents in such
amounts as the General Partner, in its sole discretion, deems appropriate and
reasonable from time to time.
E. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. Except as otherwise
provided in the Declaration of Trust and Section 7.4.D hereof, the General
Partner and the Partnership shall not have liability to a Limited Partner under
any circumstances as a result of an income tax liability incurred by such
Limited Partner as a result of an action (or inaction) by the General Partner
pursuant to its authority under this Agreement so long as the action or inaction
is taken in good faith.
Section 7.2. Certificate of Limited Partnership. To the extent that such action
is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state or the
District of Columbia, in which the Partnership may elect to do business or own
property. Subject to the terms of Section 8.5(4) hereof, the General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of Delaware, the State of
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California, and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property.
Section 7.3. Restrictions on General Partner's Authority
A. The General Partner may not take any action in contravention of this
Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as otherwise
provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in
this Agreement; or
(4) perform any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other liability except
as provided herein or under the Act.
B. The General Partner shall not, without the prior Consent of the
Common Limited Partners, undertake any of the following actions or enter into
any transaction which would have the effect of such transactions:
(1) except as provided in Sections 7.3.C and 7.3.D, hereof, amend,
modify or terminate this Agreement other than to reflect the admission,
substitution, or withdrawal of partners pursuant to Articles 11 and 12 hereof;
(2) make a general assignment for the benefit of creditors or
appoint or acquiesce in the appointment of a custodian, receiver or trustee for
all or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership; or
(4) subject to the rights of Transfer provided in Section 11.2
hereof, Transfer the Partnership Interest of the General Partner including
through any merger, consolidation or liquidation of the General Partner, or
admit into the Partnership any successor General Partners.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall have
the power, without the Consent of any Limited Partners, to amend this Agreement
(including a Designation Instrument) as may be required to facilitate or
implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
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(2) to reflect the admission, substitution, or withdrawal of
Partners in accordance with this Agreement, and to amend Exhibit A to the
Agreement in connection with such admission, substitution or withdrawal;
(3) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a federal or state
agency or contained in federal or state law;
(5) to reflect such changes as are reasonably necessary for IAC
Capital Trust to maintain status as a REIT;
(6) to modify the manner in which Capital Accounts are computed but
only to the extent set forth in the definition of "Capital Account"; and
(7) to set forth in a Designation Instrument the rights, powers and
duties of holders of Preferred Limited Partnership Interests issued pursuant to
Section 4.5.F hereof, subject to the rights set forth in the Designation
Instrument of any outstanding series of Preferred Limited Partner Units.
The General Partner will provide notice to the Limited Partners when
any action under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner, without
the Consent of each Common Limited Partner adversely affected and each Preferred
Limited Partner materially and adversely affected in each case if such amendment
or action would (i) convert a Limited Partner Interest in the Partnership into a
General Partner Interest (except as a result of the General Partner acquiring
such interest), (ii) modify the limited liability of a Limited Partner, (iii)
alter rights of the Partner to receive distributions pursuant to Article 5,
Article 10 or Section 7.1.A(3) hereof or the allocations specified in Article 6
(except in any such case as permitted pursuant to Section 4.5 and Section
7.3.C(3) or (7)), (iv) cause the termination of the Partnership prior to the
time set forth in Sections 2.5 or 13.1, or (v) amend this Section 7.3.D,
provided that (1) with respect to the foregoing clause (iii), the Consent of
each Preferred Limited Partner materially and adversely affected by such
amendment or action shall only be required if the applicable Designation
Instrument or Instruments require such unanimous Consent and, if not so required
by such Designation Instrument or Instruments, then such amendment or action
shall only require the approval of such percentage of Preferred Limited Partner
Interests as shall be set forth in the applicable Designation Instrument or
Instruments, (2) only the Consent of Common Limited Partners shall be required
under clause (iv) above, and (3) with respect to clause (v) above, the Consent
of Preferred Limited Partners shall be required only if the amendment to this
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Section 7.3.D materially and adversely affects the rights, powers and duties of
the Preferred Limited Partner Interests. Further, no amendment may alter the
restrictions on the General Partner's authority set forth in this Section 7.3
without the appropriate consent.
E. For so long as the Common Limited Partner Interests of all of the
Common Limited Partners of the Partnership equal, in the aggregate, not less
than ten percent (10%) of the aggregate Junior Partnership Interests, the
General Partner shall not, without the prior Consent of the Common Limited
Partners, undertake, on behalf of the Partnership, any of the following actions:
(1) Agree to or consummate any merger, consolidation, reorganization
or other business combination to which the Partnership is a party, in each case
resulting in the disposition by the then Common Limited Partners and Assignees
of all outstanding Common Limited Partner Interests and interests of Assignees
therein in consideration for (a) cash, (b) debt instruments or other evidences
of indebtedness, (c) other securities issued by a corporation, partnership or
other entity, other than (i) the General Partner, (ii) the Partnership or (iii)
any entity at least 80% of the total assets of which (on the basis of market
value) are comprised of assets which, immediately prior to such transaction,
were assets of the Partnership, or (d) any combination of the consideration
described in (a), (b) and/or (c) above.
(2) Sell or otherwise transfer all or substantially all of the
assets of the Partnership.
F. [Reserved].
G. Except as provided in Section 7.3.D or in a Designation Instrument
with respect to a series of Preferred Limited Partner Interests and except as
otherwise required by the Act or Delaware law, the Preferred Limited Partners
shall have no right to act, approve, consent or vote on any matter or any action
(or inaction) by the General Partner pursuant to its authority under this
Agreement.
H. The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Declaration of Trust and the underwriting agreement)
referred to in or contemplated by the registration statement on Form S-11 (Nos.
333-39405 and 333-39405-01) of IAC Capital Trust and the Partnership and any
future registration statement filed by IAC Capital Trust with the Securities and
Exchange Commission with respect to the issuance of preferred securities of IAC
Capital Trust, without any further act, vote, consent or approval of any Partner
notwithstanding any other provisions of this Agreement.
Section 7.4. Reimbursement of the General Partner; Reimbursement of Limited
Partners
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not receive payments from the Partnership or be compensated for its
services as general partner of the Partnership.
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B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its reasonable discretion,
for all of its expenses including, without limitation, (i) expenses relating to
the ownership of interests in and operation of, or for the benefit of, the
Partnership, (ii) compensation of its officers and employees, and (iii) director
fees and expenses, provided that, the amount of any reimbursement shall be
reduced by any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it on behalf of the
Partnership as permitted pursuant to Section 7.5 hereof. Such reimbursements
shall be in addition to any reimbursement of the General Partner as a result of
indemnification pursuant to Section 7.7 hereof. Notwithstanding anything
contained herein to the contrary, the General Partner shall not be reimbursed by
the Partnership for any transaction costs it may incur in connection with the
sale or transfer of its General Partner interest in the Partnership.
C. Any Limited Partner that incurs an expense attributable to a
property tax or assessment imposed upon a geographic land area, including, but
not limited to, any variable rate assessment, that includes a Contributed
Property may submit a request for reimbursement to the General Partner that
states the total amount of the property tax or assessment imposed upon the area
and an apportionment, in accordance with the requirements of local law, of such
property tax or assessment to the Contributed Property located within the area.
The Limited Partner shall include with such request a copy of a receipt
evidencing payment of the property tax or assessment. The General Partner shall
reimburse the Limited Partner for such amount within five (5) days of receipt of
the request for reimbursement.
D. To the extent not previously paid by the Partnership pursuant to the
Declaration of Trust, the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its
reasonable discretion, for all amounts incurred by it and payable by the
Partnership pursuant to the Declaration of Trust. Such amounts shall include the
amount of any underwriting discounts and commissions and other issuance costs
incurred by the General Partner or IAC Capital Trust, as the case may be, in
connection with the issuance of preferred stock of the General Partner or
preferred securities of IAC Capital Trust, as long as the gross proceeds from
such offering are concurrently contributed to the Partnership in exchange for
Preferred Limited Partner Interests. Such amounts shall be treated as incurred
on behalf of the Partnership and as an expense of the Partnership.
Section 7.5. Outside Activities of the General PartnerThe General Partner may
engage in such activities outside its duties as general partner as it deems fit
in its absolute discretion.
Section 7.6. Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole discretion of the General Partner. The foregoing
authority shall not create any right or benefit in favor of any Subsidiary or
any other Person.
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B. Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole
discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, directly or indirectly, except pursuant to transactions that
are determined by the General Partner in good faith to be fair and reasonable.
D. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole discretion, believes are advisable.
E. The General Partner on its own behalf and on behalf of the
Partnership may enter into and perform its and the Partnership's obligations
under the Declaration of Trust and take all actions permitted to be taken by it
thereunder and such additional actions as are incidental thereto and may acquire
and own securities of IAC Capital Trust.
Section 7.7. Indemnification
A. To the fullest extent permitted by applicable law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership ("Actions") as set forth in
this Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, provided that the Partnership shall not
indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the
law, or (ii) for any transaction for which such Indemnitee received an improper
personal benefit in violation or breach of any provision of this Agreement.
Without limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements consistent with the provisions of this Section 7.7 in
favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee
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prior to judgment, does not create a presumption that such Indemnitee acted in a
manner contrary to that specified in this Section 7.7.A with respect to the
subject matter of such proceeding. Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Partnership, and neither the
General Partner nor any Limited Partner shall have any obligation to contribute
to the capital of the Partnership or otherwise provide funds to enable the
Partnership to fund its obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the Indemnitee in advance of the final disposition of the Action
upon receipt by the Partnership of (i) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7.A has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee unless otherwise provided in a
written agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7, unless such
liabilities arise as a result of (i) such Indemnitee's intentional misconduct or
knowing violation of the law, or (ii) any transaction in which such Indemnitee
received a personal benefit in violation or breach of any provision of this
Agreement or applicable law.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
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G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.8. Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, neither the General Partner nor any of its officers or directors
shall be liable for monetary damages to the Partnership, any Partners or any
Assignees for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner or such officer or
director acted in such cases in good faith.
B. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its employees or agents (subject to
the supervision and control of the General Partner). The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
C. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
D. Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partners, for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partners shall be limited to the interest of that Partner in the
Partnership. Without limitation of the foregoing, and except for fraud, willful
misconduct or gross negligence, or pursuant to any such express indemnity, no
property or assets of any Partner, other than its interest in the Partnership,
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any
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judgment (or other judicial process) in favor of any other Partner(s) and
arising out of, or in connection with, this Agreement. This Agreement is
executed by the officers of the General Partner solely as officers of the same
and not in their own individual capacities.
E. To the extent that, at law or in equity, a Limited Partner has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or the Partners, the Limited Partner shall not be liable to the
Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of a Limited Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such Limited Partner.
F. Whenever in this Agreement a Limited Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the Limited Partner shall be
entitled to consider only such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Partnership or the
other Partners or (ii) in its "good faith" or under another express standard,
the Limited Partner shall act under such express standard and shall not be
subject to any other or different standards imposed by this Agreement or any
other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.
G. Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the General Partner shall be
required to make such decision in good faith after taking into consideration the
interests of the Partners or (ii) in its "good faith" or under another express
standard, the General Partner shall act under such express standard and shall
not be subject to any other or different standards imposed by this Agreement or
any other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.
Section 7.9. Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full
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power and authority to do and perform all and every act and duty which is
permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of IAC Capital Trust to continue
to qualify as a REIT or (ii) to avoid IAC Capital Trust's incurring any taxes
under Section 857 or Section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10. Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership or one or more nominees, as the General Partner
may determine. The General Partner hereby declares and warrants that any
Partnership assets for which legal title is held in the name of the General
Partner or any nominee or Affiliate of the General Partner shall be held by the
General Partner for the use and benefit of the Partnership in accordance with
the provisions of this Agreement; provided, however, that the General Partner
shall use its best efforts to cause beneficial and record title to such assets
to be vested in the Partnership as soon as reasonably practicable. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
Section 7.11. Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without the consent or approval of any other Partner or Person, to encumber,
sell or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and take any and all
actions on behalf of the Partnership, and such Person shall be entitled to deal
with the General Partner as if the General Partner were the Partnership's sole
party in interest, both legally and beneficially. Each Limited Partner hereby
waives any and all defenses or other remedies which may be available against
such Person to contest, negate or disaffirm any action of the General Partner in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or its representatives be obligated to ascertain that the terms
of this Agreement have been complied with or to inquire into the necessity or
expedience of any act or action of the General Partner or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Partnership by the General Partner or its representatives shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (i) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (iii) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
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ARTICLE 8.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement,
including Section 10.4 hereof, or under the Act.
Section 8.2. Management of Business. No Limited Partner or Assignee (other than
the General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such) shall take part in the operation,
management or control of the Partnership's business, transact any business in
the Partnership's name or have the power to sign documents for or otherwise bind
the Partnership. The transaction of any such business by the General Partner,
any of its Affiliates or any officer, director, employee, partner, agent or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3. Outside Activities of Limited Partners. Subject to any agreements
entered into pursuant to Section 7.6.D hereof and any other agreements entered
into by a Limited Partner or its Affiliates with the General Partner, the
Partnership or a Subsidiary, any Limited Partner and any officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee. Subject to such agreements, none of
the Limited Partners nor any other Person shall have any rights by virtue of
this Agreement or the partnership relationship established hereby in any
business ventures of any other Person (other than the General Partner to the
extent expressly provided herein) and such Person shall have no obligation
pursuant to this Agreement, subject to Section 7.6.D hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary, to offer any interest in any such
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4. Return of Capital. Except as provided in a Designation Instrument,
no Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided in Article 6 hereof or otherwise expressly provided in this
Agreement (including pursuant to a Designation Instrument), no Limited Partner
or Assignee shall have priority over any other Limited Partner or Assignee
either as to the return of Capital Contributions or as to profits, losses or
distributions. Preferred Limited Partner Units of a series shall be redeemed
only in accordance with a Designation Instrument relating thereto.
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Section 8.5. Rights of Limited Partners Relating to the Partnership
In addition to other rights provided by this Agreement or by the Act,
each Limited Partner shall have the right, for a purpose reasonably related to
such Limited Partner's interest as a Limited Partner in the Partnership, upon
written demand:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General Partner
pursuant to the Securities Exchange Act of 1934, as amended;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year and the tax work papers prepared in
connection with such returns;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner; and
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments thereto
have been executed.
ARTICLE 9.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting. The General Partner shall keep or cause to
be kept at the principal office of the Partnership those records and documents
required to be maintained by the Act and other books and records deemed by the
General Partner to be appropriate with respect to the Partnership's business,
including, without limitation, all books and records necessary to provide to the
Limited Partners any information, lists and copies of documents required to be
provided pursuant to Sections 8.5 or 9.2 hereof. The books of the Partnership
shall be maintained, for financial and tax reporting purposes, on an accrual
basis in accordance with generally accepted accounting principles, or on such
other basis as the General Partner determines to be necessary or appropriate.
Section 9.2. Reports
A. As soon as practicable, but in no event later than ninety (90) days
after the close of the last fiscal quarter of each Partnership Year, the General
Partner shall cause to be mailed to each Limited Partner, an annual report
containing financial statements of the Partnership for the Partnership Year, or
of the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for the twelve month period ending December 31,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
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B. As soon as practicable, but in no event later than forty five (45)
days after the close of each fiscal quarter (except the last fiscal quarter of
each year), the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, and such other information as may be
required by applicable law or regulation or as the General Partner determines to
be appropriate. At the request of any Limited Partner, the General Partner
agrees to provide access to the books, records and work papers upon which the
reports in this Section 9.2. are based.
ARTICLE 10.
TAX MATTERS
Section 10.1. Preparation of Tax Returns; Tax Accounting. The General Partner
shall arrange for the preparation and timely filing of all returns with respect
to Partnership income, gains, deductions, losses and other items required of the
Partnership for federal and state income tax purposes and shall use all
reasonable efforts to furnish, on or before April 15 of each year (for so long
as the Partnership Year is the fiscal year ending December 31) the tax
information, in draft or final form, reasonably required by Limited Partners for
federal and state income tax reporting purposes and thereafter within fifteen
(15) days of the end of the Partnership Year. In the event that the General
Partner delivers such information in draft form, the General Partner shall use
its best efforts to ascertain that any information that would be used by any
Partner for information reporting purposes is accurate and complete. At the
request of any Limited Partner, the General Partner agrees to provide access to
the books, records and work papers upon which the reports in this Section 10.1.
are based and to provide access to financial and income tax data necessary for
the Limited Partners to determine quarterly estimated income tax payments
required to be paid by the Limited Partners.
Section 10.2. Tax Elections. Except as otherwise provided herein, the General
Partner shall, in its sole discretion, determine whether to make any available
election pursuant to the Code. The General Partner shall make the election under
Section 754 of the Code in accordance with applicable Regulations thereunder.
The General Partner shall elect, and shall file such returns and amended
returns, as necessary, in a manner consistent with the use of the recurring item
method of accounting provided under Section 461(h) of the Code with respect to
property taxes imposed on the Property of the Partnership, including causing the
applicable property taxes to be paid prior to the date provided under Section
461(h) for purposes of economic performance. The General Partner shall have the
right to seek to revoke any such election (excluding the elections under
Sections 461(h) and 754 of the Code) upon the General Partner's determination in
its sole discretion that such revocation is in the best interests of the
Partners.
Section 10.3. Tax Matters Partner. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. The tax matters
partner shall receive no compensation for its services. All third party costs
and expenses incurred by the tax matters partner in performing its duties as
such (including legal and accounting fees and expenses) shall be borne by the
Partnership in addition to any reimbursement pursuant to Section 7.4 hereof.
Nothing herein shall be construed to restrict the Partnership from engaging an
accounting firm to
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assist the tax matters partner in discharging its duties hereunder, so long as
the compensation paid by the Partnership for such services is reasonable. At the
request of any Limited Partner, the General Partner agrees to consult with such
Limited Partner with respect to the preparation and filing of any returns,
including, without limitation any subsequent audit or litigation with respect to
such return, provided the filing of such returns shall be in the sole discretion
of the General Partner, provided, however, that the Original Limited Partners
shall have the right, at their own expense, to contest any adjustment and
approve any settlement in connection with an item that was allocated to them
pursuant to Section 6.2.A.
Section 10.4. Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local, or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including without limitation any taxes required to
be withheld or paid by the Partnership pursuant to Section 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within fifteen (15) days
after notice from the General Partner that such payment must be made unless (i)
the Partnership withholds such payment from a distribution which would otherwise
be made to the Limited Partner or (ii) the General Partner determines that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner pursuant to Article 5 hereof.
ARTICLE 11.
TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER
Section 11.1. Transfer
A. The term "Transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2. Transfer of General Partner's Interest
A. The General Partner may not Transfer any of its General Partner
Interest or withdraw as General Partner except as provided in Sections 11.2.B
and 11.2.C hereof.
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B. The General Partner shall not withdraw from the Partnership and
shall not Transfer, pledge, encumber or otherwise dispose of all or any portion
of its interest in the Partnership (whether by sale, disposition, statutory
merger or consolidation, liquidation or otherwise) without the Consent of the
Common Limited Partners. Upon any Transfer of such a Partnership Interest
pursuant to the Consent of the Common Limited Partners and otherwise in
accordance with the provisions of this Section 11.2.B, the transferee shall
become a successor General Partner for all purposes herein, and shall be vested
with the powers and rights of the transferor General Partner, and shall be
liable for all obligations and responsible for all duties of the General
Partner, once such transferee has executed such instruments as may be necessary
to effectuate such admission and to confirm the agreement of such transferee to
be bound by all the terms and provisions of this Agreement with respect to the
Partnership Interest so acquired. It is a condition to any such Transfer that
the transferee assumes, by operation of law or express agreement, all of the
obligations of the transferor General Partner under this Agreement with respect
to such transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor General Partner of
its obligations under this Agreement without the Consent of the Common Limited
Partners.
C. Subject to the consent requirement in Section 7.3 hereof, the
General Partner may merge with another entity if immediately after such merger
substantially all of the assets of the surviving entity, other than the General
Partner Units held by the General Partner are contributed to the Partnership as
a Capital Contribution in exchange for the General Partner Units.
Section 11.3. Limited Partners' Rights to Transfer
A. A Limited Partner shall have the right to transfer all or any
portion of its Partnership Interest to any Person, subject to the provisions of
Section 11.6 hereof and, in the case of Preferred Limited Partner Interests
owned by IAC Capital Trust, 11.3.E hereof; provided that, any Transfer of a
Partnership Interest shall be made only to a Qualified Transferee.
Notwithstanding the foregoing provisions of this Section 11.3, any Original
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or any portion of its Partnership Interest to an Affiliate or
to an Irvine Person, subject to the provisions of Section 11.6 hereof and (ii)
Pledge any portion of its Partnership Interest. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes by operation
of law or express agreement all of the obligations of the transferor Limited
Partner under this Agreement with respect to such transferred Partnership
Interest and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor Limited
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor Limited Partner of its obligations under this Agreement
without the approval of the General Partner, in its sole discretion. Any
transferee shall take subject to the obligations of the transferor hereunder,
but such transferee shall not be liable for the obligations of the transferor
under Section 17-607 of the Act. Until admitted as a Substituted Limited
Partner, no transferee, whether by a voluntary transfer, by operation of law or
otherwise, shall have any rights hereunder, other than the rights of an Assignee
as provided in Section 11.5 hereof.
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B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservatory or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners of the same class or
series, for the purpose of settling or managing the estate, and such power as
the Incapacitated Limited Partner possessed to transfer all or any part of his
or its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. In connection with any Transfer, the General Partner shall have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed Transfer may be effected without registration under the
Securities Act and will not otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Interests
transferred. If, in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.
D. No Transfer by a Limited Partner of its Partnership Interests
(including any acquisition of Partnership Units by the General Partner or any
acquisition of Partnership Units by the Partnership) may be made to any person
if (i) in the opinion of legal counsel for the Partnership, it would result in
the Partnership being treated as an association taxable as a corporation, or
(ii) such Transfer is effectuated through an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code.
E. In addition to the restrictions on Transfer set forth in this
Section 11.3 and in Section 11.6 and notwithstanding anything to the contrary
contained in this Agreement, no Preferred Limited Partner Interest of any series
owned by IAC Capital Trust may be Transferred except in accordance with the
Designation Instrument creating such series.
F. [Reserved].
G. [Reserved].
Section 11.4. Substituted Limited Partners
A. Each Limited Partner shall, pursuant to the provisions of 11.3, have
the right to Transfer all or a portion of its Partnership Interest to any
Person, subject in the case of Preferred Limited Partner Interests owned by IAC
Capital Trust to Section 11.3.E. Upon satisfaction of the conditions provided
under Section 3.4 and Section 11.3 and upon furnishing to the General Partner
(i) evidence of acceptance in form satisfactory to the General Partner of all of
the terms and conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature
page to this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as a Substituted Limited Partner, the General
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Partner shall promptly admit such transferee of the interest of a Limited
Partner as a Substituted Limited Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of Limited
Partner Units, and Percentage Interest of such Substituted Limited Partner and
to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5. Assignees. Until such time as a transferee has been admitted as a
Substituted Limited Partner pursuant to Section 11.4, such transferee shall be
considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive,
distributions from the Partnership and the share of Net Income, Net Losses, and
any other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Limited Partner Units assigned to such transferee, but shall
not be deemed to be a holder of Limited Partner Units for any other purpose
under this Agreement, and shall not be entitled to vote such Limited Partner
Units in any matter presented to the Limited Partners of the same class or
series for a vote (such Limited Partner Units being deemed to have been voted on
such matter in the same proportion as all other Limited Partner Units held by
Limited Partners of the same class or series are voted). In the event any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article 11 to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Limited Partner Units.
Section 11.6. General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Limited Partner
Units in accordance with this Article 11.
B. Any Limited Partner who shall Transfer all of his Limited Partner
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Limited Partner
Units as Substituted Limited Partners. Similarly, any Preferred Limited Partner
whose Preferred Limited Partner Units of a series are redeemed in full or paid
in full upon the stated maturity thereof, in each case, in accordance with the
Designation Instrument applicable to such series of Partnership Units shall
cease to be a Preferred Limited Partner insofar as such series is concerned.
C. If any Partnership Unit is Transferred during any quarterly segment
of the Partnership Year in compliance with the provisions of this Article 11,
then Net Income, Net Losses, each item thereof and all other items attributable
to such Partnership Unit for such Partnership Year shall be allocated to the
transferor Partner, and to the transferee Partner by taking into account their
varying interests during the Partnership Year in accordance with Section
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706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which a transfer occurs shall be allocated to the transferee Partner and none
of such items for the calendar month in which a transfer occurs shall be
allocated to the transferor Partner, if such transfer occurs before the
fifteenth day of the month, otherwise such items shall be allocated to the
transferor. All distributions of Available Cash attributable to such Partnership
Unit with respect to which the Partnership Record Date is before the date of
such transfer or assignment shall be made to the transferor Partner and all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
D. In addition to any other restriction on transfer herein contained,
in no event may any transfer or assignment of a Partnership Interest by any
Partner (including any acquisition of Partnership Units by the General Partner)
be made (i) to any person or entity who lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest, (iv) if such transfer would, in the opinion of counsel to
the Partnership, cause the Partnership to cease to be classified as a
partnership for Federal income tax purposes; (v) if such transfer would cause
the Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); (vi) if
such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.2-101;
(vii) if such transfer requires the registration of such Partnership Interest
pursuant to any applicable federal or state securities laws other than in
connection with the issuance of preferred securities of IAC Capital Trust;
(viii) if such transfer requires the Partnership to become a reporting company
under the Securities Exchange Act of 1934; or (ix) if such transfer subjects the
Partnership to be regulated under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or the Employee Retirement Income Security Act
of 1974, each as amended.
Section 11.7. Removal of General Partner
A. The General Partner may not be removed as general partner except as
provided in this Section 11.7. The General Partner may be removed upon the
affirmative vote of Common Limited Partners holding 50% or more of the issued
and outstanding Common Limited Partner Interests if such removal is for cause.
As used in this Section 11.7, "cause" means an act or omission undertaken with
deliberate intent to cause injury to the Partnership, constituting actual fraud,
actual bad faith or willful misconduct on the part of the General Partner or an
act or omission of gross negligence. The right to remove the General Partner
shall not exist or be exercised unless such action for removal also provides for
the election of a new general partner. Such removal shall be effective
immediately subsequent to the admission of the successor General Partner
pursuant to Article 12 hereof.
B. Upon the removal of the General Partner, the departing General
Partner shall become a Common Limited Partner, and its General Partner Interest
shall be converted
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automatically into a Common Limited Partner Interest, without any reduction in
the departing General Partner's Junior Percentage Interest (subject to
proportionate dilution by reason of the admission of its successor).
This Agreement shall be amended to reflect any event described in this
Section 11.7, and any successor General Partner covenants so to amend this
Agreement and the Certificate, as required.
C. The successor to the departing General Partner shall at the
effective date of its admission to the Partnership contribute to the capital of
the Partnership cash in an amount such that its Capital Account, after giving
effect to such contribution, shall be at least equal to the amount, if any,
required by any applicable law.
D. The removal of the General Partner pursuant to this Section 11.7
will not relieve the Partnership from any of its debts or other obligations to
the departing General Partner, including, without limitation, reimbursement
obligations under Section 7.4 or its obligations under Section 7.7, arising
prior to the removal of the departing General Partner.
ARTICLE 12.
ADMISSION OF PARTNERS
Section 12.1. Admission of Successor General Partner. A successor to all of the
General Partner Interest pursuant to Section 11.2.B hereof who is proposed to be
admitted as a successor General Partner shall be admitted to the Partnership as
the General Partner, effective immediately prior to such Transfer. A successor
to a General Partner removed pursuant to Section 11.7 shall be admitted to the
Partnership as the successor General Partner effective upon satisfaction of the
condition specified in Section 11.7.C. Any such successor shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.
Section 12.2. Admission of Additional Limited Partners
A. A Person who makes a Capital Contribution to the Partnership on or
after the date hereof in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner by the General Partner, without the
consent of any other Partner, only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.
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B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assignees including such Additional Limited
Partner, in accordance with the principles described in Section 11.6.C. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3. Amendment of Agreement and Certificate of Limited Partnership. For
the admission to the Partnership of any Partner, the General Partner shall take
all steps necessary and appropriate under the Act to amend the records of the
Partnership and, if necessary, to prepare as soon as practical an amendment of
this Agreement (including an amendment of Exhibit A) and, if required by law,
shall prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Section 2.4 hereof.
Section 12.4. Limit on Number of Partners. No Person shall be admitted to the
Partnership as an additional Partner if the effect of such admission would be to
cause the Partnership to have more than 500 Partners, including as Partners for
this purpose those Persons indirectly owning an interest in the Partnership
through another partnership, subchapter S corporation or a grantor trust, or
otherwise cause the Partnership to become a reporting company under the
Securities Exchange Act of 1934, as amended.
ARTICLE 13.
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1. Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal or removal of the General Partner, any
successor General Partner shall continue the business of the Partnership without
dissolution. The Partnership shall dissolve, and its affairs shall be wound up,
upon the first to occur of any of the following ("Liquidating Events"):
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<PAGE> 56
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the
Act, unless, within ninety (90) days after the event of withdrawal (i) all the
Common Limited Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of such event of
withdrawal, of a successor General Partner; and (ii) more than fifty percent
(50%) of the aggregate Liquidation Preference Amount of all series of Preferred
Limited Partner Units then outstanding voting together as a single class agree
to continue the business of the Partnership either in writing or by vote at a
meeting of Preferred Limited Partners held in accordance with Section 14.3 and
to the appointment, effective as of the date of such event of withdrawal, of a
successor General Partner;
C. an election to dissolve the Partnership made by the General Partner,
subject to the Consent of the Common Limited Partners;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
or
E. the sale of all or substantially all of the assets and properties of
the Partnership.
Section 13.2. Winding Up
A. 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 and Partners.
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.
The General Partner or, in the event there is no remaining General Partner, any
Person elected by the Common Limited Partners holding in the aggregate more than
fifty percent (50%) of the Percentage Interests of the Common Limited Partners
or, in the event there is no remaining General Partner or Common Limited
Partner, any Person elected by the Preferred Limited Partners holding in the
aggregate more than fifty percent (50%) of the Percentage Interests of the
Preferred Limited Partners voting as one class (the General Partner or such
other Person being referred to herein as the "Liquidator") shall be responsible
for overseeing the winding up and dissolution of the Partnership and shall take
full account of the Partnership's liabilities and property and the Partnership
property shall be liquidated as promptly as is consistent with obtaining the
fair value thereof, and the proceeds therefrom (which may, to the extent
determined by the General Partner, include shares of stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment or the
making of reasonable provision for payment thereof);
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<PAGE> 57
(2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner (whether by payment or the making of
reasonable provision for payment thereof);
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the making of
reasonable provision for payment thereof);
(4) Fourth, to the Preferred Limited Partners, the applicable
Liquidation Preference Amount plus accrued and unpaid distributions in
accordance with the terms of the applicable Designation Instrument(s); and
(5) The balance, if any, to the General Partner and Common Limited
Partners 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 13 other than reimbursement of
its expenses as provided in Section 7.4 hereof.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy liabilities
of the Partnership (including to those Partners as creditors) and/or distribute
to the Partners, in lieu of cash, as tenants in common and in accordance with
the provisions of Section 13.2.A hereof, undivided interests in such Partnership
assets as the Liquidator deems not suitable for liquidation. Any such
distributions in kind shall be made only if, in the good faith judgment of the
Liquidator, such distributions in kind are in the best interest of the Partners,
and shall be subject to such conditions relating to the disposition and
management of such properties as the Liquidator deems reasonable and equitable
and to any agreements governing the operation of such properties at such time.
The Liquidator shall determine the fair market value of any property distributed
in kind using such reasonable method of valuation as it may adopt.
C. If any Partner has a deficit balance in his Capital Account (after
giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. A pro rata portion of the distributions that would otherwise be made
to the General Partner and Limited Partners pursuant to this Article 13 may be
withheld or escrowed 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 such withheld or
escrowed
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<PAGE> 58
amounts shall be distributed to the General Partner and Limited Partners in the
manner and order of priority set forth in Section 13.2.A as soon as practicable.
Section 13.3. [Reserved].
Section 13.4. Rights of Limited Partners. Except as otherwise provided in this
Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of his Capital Contributions and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as otherwise provided in this Agreement (including pursuant to any
Designation Instrument or Instruments), no Limited Partner shall have priority
over any other Partner as to the return of his Capital Contributions,
distributions, or allocations.
Section 13.5. Notice of Dissolution. In the event a Liquidating Event occurs or
an event occurs that would, but for an election or objection by one or more
Partners pursuant to 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.
Section 13.6. Termination of Partnership and Cancellation of Certificate of
Limited Partnership. Upon the completion of the liquidation of the Partnership
cash and property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.
Section 13.7. Reasonable Time for Winding-Up. A reasonable time shall be allowed
for the orderly winding-up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 13.2 hereof, in order to
minimize any losses otherwise attendant upon such winding-up, and the provisions
of this Agreement shall remain in effect between the Partners during the period
of liquidation.
Section 13.8. Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE 14.
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1. Amendments. Subject to Section 14.3, Amendments to this Agreement
may be proposed by the General Partner or by a Majority-In-Interest of the
Common Limited Partners. Following such proposal, the General Partner shall
submit any proposed amendment to the Common Limited Partners. The General
Partner shall seek the written vote of the Common Limited Partners on the
proposed amendment or shall call a meeting to vote thereon and to transact any
other business that it may deem appropriate. For purposes of obtaining a written
vote, the General Partner may require a response within a reasonable specified
time, but not less than fifteen (15) days, and failure to respond in such time
period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as
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<PAGE> 59
provided in Section 7.3.B, 7.3.C or 7.3.D hereof, a proposed amendment shall be
adopted and be effective as an amendment hereto if it is approved by the General
Partner and it receives the Consent of Common Limited Partners.
Section 14.2. Meetings of the Common Limited Partners
A. Meetings of the Common Limited Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by a Majority-In-Interest of the Common Limited Partners. The call shall
state the nature of the business to be transacted. Notice of any such meeting
shall be given to all Common Limited Partners not less than seven (7) days nor
more than thirty (30) days prior to the date of such meeting. Common Limited
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of Common Limited Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of Common Limited
Partners or may be given in accordance with the procedure prescribed in Section
14.2.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Common Limited Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by a majority of the Percentage
Interests of the Common Limited Partners (or such other percentage as is
expressly required by this Agreement). Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Common Limited Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Each Common Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Common 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 Common Limited
Partner or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy
(or there is receipt of a proxy authorizing a later date). Unless otherwise
provided therein, every proxy shall be revocable at the pleasure of the Common
Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Common
Limited Partner executing such proxy.
D. Each meeting of Common Limited Partners shall be conducted by the
General Partner or such other Person as the General Partner may appoint pursuant
to such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate in his sole discretion. Without limitation,
meetings of Common Limited Partners may be conducted in the same manner as
meetings of the shareholders of the General Partner and may be held at the same
time, and as part of, meetings of the shareholders of the General Partner.
Section 14.3. Meetings of Preferred Limited Partners. In the event that the vote
or consent of the holders of Preferred Limited Partner Interests (or any series
thereof) is required pursuant to this Agreement (including pursuant to a
Designation Instrument) such vote or consent may be obtained at a meeting of
Preferred Limited Partners or by written consent. The provisions of
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<PAGE> 60
Section 14.2 hereof shall apply to any such meeting or written consent to the
extent practicable in which case all references in such Section to Common
Limited Partners shall mean the Preferred Limited Partners as a class or the
Preferred Limited Partners holding the applicable series of Preferred Limited
Partner Interests, as shall be applicable to such vote or consent.
ARTICLE 15.
GENERAL PROVISIONS
Section 15.1. Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class United States mail or by other means of
written communication to the Partner or Assignee at the address set forth in
Exhibit A or such other address of which the Partner shall notify the General
Partner in writing.
Section 15.2. Titles and Captions. All article or section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"Articles" or "Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4. Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
Section 15.6. Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.7. Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.
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Section 15.8. Applicable Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 15.9. Entire Agreement. This Agreement contains all of the
understandings and agreements between the Partners with respect to the subject
matter of this Agreement and the rights, interests and obligations of the
Partners with respect to the Partnership.
Section 15.10. Invalidity of Provisions. If any provision of this Agreement is
or becomes invalid or unenforceable in any respect, the validity and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.10.1. [Reserved].
Section 15.11. Certificates for Preferred Limited Partner Interests Issued to
IAC Capital Trust. Unless otherwise permitted pursuant to the terms of the
Declaration of Trust, legal title to all Preferred Limited Partner Units issued
to IAC Capital Trust shall be vested in, the Preferred Limited Partner Units
shall be held of record in the name of, and the certificate or certificates
representing such Preferred Limited Partner Units shall be registered in the
name of, the Property Trustee.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the date and year first above
written.
GENERAL PARTNER:
IRVINE APARTMENT COMMUNITIES LLC,
a Delaware limited liability company
By: /s/ MICHAEL D. McKEE
--------------------------------------------
Name: Michael D. Mckee
Title: Executive Vice President
By: /s/ RICHARD PIANIN
--------------------------------------------
Name: Richard Pianin
Title: Senior Vice President
COMMON LIMITED PARTNERS:
THE IRVINE COMPANY
By: *
--------------------------------------------
Name:
Title:
R.S.J. ASSOCIATES,
a California limited partnership
By: The Irvine Company,
its general partner
By: *
-------------------------------------
Name:
Title:
57
<PAGE> 63
WOODBRIDGE WILLOWS ASSOCIATES,
a California limited partnership
By: The Irvine Company,
its general partner
By: *
-------------------------------------
Name:
Title:
TIC INVESTMENT COMPANY A,
a California general partnership
By: The Irvine Company,
a general partner
By: *
-------------------------------------
Name:
Title:
TIC INVESTMENT COMPANY B,
a California general partnership
By: The Irvine Company,
a general partner
By: *
-------------------------------------
Name:
Title:
58
<PAGE> 64
TIC INVESTMENT COMPANY C,
a California general partnership
By: The Irvine Company,
a general partner
By: *
-------------------------------------
Name:
Title:
TIC INVESTMENT COMPANY D,
a California general partnership
By: The Irvine Company,
a general partner
By: *
-------------------------------------
Name:
Title:
STONECREST VILLAGE COMPANY, LLC,
a California limited liability company
By: California Pacific Homes,
a California corporation
its Managing Member
By: *
-------------------------------------
Name:
Title:
59
<PAGE> 65
PREFERRED LIMITED PARTNERS:
IAC CAPITAL TRUST,
a Delaware business trust
By: *
--------------------------------------------
David A. Patty, not in his individual
capacity but solely in his capacity as a
trustee of IAC Capital Trust
GOLDMAN SACHS 1998 EXCHANGE PLACE FUND, L.P.,
a Delaware limited partnership
By: Goldman Sachs Management Partners, L.P.,
a Delaware limited partnership,
its General Partner
By: *
-------------------------------------
Name:
Title:
* By: IRVINE APARTMENT COMMUNITIES LLC,
a Delaware limited liability company,
as Attorney-In-Fact for each of
the Limited Partners
By: /s/ MICHAEL D. McKEE
-------------------------------------
Name: Michael D. McKee
Title: Executive Vice President
By: /s/ RICHARD PIANIN
-------------------------------------
Name: Richard Pianin
Title: Senior Vice President
60
<PAGE> 66
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
CASH GROSS ASSET VALUE OF NUMBER OF PERCENTAGE
NAME AND ADDRESS OF PARTNER CONTRIBUTION (1) PROPERTY CONTRIBUTED TOTAL PROPERTY (1) UNITS (2) INTEREST (10)
---------------- --------------------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
IRVINE APARTMENT COMMUNITIES LLC $345,600,033.58(3) 0 $ 345,600,033.58 20,175,893(3) 44.634139%
550 Newport Center Drive
Newport Beach, CA 92660
COMMON LIMITED PARTNERS
THE IRVINE COMPANY 0 885,022,698(4) 885,022,698 17,377,523(4) 38.443442%
550 Newport Center Drive
Newport Beach, CA 92660
R.S.J. ASSOCIATES 0 27,286,000 27,286,000 535,000 1.183554%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
WOODBRIDGE WILLOWS ASSOCIATES 0 9,989,000 9,989,000 609,000 1.347261%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY B 0 17,075,000 17,075,000 478,162(5) 1.057814%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY A $24,500,126.25(6) 0 24,500,126.25(6) 1,502,105(6) 3.323033%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY C 67,426,907.33(7) 0 67,426,907.33(7) 3,034,105 6.712202%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY D 0 33,974,000 33,974,000 1,185,333(8) 2.622254%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
STONECREST VILLAGE COMPANY LLC(9) 0 9,475,000 9,475,000 305,707 0.676301%
c/o California Pacific Homes
38 Executive Park, Suite 200
Irvine, CA 92614
Subtotal $437,527,067.16 $ 982,821,698 $ 1,420,348,765 819,763 100.0000000%
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
CASH GROSS ASSET VALUE OF NUMBER OF PERCENTAGE
NAME AND ADDRESS OF PARTNER CONTRIBUTION (1) PROPERTY CONTRIBUTED TOTAL PROPERTY (1) UNITS (2) INTEREST (10)
---------------- --------------------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
PREFERRED LIMITED PARTNERS
IAC CAPITAL TRUST(11) $150,000,000.00 0 $ 150,000,000.00 6,000,000
c/o Irvine Apartment Communities
LLC
550 Newport Center Drive
Newport Beach, CA 92660
Series A Preferred
Limited Partner Units 100%
GOLDMAN SACHS 1998 EXCHANGE PLACE $ 50,000,000.00 0 $ 50,000,000.00 2,000,000
FUND, L.P.(12)
c/o Goldman Sachs & Company
One New York Plaza
New York, NY 10004
Series B Preferred
Limited Partner Units 100%
TOTAL $587,527,067.16 $ 982,821,698 $1,570,348,765.16 N/A N/A
</TABLE>
(1) These amounts constitute the agreed value for purposes of the Act.
(2) Except with respect to the Common Limited Partner Units referred to in
Notes 5, 6 and 8, the 51,345;1,756 and 232,333 General Partner Units
referred to in Note 3, and the 40,905 Common Limited Partner Units
referred to in Note 7, Common Limited Partner Units were allocated in
accordance with the net asset value of the property contributed by each
Partner.
(3) All of which was contributed by Irvine Apartment Communities, Inc.,
predecessor in interest to Irvine Apartment Communities LLC, and of which
$193,602,600 was contributed in connection with the December 1993 initial
public offering of 11,800,000 REIT Shares (the term "REIT Shares" shall
have the same meaning assigned to such term in the Prior Agreement),
$84,378,375 was contributed in connection with the August 1995 offering of
5,175,000 REIT Shares, $30,000,337.50 was contributed in connection with
the July 1996 offering of 1,490,700 REIT Shares, $29,969,000 was
contributed in connection with the February 1997 offering of 1,150,000
REIT Shares, $6,170,093.9375 was deemed contributed pursuant to Sections
4.6.B and 4.5.H for 232,333 REIT Shares, $1,428,415.2675 was deemed
contributed pursuant to Section 4.8.A(3) of the Prior Agreement for 51,345
REIT Shares and $51,211.875 was deemed contributed pursuant to Section
4.8.B(2) of the Prior Agreement for 1,756 REIT Shares.
(4) Includes $65,898,000 gross asset value of property contributed by five
original limited partners which limited partners were liquidated on June
30, 1995. The 1,359,000 Common Limited Partner Units owned by such limited
partners were transferred to The Irvine Company in connection with such
liquidation. Also includes $37,605,000 gross asset value of property
contributed by another original limited partner. The 160,000 Common
Limited Partner Units owned by such limited partner were transferred to
The Irvine Company in June 1996. Includes $2,000,000 representing the
contribution made by Thompson Residential Company, Inc. ("TRC"), which
interest was acquired from TRC in June 1999. [sentence re TRC units].
(5) These Common Limited Partner Units were issued in accordance with Section
4.3.B of the Prior Agreement prior to June 1, 1996 and were transferred to
TIC Investment Company B in June 1996 when it was admitted as a
Substituted Limited Partner.
(6) Of which $24,457,500 was contributed pursuant to Section 4.5.G and 4.5.H
for 1,500,000 Common Limited Partner Units in connection with the August
1995 offering of REIT Shares and $42,626.25 was deemed contributed
pursuant to Section 4.8.A.(4) of the Prior Agreement for 2,105 Common
Limited Partner Units. All such Units were issued prior to June 1, 1996
and were transferred to TIC Investment Company A in June 1996 when it was
admitted as a Substituted Limited Partner.
(7) Of which $30,000,337.50 and $36,332,695.64 was contributed pursuant to
Sections 4.5.G and 4.5.H for 1,490,700 Common Limited Partner Units and
1,394,194 the Common Limited Partner Units, respectively, in connection
with the July 1996 and February 1997 offerings, respectively, of REIT
Shares and $1,093,874.1925 was deemed contributed pursuant to Section
4.8.A(4) of the Prior Agreement for 40,905 Common Limited Partner Units.
(8) These Common Limited Partner Units were issued in accordance with Section
4.3.B of the Prior Agreement. TIC Investment Company D was admitted as an
Additional Limited Partner in July 1996. With respect to three of the
transactions (representing 824,932 of the Common Limited Partner Units and
$24,430,000 of the Gross Asset Value of Contributed Property) a portion of
the
2
<PAGE> 68
Common Limited Partner Units issued in each transaction are subject to
return and cancellation if the Apartment Community Project to be
constructed on the land site does not achieve a 10% unleveraged return on
costs for the first year following stabilized occupancy.
(9) SVC was admitted as an Additional Common Limited Partner in December, 1997
in connection with the closing under the Contribution Agreement dated
November 25, 1997 between SVC and the Partnership.
(10) Represents (i) in the case of the General Partner and a Common Limited
Partner, their Junior Percentage Interest and (ii) in the case of a
Preferred Limited Partner, its Percentage Interest in such series.
(11) IAC Capital Trust was admitted as a Preferred Limited Partner on January
20, 1998.
(12) Goldman Sachs 1998 Exchange Place Fund, L.P. (formerly known as
Greenstreet 1998 Exchange Fund, L.P.) was admitted as a Preferred Limited
Partner on November 12, 1998.
3
<PAGE> 69
EXHIBIT B
FORM OF COMMON LIMITED PARTNER UNIT CERTIFICATE
THE COMMON LIMITED PARTNER INTERESTS EVIDENCED BY THIS CERTIFICATE ARE
SECURITIES GOVERNED BY DIVISION 8 OF THE DELAWARE UNIFORM COMMERCIAL CODE. THE
COMMON LIMITED PARTNER INTERESTS EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS IT HAS BEEN
REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE
RESTRICTIONS ON TRANSFER SET FORTH IN THE THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF IRVINE APARTMENT COMMUNITIES, L.P. DATED JUNE __,
1999, AS MAY BE AMENDED FROM TIME TO TIME (THE "PARTNERSHIP AGREEMENT") A COPY
OF WHICH MAY BE OBTAINED FROM IRVINE APARTMENT COMMUNITIES LLC, GENERAL PARTNER,
AT ITS PRINCIPAL EXECUTIVE OFFICE.
Certificate Number Number of Common
Limited Partner Units
_________ ________
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that _____________________________________
is the owner of _________________________________________
FULLY PAID COMMON LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. This Certificate and the Common Limited Partner Units
represented hereby are issued and shall be held subject to all of the provisions
of the Partnership Agreement as the same may be amended and/or supplemented from
time to time.
B-1
<PAGE> 70
IN WITNESS WHEREOF, IRVINE APARTMENT COMMUNITIES LLC, general partner, has
signed this Certificate this __ day of __________, 199_.
IRVINE APARTMENT COMMUNITIES LLC,
as general partner of Irvine Apartment
Communities, L.P.
By:
--------------------------------------
Name:
Title:
B-2
<PAGE> 71
EXHIBIT C
IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION INSTRUMENT
PURSUANT TO
THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OR IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF THE
SERIES A PREFERRED LIMITED PARTNER UNITS
FIRST: Pursuant to authority expressly vested in the General Partner of
the Partnership pursuant to Section 4.5.F of the Agreement, the General Partner
hereby classifies 6,900,000 Preferred Limited Partner Units of the Partnership
into a series designated the Series A Preferred Limited Partner Units and
provides for the issuance of such Preferred Limited Partner Units. This
instrument constitutes a Designation Instrument under the Agreement. Capitalized
terms used but not defined herein have the meanings set forth in the Agreement.
SECOND: The terms of the Series A Preferred Limited Partner Units
established by this Designation Instrument are as follows:
SECTION 1. Designation and Amount. The series of Preferred Limited Partner
Units shall be designated the "Series A Preferred Limited Partner Units" and the
authorized number of Partnership Units constituting such series shall be
6,900,000.
SECTION 2. Stated Value. The stated value of the Series A Preferred Limited
Partner Units shall be $25.00 per Unit (the "STATED VALUE").
SECTION 3. Distributions. (a) Subject to the rights of holders of any
series of Preferred Limited Partner Units which the Partnership may issue in the
future which rank on a parity with the Series A Preferred Limited Partner Units
in respect of distributions, the holders of outstanding Series A Preferred
Limited Partner Units will be entitled to receive, when, as and if declared by
the
C-1
<PAGE> 72
Partnership acting through the General Partner out of funds legally available
for the payment of distributions, cumulative preferential cash distributions at
the rate per annum of 8 1/4% of the Stated Value. Distributions will be
cumulative, will accrue from January 20, 1998, the original issue date of the
Series A Preferred Limited Partner Units, and will be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 (each a "SERIES A
DISTRIBUTION PAYMENT DATE") of each year, commencing on March 31, 1998. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any Series A Distribution Payment Date is not
a Business Day, then payment of the distribution to be made on such Series A
Distribution Payment Date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such Series A Distribution
Payment Date. Each such distribution will be payable to the holders of record of
the Series A Preferred Limited Partner Units as they appear on the books of the
Partnership or any transfer agent for the Series A Preferred Limited Partner
Units on such record dates selected by the General Partner, not less than 1O nor
more than 50 days preceding the applicable Series A Distribution Payment Date;
provided that so long as the Series A Preferred Limited Partner Units are owned
by IAC Capital Trust, the General Partner shall establish record dates with
respect to the Series A Preferred Limited Partner Units that shall coincide with
the record dates established with respect to the 8 1/4% Series A REIT Trust
Originated Preferred Securities of IAC Capital Trust (the "SERIES A PREFERRED
SECURITIES").
(b) Distributions on the Series A Preferred Limited Partner Units shall
accrue on a daily basis commencing on the date of original issuance of the
Series A Preferred Limited Partner Units, will accrue whether or not the
Partnership has earnings, whether or not there are funds legally available for
the payment of such distributions and whether or not such distributions are
declared. Accrued distributions will accumulate, to the extent not paid, as of
the Series A Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(c) So long as any Series A Preferred Limited Partner Units are
outstanding, no distribution shall be paid or declared on or with respect to the
Common Limited Partner Units or the General Partner Units or any other series of
outstanding Preferred Limited Partner Units ranking junior as to the payment of
distributions to the Series A Preferred Limited Partner Units, nor shall any sum
or
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sums be set aside for or applied to the purchase or redemption of the Series A
Preferred Limited Partner Units or any other series of outstanding Preferred
Limited Partner Units or the purchase, redemption or other acquisition for value
of any Common Limited Partner Units, General Partner Units or Preferred Limited
Partner Units of any series ranking junior to the Series A Preferred Limited
Partner Units as to the payment of distributions unless, in each case, full
cumulative distributions accumulated on all Series A Preferred Limited Partner
Units and all other series of outstanding Preferred Limited Partner Units
ranking on a parity with the Series A Preferred Limited Partner Units as to the
payment of distributions have been paid in full, provided that the foregoing
will not prohibit distributions payable solely in Common Limited Partner Units,
the General Partner Units or Preferred Limited Partner Units of a series ranking
junior to the Series A Preferred Limited Partner Units as to the payment of
distributions, the exchange of Common Limited Partner Units for REIT Shares in
accordance with Section 8.6 of the Agreement, the repurchase of Common Limited
Partner Units in connection with the exercise by the holders thereof of the Cash
Tender rights set forth in Section 8.6 of the Agreement, the exchange of
Common Limited Partner Units for General Partner Units as provided in the
Agreement or the repayment, return, forfeiture and cancellation of Common
Limited Partner Units issued in connection with land acquisitions by the
Partnership as and to the extent provided pursuant to the purchase or other
acquisition agreement relating to any such acquisition. When distributions have
not been paid in full upon the Series A Preferred Limited Partner Units on the
applicable Series A Distribution Payment Date (or a sum sufficient for such full
payment is not set apart therefor), all distributions declared and paid on the
Series A Preferred Limited Partner Units and any other series of outstanding
Preferred Limited Partner Units ranking on a parity with the Series A Preferred
Limited Partner Units as to the payment of distributions shall be declared and
paid so that the amount of distributions declared and paid on the Series A
Preferred Limited Partner Units and such other series of Preferred Limited
Partner Units shall in a cases bear to each other the same ratio that the
respective distribution rights of the Series A Preferred Limited Partner Units
and such other series of Preferred Limited Partner Units (which shall not
include any accumulation in respect of unpaid distributions for prior
distribution periods if such other series of Preferred Limited Partner Units do
not have cumulative distribution Tights) bear to each other.
(d) The holders of outstanding Series A Preferred Limited Partner
Units will be entitled to receive, when, as and if declared by the Operating
Partnership acting through the General Partner out of funds legally available
therefor, such cash distributions, in addition to those described in Sections
3(a) through (c), that may be necessary to preserve the status of IAC Capital
Trust as a real estate investment trust for federal income tax purposes.
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(e) Holders of Series A Preferred Limited Partner Units shall not be
entitled to any distributions whether payable in cash, property or otherwise, in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Partnership shall be governed by Section 4 hereof.
SECTION 4. Liquidation. Subject to the rights of the holders of any
other series of Preferred Limited Partner Units which the Partnership may issue
in the future which rank on a parity with the Series A Preferred Limited Partner
Units upon any voluntary or involuntary dissolution, liquidation, winding-up or
termination of the Partnership, the holders of the Series A Preferred Limited
Partner Units will be entitled to receive upon any such dissolution,
liquidation, winding-up or termination of the Partnership out of the assets of
the Partnership legally available for distribution, after payment or provision
for payment of debts and other liabilities of the Partnership, an amount per
Series A Preferred Limited Partner Unit equal to the Stated Value, plus
accumulated and unpaid distributions thereon to the date of payment (the "SERIES
A LIQUIDATION PREFERENCE AMOUNT") and no more. If, upon any such liquidation,
dissolution, winding-up or termination, there are insufficient assets to permit
full payment to the holders of Series A Preferred Limited Partner Units and any
other series of outstanding Preferred Limited Partner Units ranking on a parity
upon liquidation, dissolution, winding-up or termination of the Partnership with
the Series A Preferred Limited Partner Units, the holders of Series A Preferred
Limited Partner Units and such other series of Preferred Limited Partner Units
shall be paid ratably in proportion to the fall distributable amount to which
holders of Series A Preferred Limited Partner Units and such other series of
Preferred Limited Partner Units are respectively entitled upon liquidation,
dissolution, winding-up or termination. The full preferential amount payable to
holders of the Series A Preferred Limited Partner Units and such other series
of outstanding Preferred Limited Partner Units upon any such liquidation,
dissolution, winding-up or termination will be paid in full before any
distribution or payment is made to the holders of General Partner Units, Common
Limited Partner Units and Preferred Limited Partner Units of any series ranking
junior to the Series A Preferred Limited Partner Units upon liquidation,
dissolution, winding-up or termination of the Partnership. The consolidation or
merger of the Partnership with or into any corporation, trust, partnership or
other entity (or of any corporation, trust, partnership or entity with or into
the Partnership) shall not be deemed to constitute a liquidation, dissolution,
winding-up or termination of the Partnership.
SECTION 5. Stated Maturity and Redemption. (a) The Series A Preferred
Limited Partner Units shall mature and the Stated Value thereof shall be due and
payable on December 31, 2092 (the "STATED MATURITY DATE") whether or not the
term of the Partnership is extended. On the Stated Maturity Date the holders of
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Series A Preferred Limited Partner Units shall be entitled to receive, upon
surrender of their certificates for the Series A Preferred Limited Partner
Units, out of funds legally available for distribution an amount in cash equal
to the Stated Value per Series A Preferred Limited Partner Unit, plus
accumulated and unpaid distributions thereon to the date of payment (the "STATED
MATURITY PRICE") and no more.
(b) Except in the case of a Tax Event or Investment Company Act Event
(each as defined in Section 4(c) below), the Series A Preferred Limited Partner
Units may not be redeemed prior to December 31, 2002. On or after such date the
Partnership shall have the right to redeem the Series A Preferred Limited
Partner Units, in whole or in part, from time to time, upon notice as provided
in Section 4(d) below, at a redemption price equal to the Stated Value per
Series A Preferred Limited Partner Unit plus, subject to Section 5(g) hereof,
accumulated and unpaid distributions to the date of payment (the "SERIES A
REDEMPTION PRICE"), provided that the Partnership may not redeem fewer than all
the outstanding Series A Preferred Limited Partner Units unless all accumulated
and unpaid distributions have been paid on all Series A Preferred Limited
Partner Units for all quarterly distributions periods ending on or prior to the
date of redemption.
(c) If, at any time prior to December 31, 2002, a Tax Event or
Investment Company Event (each, a "SPECIAL EVENT") shall occur and be
continuing, the Partnership shall have the right to redeem the Series A
Preferred Limited Partner Units in whole but not in part at the Series A
Redemption Price, provided, however, that, if at the time there is available to
the Partnership or IAC Capital Trust the opportunity to eliminate, within a
90-day period, the Special Event by taking some ministerial action
(collectively, "MINISTERIAL ACTIONS"), such as filing a form or making an
election, or pursuing some other similar reasonable measure, which in the sole
judgment of the General Partner has or will cause no adverse effect on IAC
Capital Trust, the Partnership, Irvine Apartment Communities or the holders of
the Series A Preferred Securities and will involve no material cost, the
Partnership and IAC Capital Trust will pursue such measure in lieu of such
redemption, provided further, that the Partnership shall have no right to redeem
the Series A Preferred Limited Partner Units while the Partnership or the
Regular Trustees (as defined in the Declaration of Trust) on behalf of IAC
Capital Trust are pursuing any such Ministerial Action. The Partnership shall
have the right, upon not less than 30 nor more than 60 days' notice, to redeem
the Series A Preferred Limited Partner Units in whole for cash at the Series A
Redemption Price as provided in Section 5(b) within 90 days following the
occurrence of such Special Event (subject to extension for the number of days
Ministerial Actions are pursued).
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"INVESTMENT COMPANY EVENT" means that the Partnership and the Regular
Trustees of IAC Capital Trust shall have received an opinion of nationally
recognized independent counsel experienced in practice under the Investment
Company Act of 1940, as amended (the "1940 ACT"), that as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency, or regulatory authority (a "CHANGE IN 1940 ACT LAW"), there is more than
an insubstantial risk that IAC Capital Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after January 14, 1998.
"TAX EVENT" means that the Partnership and the Regular Trustees of IAC
Capital Trust shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters that there is more than an
insubstantial risk that IAC Capital Trust does not qualify, or within 90 days of
the date of such opinion would no longer qualify, as a REIT under the Code and
Regulations for any reason whatsoever, provided that a Tax Event shall not
include the voluntary election by the Regular Trustees and/or the holders of the
Common Securities (as defined in the Declaration of Trust) of IAC Capital Trust
to terminate IAC Capital Trust's status as a real estate investment trust for
Federal income tax purposes.
(d) The Partnership will provide notice of any redemption of the Series
A Preferred Limited Partner Units to the holders of record thereof not less
than 30 nor more than 60 days prior to the date of redemption and in the case of
a mandatory repayment of the Series A Preferred Limited Partner Units on the
Stated Maturity Date will provide notice of such repayment not less than 30 nor
more than 60 days prior to the Stated Maturity Date. Such notice shall be
provided by mailing notice of such redemption or mandatory repayment, first
class postage prepaid, to each holder of Series A Preferred Limited Partner
Units to be redeemed or to all holders in the event of mandatory repayment on
the Stated Maturity Date, at such holder's address as it appears on the transfer
records of the Partnership. Each such notice shall state, as appropriate, the
following:
(i) the redemption date or the Stated Maturity Date;
(ii) the Series A Redemption Price or the Stated Maturity
Price;
(iii) the place or places where certificates for the Series A
Preferred Limited Partner Units may be surrendered for payment;
(iv) the number of the Series A Preferred Limited Partner
Units to be redeemed from each holder;
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(v) that payment of the Series A Redemption Price or the
Stated Maturity Price will be made upon presentation and surrender of
such Series A Preferred Limited Partner Units; and
(vi) that on or after the Stated Maturity Date or the
redemption date distributions on the Series A Preferred Limited Partner
Units to be redeemed or repaid will cease to accrue.
No failure to give or defect in a notice of redemption shall affect the validity
of the proceedings for redemption of any Series A Preferred Limited Partner
Units except as to the holder to which notice was defective or not given.
(e) If notice (which notice will be irrevocable) has been given as
provided above then, by 12:00 noon, New York City time, on the redemption date
or the Stated Maturity Date, as the case may be, the Partnership will deposit
irrevocably in trust for the benefit of the Series A Preferred Limited Partner
Units being redeemed or repaid funds sufficient to pay the applicable Series A
Redemption Price or Stated Maturity Price, as the case may be, and will give
irrevocable instructions and authority to pay such Series A Redemption Price or
Stated Maturity Price, as the case may be, to the holders of the Series A
Preferred Limited Partner Units entitled thereto. If notice shall have been
given as provided above and funds deposited as required, then upon the date of
such deposit, distributions will cease to accrue on the Series A Preferred
Limited Partner Units called for redemption or to be repaid, as the case may be,
such Series A Preferred Limited Partner Units will not longer be deemed to be
outstanding and all rights of holders of such Series A Preferred Limited Partner
Units so called for redemption or to be repaid, as the case may be, will cease,
except the right of the holders of such Series A Preferred Limited Partner Units
to receive the applicable Series A Redemption Price or Stated Maturity Price, as
the case may be, but without interest thereon. If the Stated Maturity Date or
any date fixed for redemption of Series A Preferred Limited Partner Units is not
a Business Day, then payment of the Series A Redemption Price or the Stated
Maturity Price, as the case may be, payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day falls in
the next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on the
Stated Maturity Date or such date fixed for redemption. If payment of the Series
A Redemption Price or the Stated Maturity Price, as the case may be, in respect
of the Series A Preferred Limited Partner Units is improperly withheld or
refused and not paid by the Partnership, distributions on such Series A
Preferred Limited Partner Units will continue to accumulate from the original
redemption date or the Stated Maturity Date, as the case may be, to the date of
payment, in which case the actual payment date will
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be used for purposes of calculating the applicable Series A Redemption Price or
the Stated Maturity Price, as the case may be. If fewer than all of the Series A
Preferred Limited Partner Units are to be redeemed, the General Partner shall
select Series A Preferred Limited Partner Units to be redeemed by lot or pro
rata (as nearly as practicable without creating fractional units) or in some
other equitable manner determined by the General Partner in its sole discretion.
Upon presentation of any certificate for Series A Preferred Limited Partner Unit
redeemed in part only, the Partnership shall execute and deliver, at the expense
of the Partnership, a new certificate equal to the unredeemed portion of the
Certificate so presented.
(f) In the event of any redemption of Series A Preferred Limited
Partner Units in part, the Partnership shall not be required to (i) issue,
register the transfer of or exchange any Series A Preferred Limited Partner
Units during a period beginning at the opening of business 15 days before any
selection for redemption of Series A Preferred Limited Partner Units and ending
at the close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Series A Preferred
Limited Partner Units to be redeemed and (ii) register the transfer of or
exchange any Series A Preferred Limited Partner Units so selected for
redemption, in whole or in part, except the unredeemed portion of any Series A
Preferred Limited Partner Units being redeemed in part.
(g) The Series A Preferred Limited Partner Units do not have the
benefit of any sinking fund.
(h) Notwithstanding any other provision of this Section 5, the Series A
Redemption Price (other than the portion thereof consisting of accumulated and
unpaid distributions) shall be payable solely out of the sales proceeds of
capital stock of the General Partner, which will be contributed by the General
Partner to the Partnership as an additional capital contribution in accordance
with Section 4.5.E of the Agreement, or the sale proceeds of Limited Partner
Interests and from no other source, it being understood that this Section 5(h)
shall not be applicable to payment of the Series A Liquidation Preference Amount
or the Stated Maturity Price.
SECTION 6. Voting Rights. (a) Except as provided in Section 6(b) hereof
or as otherwise required by law and the Agreement, holders of Series A Preferred
Limited Partner Units shall not be entitled to vote on any matter. In any matter
in which the Series A Preferred Limited Partner Units are entitled to vote,
each Series A Preferred Limited Partner Unit shall be entitled to one vote.
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(b) If any proposed amendment or modification of the Agreement would
materially and adversely affect the powers, special rights, preferences or
privileges of the Series A Preferred Limited Partner Units, then the holders of
outstanding Series A Preferred Limited Partner Units shall be entitled to vote
on such amendment or modification as a class, and such amendment or modification
shall not be effective except with the approval of holders of at least 66 2/3%
of the outstanding Series A Preferred Limited Partner Units, voting as a single
class; provided, however, that any such amendment or modification that would
authorize, create or issue any additional series of Preferred Limited Partner
Units ranking on a parity with or junior to the Series A Preferred Limited
Partner Units as to distributions or upon liquidation, dissolution, winding-up
or termination of the Partnership shall not be deemed to materially and
adversely effect such powers, special rights, preferences or privileges; and,
provided, further, that prior to December 31, 2002, any amendment or
modification to the definition of Tax Event shall be deemed to materially and
adversely affect such powers, special rights, preferences and privileges.
SECTION. 7. Restrictions on Ownership and Transfer. The Series A
Preferred Limited Partner Units shall be owned and held solely by IAC Capital
Trust and, in addition to the restrictions on Transfer set forth in the
Agreement, the Series A Preferred Limited Partner Units may not be Transferred
in whole or in part, and no interest therein may be transferred, pledged,
assigned or otherwise disposed of, except to a successor of IAC Capital Trust
pursuant to and in accordance with the Declaration of Trust.
SECTION 8. Ranking. The Series A Preferred Limited Partner Units rank
with respect to distributions and rights upon liquidation, dissolution,
winding-up or termination of the Partnership (i) senior to the General Partner
Units and the Common Limited Partner Units and (ii) on a parity with a other
series of Preferred Limited Partner Units issued by the Partnership unless the
terms of such other series specifically provide that such other series ranks
junior to the Series A Preferred Limited Partner Units.
SECTION 9. Miscellaneous. (a) The Series A Preferred Limited Partner
Units are not convertible into or exchangeable for any other property or
securities of the Partnership or the General Partner.
(b) The form of certificate for the Series A Preferred Limited Partner
Units is attached hereto as Annex I.
(c) In the event the Partnership or any of its subsidiaries purchases
outstanding Series A Preferred Securities by tender, in the open market or by
private agreement in accordance with the terms thereof, the Partnership may
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<PAGE> 80
deliver, or cause to be delivered, to the Property Trustee (as defined in the
Declaration of Trust) for cancellation the Series A Preferred Securities so
purchased and, if so delivered, the Property Trustee as the registered owner of
the series of Preferred Limited Partner Units with substantially similar
economic terms shall promptly deliver to the Partnership for cancellation an
equal number of such series of Preferred Limited Partner Units and such
Preferred Limited Partner Units so cancelled shall no longer be deemed
outstanding. In such event, the Partnership shall deliver to the Property
Trustee a new certificate for the Preferred Limited Partner Units of such series
which remain outstanding.
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IN WITNESS WHEREOF, the General Partner has executed this Designation
Instrument as of this 20th, day of January, 1998 and the Agreement is hereby
amended pursuant to Section 4.5.F thereof.
IRVINE APARTMENT COMMUNITIES, INC., in its
capacity as general partner of Irvine
Apartment Communities, L.P.
By:
-------------------------------------
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 82
ANNEX I
FORM OF SERIES A
PREFERRED LIMITED PARTNER UNIT CERTIFICATE
THIS CERTIFICATE AND THE SERIES A PREFERRED LIMITED PARTNER INTERESTS EVIDENCED
HEREBY ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE APARTMENT
COMMUNITIES, L.P. DATED JANUARY 20,1998, AS AMENDED (THE "PARTNERSHIP
AGREEMENT") AND THE DESIGNATION INSTRUMENT REFERRED TO BELOW, COPIES OF WHICH
MAY BE OBTAINED FROM IRVINE APARTMENT COMMUNITIES, INC., GENERAL PARTNER, AT ITS
PRINCIPAL EXECUTIVE OFFICE.
Number of
Series A Preferred
Certificate Number Limited Partner Units
----------- -------------
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that THE BANK OF NEW YORK, as Property Trustee under that certain
Amended and Restated Declaration of Trust dated as of January 20, 1998 of IAC
Capital Trust is the registered owner of ___________
FULLY PAID SERIES A PREFERRED LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
property endorsed. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Series A Preferred Limited
Partner Units are set forth in, and this certificate and the Series A Preferred
Limited Partner Units represented hereby are issued and shall be subject to the
terms and provisions of, the Partnership Agreement as the same may be amended,
modified, supplemented or restated from time to time, including the designation
of the terms of the Series A Preferred Limited Partner Units as set forth in
Exhibit E thereto.
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In Witness Whereof, Irvine Apartment Communities, Inc., general partner, has
signed this Certificate this 20th day of January, 1998.
IRVINE APARTMENT COMMUNITIES, INC.,
as general partner of
Irvine Apartment Communities, L.P.
By:
------------------------------------------
Name: James Mead
Title: Senior Vice President, Chief Financial
Officer and Secretary
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EXHIBIT D
IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION INSTRUMENT
PURSUANT TO
THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OR IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF THE
SERIES B PREFERRED LIMITED PARTNER UNITS
FIRST: Pursuant to authority expressly vested in the General Partner of the
Partnership pursuant to Section 4.5.F of the Partnership Agreement, the General
Partner hereby classifies 2,000,000 Preferred Limited Partner Interests of the
Partnership into a series designated the Series B Preferred Limited Partner
Units and provides for the issuance of such Series B Preferred Limited Partner
Units. This instrument constitutes a Designation Instrument under the
Partnership Agreement. Capitalized terms used but not defined herein have the
meanings set forth in the Partnership Agreement.
SECOND: The terms of the Series B Preferred Limited Partner Units
established by this Designation Instrument we as follows:
SECTION 1. Designation and Amount. The series of Preferred Limited Partner
Interests shall be designated the "Series B Preferred Limited Partner Units" and
the authorized number of Partnership Units constituting such series shall be
2,000,000.
SECTION 2. Stated Value. The stated value of the Series B Preferred Limited
Partner Units shall be $25.00 per unit (the "Stated Value").
SECTION 3. Distributions. (a) Subject to the rights of holders of any
series of Preferred Limited Partner Units which the Partnership may issue in the
future
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<PAGE> 85
which rank on a parity with the Series B Preferred Limited Partner Units in
respect of distributions, the holders of outstanding Series B Preferred Limited
Partner Units will be entitled to receive, when, as and if declared by the
Partnership acting through the General Partner out of funds legally available
for the payment of distributions, cumulative preferential cash distributions at
the rate per annum of 8.75% of the Stated Value. Distributions will be
cumulative, will accrue from November 12, 1998, the original issue date of the
Series B Preferred Limited Partner Units, and will be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 (each a "SERIES B
DISTRIBUTION PAYMENT DATE") of each year, commencing on December 31,1998. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any Series B Distribution Payment Date is not
a Business Day, then payment of the distribution to be made on such Series B
Distribution Payment Date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such Series B Distribution
Payment Date. Each such distribution will be payable to the holders of record of
the Series B Preferred Limited Partner Units as they appear on the books of the
Partnership or any transfer agent for the Series B Preferred Limited Partner
Units on such record dates selected by the General Partner, not less than 10 nor
more than 50 days preceding the applicable Series B Distribution Payment Date.
(b) Distributions on the Series B Preferred Limited Partner Units shall
accrue on a daily basis commencing on the date of original issuance of the
Series B Preferred Limited Partner Units, will accrue whether or not the
Partnership has earnings, whether or not there are funds legally available for
the payment of such distributions and whether or not such distributions are
declared. Accrued distributions will accumulate, to the extent not paid, as of
the Series B Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(c) So long as any Series B Preferred Limited Partner Units are
outstanding, no distribution shall be paid or declared on or with respect to the
Common Limited Partner Interests or the General Partner Interests or any other
series of outstanding Preferred Limited Partner Interests ranking junior as to
the payment of distributions to the Series B Preferred Limited Partner Units,
nor shall any sum or sums be set aside for or applied to the purchase or
redemption of the Series B Preferred Limited Partner Units or any other series
of outstanding
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Preferred Limited Partner Interests or the purchase, redemption or other
acquisition for value of any Common Limited Partner Interests, General Partner
Interests or Preferred Limited Partner Interests of any series ranking junior to
the Series B Preferred Limited Partner Units as to the payment of distributions
unless, in each case, full cumulative distributions accumulated on all Series B
Preferred Limited Partner Units and all other series of outstanding Preferred
Limited Partner Interests ranking on a parity with the Series B Preferred
Limited Partner Units as to the payment of distributions have been paid in full,
provided that the foregoing will not prohibit distributions payable solely in
Common Limited Partner Interests, the General Partner Interests or Preferred
Limited Partner Interests of a series ranking junior to the Series B Preferred
Limited Partner Units as to the payment of distributions, the exchange of Common
Limited Partner Interests for REIT Shares in accordance with Section 8.6 of the
Partnership Agreement, the repurchase of Common Limited Partner Interests in
connection with the exercise by the holders thereof of the Cash Tender rights
set forth in Section 8.6 of the Partnership Agreement, the exchange of Common
Limited Partner Interests for General Partner Interests as provided in the
Partnership Agreement or the repayment, return, forfeiture and cancellation of
Common Limited Partner Interests issued in connection with land acquisitions by
the Partnership as and to the extent provided pursuant to the purchase or other
acquisition agreement relating to any such acquisition. When distributions have
not been paid in full upon the Series B Preferred Limited Partner Units on the
applicable Series B Distribution Payment Date (or a sum sufficient for such full
payment is not set apart therefor), all distributions declared and paid on the
Series B Preferred Limited Partner Units and any other series of outstanding
Preferred Limited Partner Interests ranking on a parity with the Series B
Preferred Limited Partner Interests as to the payment of distributions shall be
declared and paid so that the amount of distributions declared and paid on the
Series B Preferred Limited Partner Units and such other series of Preferred
Limited Partner Interests shall in all cases bear to each other the same ratio
that the respective distribution rights of the Series B Preferred Limited
Partner Units and such other series of Preferred Limited Partner Interests
(which shall not include any accumulation in respect of unpaid distributions for
prior distribution periods if such other series of Preferred Limited Partner
Interests do not have cumulative distribution rights) bear to each other.
(d) Holders of Series B Preferred Limited Partner Units shall not be
entitled to any distributions whether payable in cash, property or otherwise, in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Partnership shall be governed by Section 4 hereof.
3
<PAGE> 87
SECTION 4. Liquidation. Subject to the rights of the holders of any other
series of Preferred Limited Partner Units which the Partnership may issue in the
future which rank on a parity with the Series B Preferred Limited Partner Units,
upon any voluntary or involuntary dissolution, liquidation, winding-up or
termination of the Partnership, the holders of the Series B Preferred Limited
Partner Units will be entitled to receive upon any such dissolution,
liquidation, winding-up or termination of the Partnership out of the assets of
the Partnership legally available fox distribution, after payment or provision
for payment of debts and other liabilities of the Partnership, an amount per
Series B Preferred Limited Partner Unit equal to the Capital Account thereof
(the "Series B Liquidation Preference Amount") and no more. If, upon any such
liquidation, dissolution, winding-up or termination, there are insufficient
assets to permit full payment to the holders of Series B Preferred Limited
Partner Units and any other series of outstanding Preferred Limited Partner
Interests ranking on a parity upon liquidation, dissolution, winding-up or
termination of the Partnership with the Series B Preferred Limited Partner
Units, the holders of Series B Preferred Limited Partner Units and such other
series of Preferred Limited Partner Interests shall be paid ratably in
proportion to the full distributable amount to which holders of Series B
Preferred Limited Partner Interests and such other series of Preferred Limited
Partner Interests are respectively entitled upon liquidation, dissolution,
winding-up or termination. The full preferential amount payable to holders of
the Series B Preferred Limited Partner Interests and such other series of
outstanding Preferred Limited Partner Interests upon any such liquidation,
dissolution, winding-up or termination will be paid in full before any
distribution or payment is made to the holders of General Partner Interests,
Common Limited Partner Interests and Preferred Limited Partner Interests of any
series ranking junior to the Series B Preferred Limited Partner Units upon
liquidation, dissolution, winding-up or termination of the Partnership. The
consolidation or merger of the Partnership with or into any corporation, trust,
partnership or other entity (or of any corporation, trust, partnership or entity
with or into the Partnership) shall not be deemed to constitute a liquidation,
dissolution, winding-up or termination of the Partnership.
SECTION 5. Redemption. (a) The Series B Preferred Limited Partner Units may
not be redeemed prior to November 12, 2003. On or after such date the
Partnership shall have the right to redeem the Series B Preferred Limited
Partner Units, in whole or in part, from time to time, upon notice as provided
in Section 5(b) below, at a redemption price equal to the Stated Value per
Series B Preferred Limited Partner Unit plus accumulated and unpaid
distributions to the date of payment (the "Series B Redemption Price"), provided
that the Partnership may not redeem fewer than all the outstanding Series B
Preferred Limited Partner Units unless all accumulated and unpaid distributions
have been paid on all Series
4
<PAGE> 88
B Preferred Limited Partner Units for all quarterly distribution periods
ending on or prior to the date of redemption.
(b) The Partnership will provide notice of any redemption of the Series B
Preferred Limited Partner Units to the holders of record thereof not less than
30 nor more than 60 days prior to the date of redemption. Such notice shall be
provided by sending notice of such redemption, by (i) fax and (ii) certified
mail postage prepaid, to each holder of Series B Preferred Limited Partner Units
to be redeemed, at such holder's address as it appears on the transfer records
of the Partnership. Each such notice shall state, as appropriate, the following:
(i) the redemption date;
(ii) the Series B Redemption Price;
(iii the place or places where certificates for the Series B
Preferred Limited Partner Units may be surrendered for payment;
(iv) the number of the Series B Preferred Limited Partner
Units to be redeemed from each holder;
(v) that payment of the Series B Redemption Price will be
made upon presentation and surrender of such Series B Preferred
Limited Partner Units; and
(vi) that on or after the redemption date distributions on the
Series B Preferred Limited Partner Units to be redeemed will cease to
accrue.
No failure to give, or defect in, a notice of redemption shall affect the
validity of the proceedings for redemption of any Series B Preferred Limited
Partner Units except as to the bolder to which notice was, defective or not
given.
(c) If notice (which notice will be irrevocable) has been given as provided
above then, by 12:00 noon, New York City time, on the redemption date, the
Partnership will deposit irrevocably in trust for the benefit of the Series. B
Preferred Limited Partner Units being redeemed funds sufficient to pay the
applicable Series B Redemption Price and will give irrevocable instructions and
authority to pay such Series B Redemption Price to the holders of the Series B
Preferred Limited Partner Units entitled thereto. If notice shall have been
given provided above and funds deposited as required, then upon the date of
such deposit, distributions will cease to accrue on the Series B Preferred
Limited Partner Units called for redemption, such Series B Preferred Limited
Partner ,will no longer be deemed to be outstanding and all rights of holders of
such Series
5
<PAGE> 89
B Preferred Limited Partner Units so called for redemption will cease, except
the right of the holders of such Series B Preferred Limited Partner Units to
receive the applicable Series B Redemption Price but without interest thereon.
If any date fixed for redemption of Series B Preferred Limited Partner Units is
not a Business Day, then payment of the Series B Redemption Price payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that,
if such Business Day falls in the next calendar year, such payment will be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment of the Series B
Redemption Price in respect of the Series B Preferred Limited Partner Units is
improperly withheld or refused and not paid by the Partnership, distributions on
such Series B Preferred Limited Partner Units will continue to accumulate from
the original redemption date to the date of payment, in which case the actual
payment date will be used for purposes of calculating the applicable Series B
Redemption Price. If fewer than all of the Series B Preferred Limited Partner
Units are to be redeemed, the General Partner shall select Series B Preferred
Limited Partner Units to be redeemed by lot or pro rata (as nearly as
practicable without creating fractional units) or in some other equitable manner
determined by the General Partner in its sole discretion. Upon presentation of
any certificate for Series B Preferred Limited Partner Unit redeemed in part
only, the Partnership shall execute and deliver, at the expense of the
Partnership, a new certificate equal to the unredeemed portion of the
Certificate so presented.
(d) In the event of any redemption of Series B Preferred Limited Partner
Units in part, the Partnership shall not be required to (i) issue, register the
transfer of or exchange any Series B Preferred Limited Partner Units during a
period beginning at the opening of business 15 days before any selection for
redemption of Series B Preferred Limited Partner Units and ending at the close
of business on the earliest date on which the relevant notice of redemption is
deemed to have been given to all holders of Series B Preferred Limited Partner
Units to be redeemed and (ii) register the transfer of or exchange any Series B
Preferred Limited Partner Units so selected for redemption, in whole or in part,
except the unredeemed portion of any Series B Preferred Limited Partner Units
being redeemed in part.
(e) The Series B Preferred Limited Partner Units do not have the benefit of
any sinking fund.
(f) Notwithstanding any other provision of this Section 5, the Series B
Redemption Price (other than the portion thereof consisting of accumulated and
unpaid distributions) shall be payable solely out of the sales proceeds of
capital stock of the General Partner, which will be contributed by the General
Partner to
6
<PAGE> 90
the Partnership as an additional capital contribution in accordance with Section
4.5.E of the Partnership Agreement, or the sale proceeds of Limited Partner
Interests and from no other source, it being understood that this Section 5(g)
shall not be applicable to payment of the Series B Liquidation Preference
Amount.
SECTION 6. Voting Rights. (a) Except as provided in Section 6(g) hereof or
as otherwise required by law and the Partnership Agreement, holders of Series B
Preferred Limited Partner Units shall not be entitled to vote on any matter. In
any matter in which the Series B Preferred Limited Partner Units are entitled to
vote, each Series B Preferred Limited Partner Unit shall be entitled to one
vote.
(b) So long as any Series B Preferred Limited Partner Units remain
outstanding, the Partnership shall not, without the affirmative vote of the
holders of at least 66-2/3% of the Series B Preferred Limited Partner Units
outstanding at the time (i) authorize or create, or increase the authorized or
issued amount of, any class or series of Preferred Limited Partner Interests
ranking prior to the Series B Preferred Limited Partner Units with respect to
payment of distributions or rights upon liquidation, dissolution or winding-up,
or reclassify any Partnership Interests of the Partnership into any such
Preferred Limited Partner Interests, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such Partnership Interests, (ii) authorize or create, or increase the authorized
or issued amount of any Preferred Limited Partner Interests on a parity, with
the Series B Preferred Limited Partner Units or reclassify any Partnership
Interests of the Partnership into any such Preferred Limited Partner Interests
or create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such Preferred Limited Partner Interests
but only to the extent such Preferred Limited Partner Interests are issued to an
affiliate of the Partnership, other than (x) the General Partner or IAC Capital
Trust to the extent the issuance of such interests was to allow the General
Partner or IAC Capital Trust to issue corresponding preferred stock or
preferred securities lo persons who are not, affiliates of the Partnership or
(y) The Irvine Company or an affiliate of The Irvine Company (provided that the
transaction is approved by the Independent Directors Committee of the General
Partner's Board of Directors pursuant to Article III, Section 4(c)(ii) of the
General Partner's bylaws), or (iii) either consolidate, merge into or with, or
convey, transfer or lease its assets substantially as an entirety to, any
corporation or other entity, or amend, alter or repeal the provisions of the
Partnership Agreement (including, without limitation, this Designation
Instrument), whether by merger, consolidation or otherwise, in each case in a
manner that would materially and adversely affect the powers, special rights,
preferences, privileges or voting power of the Series B Preferred Limited
Partner Units or the holders thereof, provided, however, that with respect to
the occurrence of any event set forth in (iii) above, so long as (A) the
Partnership is the surviving entity and the Series B Preferred Limited Partner
7
<PAGE> 91
Units remain outstanding with the terms thereof unchanged, or (B) the
resulting, surviving or transferee entity is a partnership, limited liability
company or other pass-through entity organized under the laws of any state and
substitutes the Series B Preferred Limited Partner Units for other interests in
such entity having substantially the same terms and rights as the Series B
Preferred Limited Partner Units, including with respect to distributions,
redemptions, transfers, voting rights and rights upon liquidation, dissolution
or winding-up, then the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, privileges or voting powers of the
holders of the Series B Preferred Limited Partner Units; and provided further,
that any increase in the amount of Partnership Interests or the creation or
issuance of any other class or series of Partnership Interests, in each case
ranking (1) junior to the Series B Preferred Limited Partner Units with respect
to payment of distributions or the distribution of assets upon liquidation,
dissolution or winding-up, or (2) on a parity to the Preferred Limited Partner
Units with respect to payment of distributions or the distribution of assets
upon liquidation, dissolution or winding-up to the extent such Partnership
Interests are not issued to an affiliate of the Partnership other than the
General Partner or IAC Capital Trust to the extent the issuance of such
Partnership Interests was to allow the General Partner or IAC Capital Trust to
issue corresponding preferred stock or preferred securities to persons who are
not affiliates of the Partnership, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
SECTION 7. Restrictions on Ownership and Transfer. (a) The Series B
Preferred Limited Partner Units (i) are being issued in a private placement and
(ii) shall be subject to the restrictions on Transfer set forth in the
Partnership Agreement.
(b) Any Holder of Series B Preferred Limited Partner Units may only
Transfer Series B Preferred Limited Partner Units after delivery of an opinion
of independent legal counsel familiar with such matters to the effect that such
Transfer will not result in the Partnership being treated as an association
taxable as a corporation. In addition, no such Transfer may be effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the
Code.
(c) If Greene Street 1998 Exchange Fund, L.P., as the bolder of Series B
Preferred Limited Partner Units (the "FUND"), concludes based on results or
projected results that there exists (in the reasonable judgment of the Fund) an
imminent and substantial risk that the Fund's interest in the Partnership
represents or will represent more the 19.5% of the total profits or capital
interests in the Partnership for a taxable year (the "19.5% LIMIT" (determined
in accordance with Treasury Regulations Section 1.731-2(c)(4)), then the Fund
shall, subject to
8
<PAGE> 92
the limitations in Sections 7(a) and 7(b), be permitted to Transfer so much of
its Series B Preferred Limited Partner Units as may be appropriate to alleviate
the risk of not satisfying the 19.5% Limit. In the event that the Fund makes
such a determination, but is unable to comply with the provisions of Section
7(b), the Fund will be entitled to deliver an Exchange Notice (as defined) with
respect to the number of Series B Preferred Limited Partner Units as may be
appropriate to alleviate the risk of not satisfying the 19.5% Limit,
notwithstanding the fact that the Fund would not otherwise be able to exchange
such Series B Preferred Limited Partner Units. The procedures for exchange shall
otherwise be as provided in Section 9.
SECTION 8. Ranking. The Series B Preferred Limited Partner Units rank with
respect to distributions and rights upon liquidation, dissolution, winding-up or
termination of the Partnership (i) senior to the General Partner Interests and
the Common Limited Partner Interests and (ii) on a parity with all other series
of Preferred Limited Partner Interests issued by the Partnership unless the
terms of such other series specifically provide that such other series ranks
junior to the Series B Preferred Limited Partner Units.
SECTION 9. Exchange Rights.
(a) Holders' Right to Exchange.
(i) Series B Preferred Limited Partner Units will be
exchangeable in whole but not in part unless expressly otherwise
provided herein at any time on or after November 12, 2008, at the
option of 51% of the holders of all outstanding Series B Preferred
Limited Partner Units, for authorized but previously unissued
Alternative Preferred Securities (as defined in Section 9(e)) at an
exchange rate of one Alternative Preferred Security for one Series B
Preferred Limited Partner Unit, subject to adjustment as described
below, provided that the Series B Preferred Limited Partner Units will
become exchangeable at any time, in whole but not in part unless
expressly otherwise provided herein, at the option of 51% of the
holders of all outstanding Series B Preferred Limited Partner Units for
Alternative Preferred Securities if (x) at any time full distributions
shall not have been timely made on any Series B Preferred Limited
Partner Unit with respect to six (6) prior quarterly distribution
periods, whether or not consecutive, provided, however, that a
distribution in respect of Series B Preferred Limited Partner Units
shall be considered timely made if made within two (2) Business Days
after the applicable Series B Distribution Payment Date if at the time
of such late payment there shall not be any prior quarterly
distribution periods in respect of which full distributions were not
timely made, or (y) upon receipt by a
9
<PAGE> 93
holder or holders of Series B Preferred Limited Partner Units of (A)
notice from the General Partner that the General Partner or a
Subsidiary of the General Partner has taken the position that the
Partnership is, or upon the consummation of an identified event in the
immediate future will be, a "Publicly Traded Partnership" (a "PTP")
within the meaning of Section 7704 of the Code and (B) an opinion
rendered by independent counsel familiar with such matters addressed to
a holder or holders of Series B Preferred Limited Partner Units, that
the Partnership is or likely is, or upon the occurrence of a defined
event in the immediate future will be or likely will be, a PTP. In
addition, the Series B Preferred Limited Partner Units may be exchanged
for Alternative Preferred Securities, in whole but not in part unless
expressly otherwise provided herein, at the option of 51% of the
holders of all outstanding Series B Preferred Limited Partner Units
after November 12, 2001 and prior to November 12, 2008 if such holders
of Series B Preferred Limited Partner Units shall deliver to the
General Partner either (A) a private letter ruling addressed to such
holder(s)of Series B Preferred Limited Partner Units or (B) an opinion
of independent counsel familiar with such matters based on the
enactment of temporary or final Treasury Regulations or the publication
of a Revenue Ruling, in either case to the effect that such exchange of
the Series B Preferred Limited Partner Units at such earlier time would
not cause the Series B Preferred Limited Partner Units to be considered
"stock and securities" within the meaning of Section 351(c) of the
Code for purposes of determining whether the holder of such Series B
Preferred Limited Partner Units is an "investment company" under
Section 721(b) of the Code if an exchange is permitted at such
earlier date. Furthermore, the Series B Preferred Limited Partner Units
held by the Fund, if the Fund so determines, may be exchanged in whole
or in part for Alternative Preferred Securities if the Fund concludes
based on results or projected results that there exists (in the
reasonable judgment of the Fund) an imminent and substantial risk that
the Fund's interest in the Partnership represents or will exceed the
19.5% Limit.
(ii) Notwithstanding anything to the contrary set forth in Section
9(a)(i), if an Exchange Notice (as defined herein) has been delivered
to the General Partner, then the General Partner may, at its option,
within ten (10) Business Days after receipt of the Exchange Notice,
elect to cause the Partnership to redeem all or a portion of the
outstanding Series B Preferred Limited Partner Units for cash in an
amount equal to the Stated Value per Series B Preferred Limited Partner
Unit and unpaid distributions to the date of redemption. If the General
Partner elects to redeem fewer than all of the outstanding Series B
Preferred Limited Partner Units, the number of Series B Preferred
Limited Partner Units held by each holder to be
10
<PAGE> 94
redeemed shall equal such holder's pro rata share (based on the
percentage of the aggregate number of outstanding Series B Preferred
Limited Partner Units that the total number of Series B Preferred
Limited Partner Units held by such holder represents) of the
aggregate number of Series B Preferred Limited Partner Units being
redeemed.
(iii) In the event an exchange of all Series B Preferred Limited Partner
Units pursuant to Section 9(a) would violate the provisions on
ownership limitations of (x) the General Partner set forth in Article
Sixth, Section (c)(4) of the Certificate of Incorporation or (y) of
IAC Capital Trust set forth in Section 8.2 of the Declaration of
Trust, each holder of Series B Preferred Limited Partner Units shall
be entitled to exchange, pursuant to the provisions of Section 9(b),
a number of Series B Preferred Limited Partner Units which would
comply with the provisions on ownership limitations of the General
Partner or IAC Capital Trust, as the case may be, and any Series B
Preferred Limited Partner Units not so exchanged (the "EXCESS UNITS"
shall be redeemed by the Partnership for cash in an amount equal to
the Stated Value per Excess Unit, plus any accumulated and unpaid
distributions to the date of redemption, subject to any restriction
thereon contained in any debt instrument or agreement of the
Partnership.
(b) Procedure for Exchange and/or Redemption of Series B Preferred Limited
Partner Units.
(i) Any exchange shall be exercised pursuant to a notice of exchange (the
"EXCHANGE NOTICE" delivered to the General Partner by the Partners
representing at least 51% of the outstanding Series B Preferred
Limited Partner Units (or by the Fund in the case of an exchange
pursuant to the last sentence of Section 9(a)(i) hereof) by (a) fax
and (b) certified mail postage prepaid. The General Partner may
effect any exchange of Series B Preferred Limited Partner Units, or
exercise its option to cause the Partnership to redeem any portion of
the Series B Preferred Limited Partner Units for cash pursuant to
Section 9(a)(ii) or redeem Excess Units pursuant to Section
9(a)(iii), by delivering to each holder of record of Series B
Preferred Limited Partner Units, within ten (10) Business Days
following receipt of the Exchange Notice, (a) if the General Partner
elects to cause the Partnership to acquire any of the Series B
Preferred Limited Partner Units then outstanding, (1) certificates
representing the Alternative Preferred Securities being issued in
exchange for the Series B Preferred Limited Partner Units of such
holder being exchanged and (2) a written notice stating (A) the
redemption date, which may be the date of such written notice or any
other date which is not later than sixty (60) days
11
<PAGE> 95
following the receipt of the Exchange Notice, (B) the redemption price, (C) the
place or places where the Series B Preferred Limited Partner Units are to be
surrendered, (D) that distributions on the Series B Preferred Limited Partner
Units will cease to accrue on such redemption date and (E) the Alternative
Preferred Securities to be delivered, or (b) if the General Partner elects to
cause the Partnership to redeem all of the Series B Preferred Limited Partner
Units then outstanding in exchange for cash, a Redemption Notice. Series B
Preferred Limited Partner Units shall be deemed canceled (and any corresponding
Partnership Interest represented thereby deemed terminated) simultaneously with
the delivery of Alternative Preferred Securities (with respect to Series B
Preferred Limited Partner Units exchanged) or simultaneously with the redemption
date (with respect to Series B Preferred Limited Partner Units redeemed).
Holders of Series B Preferred Limited Partner Units shall deliver any canceled
certificates representing Series B Preferred Limited Partner Units which have
been exchanged or redeemed to the office of the General Partner within ten (10)
Business Days of the exchange or redemption with respect thereto.
Notwithstanding anything to the contrary contained herein, any and all Series B
Preferred Limited Partner Units to be exchanged for Alternative Preferred
Securities pursuant to this Section 9 shall be so exchanged in a single
transaction at one time. As a condition to exchange, the General Partner may
require the holders of Series B Preferred Limited Partner Units to make such
representations as may be reasonably necessary for the General Partner to
establish that the issuance of Alternative Preferred Securities pursuant to the
exchange shall not be required to be registered under the Securities Act or any
state securities laws. Any Alternative Preferred Securities issued pursuant to
this Section 9 shall be delivered as shares which are duly authorized, validly
issued, fully paid and non assessable, free of any pledge, lien, encumbrance or
restriction other than those provided in the Certificate of Incorporation or the
by-laws of the General Partner or the Declaration of Trust, as the case may be,
the Securities Act and relevant state securities or blue sky laws. The
certificates representing the Alternative Preferred Securities issued upon
exchange of the Series B Preferred Limited Partner Units shall contain the
following legend:
THIS CERTIFICATE AND THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS THEY HAVE BEEN
REGISTERED UNDER SUCH ACT AND
12
<PAGE> 96
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(ii) In the event of an exchange of Series B Preferred Limited
Partner Units for Alternative Preferred Securities, an amount equal to
the accumulated and unpaid distributions to the date of exchange on any
Series B Preferred Limited Partner Units tendered for exchange shall
(i) accrue on the Alternative Preferred Securities into which such
Series B Preferred Limited Partner Units are exchanged, and (ii)
continue to accrue on such Series B Preferred Limited Partner Units,
which shall remain outstanding following such exchange, with the
General Partner as the holder of such Series B Preferred Limited
Partner Units, (iii) Fractional Alternative Preferred Securities are
not to be issued upon exchange but, in lien thereof, the General
Partner or IAC, Capital Trust will pay a cash judgment based upon the
fair market value of the Alternative Preferred Securities on the day
prior to the exchange date as determined in good faith by the Board of
Directors of the General Partner or the Regular Trustee(s) of IAC
Capital Trust, as the case may be.
(c) Adjustment of Exchange Price. In case the General Partner or IAC
Capital Trust, as the case may be, shall be a party to any transaction
(including, without limitation, a merger, consolidation, statutory share
exchange, tender offer for all or substantially all of the General Partner's
capital stock or IAC Capital Trust's capital securities or sale of all or
substantially all of the General Partner's or IAC Capital Trust's assets), in
each case as a result of which the Alternative Preferred Securities will be
converted into the right to receive shares of capital stock, other securities or
other property (including cash or any combination thereof), each Series B
Preferred Limited Partner Unit will thereafter be exchangeable into the kind and
amount of shares of capital stock and other securities and property receivable
(including cash or any combination thereof) upon the consummation of such
transaction by a holder of that number of Alternative Preferred Securities or
fraction thereof into which one Series B Preferred Limited Partner Unit was
exchangeable immediately prior to such transaction. The General Partner may not
become a party to any such transaction, unless the terms thereof are consistent
with the foregoing.
13
<PAGE> 97
(d) Definition.
"ALTERNATIVE PREFERRED SECURITIES" means either (i) previously unissued
preferred stock of the General Partner or (ii) previously unissued preferred
securities of IAC Capital Trust, at the option of the Partnership, the General
Partner and IAC Capital Trust. The Alternative Preferred Securities shall have
an aggregate stated value (or similar term), distribution rate and other terms
substantially equivalent to those of the Series B Preferred Limited Partner
Units.
SECTION 10. Certificate. The form of certificate for the Series B
Preferred Limited Partner Units is attached hereto as Annex 1.
SECTION 11. Registration Rights. The holders of the Series B Preferred
Limited Partner Units (and certain securities issued in exchange therefor) are
entitled to the benefits of the Registration Rights Agreement dated as of
November 12,1998 among the Partnership, the General Partner, IAC Capital Trust
and Greene Street 1998 Exchange Fund, L.P.
SECTION 12. Allocations. (a) Notwithstanding any other provision of the
Partnership Agreement, for each Partnership Year, Partnership items of income
and gain shall be specially allocated to the holders of Series B Preferred
Limited Partner Units in an amount equal to the lesser of (A) the distributions
received by the holders of Series B preferred Limited Partner Units pursuant to
Section 5.1(i) of the Partnership Agreement for such Partnership Year (other
than any distributions that are treated as being in satisfaction of the
Liquidation Preference Amount for any Series B Preferred Limited Partner Unit)
or (B) an amount equal to (w) Net Income plus (x) Depreciation to the extent
deducted in determining Net Income or Net Loss for such period plus (y)
extraordinary items (as determined under Generally Accepted Accounting
Principles) (other than losses from the disposition of real property) to the
extent deducted in determining Net Income or Net Loss for such period plus (z)
losses with respect to financing or hedging activities of the Partnership to
the extent deducted in determining Net Income or Net Loss for such period.
(b) Each Tax Item shall be allocated to the holders of Series B Preferred
Limited Partner Units in the same manner as its correlative item of "book"
income or gain is allocated pursuant to this Section.
14
<PAGE> 98
IN WITNESS WHEREOF, the General Partner has executed this Designation
Instrument as of this 12th day of November, 1998 and the Partnership Agreement
is hereby amended pursuant to Section 4.5.F thereof.
IRVINE APARTMENT COMMUNITIES, INC., in its
capacity as sole general partner of Irvine
Apartment Communities, L.P.
By: /s/ JAMES E. MEAD
-------------------------------------
Name: James E. Mead
Title: Senior Vice President, Chief
Financial Officer and Secretary
<PAGE> 99
ANNEX I
FORM OF SERIES B
PREFERRED LIMITED PARTNER UNIT CERTIFICATE
THIS CERTIFICATE AND THE SERIES B PREFERRED LIMITED PARTNER INTERESTS EVIDENCED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS THEY HAVE BEEN
REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE
RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF IRVINE APARTMENT COMMUNITIES, L.P. DATED JANUARY 20,
1998, AS AMENDED (THE "PARTNERSHIP AGREEMENT") AND THE DESIGNATION INSTRUMENT
REFERRED TO BELOW, COPIES OF WHICH MAY BE OBTAINED FROM IRVINE APARTMENT
COMMUNITIES, INC., GENERAL PARTNERSHIP AT ITS PRINCIPAL EXECUTIVE OFFICE.
Number of
Series B Preferred
Certificate Number Limited Partner Units
------------ ----------------
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that _______________ is the registered owner of ______________
FULLY PAID SERIES B PREFERRED LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Series B Preferred Limited
Partner Units are set forth in, and this certificate and the Series B Preferred
Limited Partner Units represented hereby arc issued and shall be subject to the
I-1
<PAGE> 100
terms and provisions of, the Partnership Agreement as the same may be amended,
modified, supplemented or restated from time to time, including the designation
of the terms of the Series B Preferred Limited Partner Units as set forth in
Exhibit F thereto.
I-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS OF IRVINE APARTMENT COMMUNITIES, L.P. FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001038358
<NAME> Irvine Apartment Communities, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 73,510
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,510
<PP&E> 2,024,831
<DEPRECIATION> 312,612
<TOTAL-ASSETS> 2,063,614
<CURRENT-LIABILITIES> 51,039
<BONDS> 895,923
0
192,830
<COMMON> 0
<OTHER-SE> 913,218
<TOTAL-LIABILITY-AND-EQUITY> 2,063,614
<SALES> 0
<TOTAL-REVENUES> 186,258
<CGS> 0
<TOTAL-COSTS> 85,440
<OTHER-EXPENSES> 11,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,826
<INCOME-PRETAX> 65,361
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,798
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS OF IAC CAPITAL TRUST FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001048922
<NAME> IAC Capital Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,005
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
150,000
<COMMON> 5
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 150,005
<SALES> 0
<TOTAL-REVENUES> 9,281
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,281
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
