SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 25, 2000
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(Exact name of registrant as specified in its charter)
California 333-76435 33-0761517
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3158 Redhill Avenue, Suite 120, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 662-5565
N/A
Former name or former address, if changed since last report)
022/A.edg
<PAGE>
Item 7. Financial Statements and Exhibits
a. Financial Statements of Businesses Acquired
2nd Fairhaven, LLC
Independent Auditor's Report..................................FS-1
Balance Sheet, December 31, 1999..............................FS-2
Statement of Income and Members' Equity, Year Ended
December 31, 1999.......................................FS-3
Statement of Cash Flows From November 30, 1997 (Date
of inception) to December 31, 1999......................FS-4
Notes to Financial Statements.................................FS-5
b. Proforma Financial Information
Pro Forma Balance Sheet, December 31, 1999 (Unaudited)........FS-8
Pro Forma Statement of Operations for the Period
September 3, 1999 (Date Operations Commenced)
through December 31, 1999 (Unaudited)...................FS-9
Notes to Pro Forma Financial Statements......................FS-10
c. Exhibits
10.1 Amended and Restated Operating Agreement of
2nd Fairhaven, LLC*
10.2 Second Amended and Restated Operating Agreement of
2nd Fairhaven, LLC
----------
*Previously filed.
2
<PAGE>
To the Members of Second Fairhaven, LLC:
Independent Auditor's Report
----------------------------
I have audited the accompanying balance sheet of Second Fairhaven, LLC as of
December 31, 1999 and the related statement of income and members' equity for
the year then ended and the related statement of cash flows for the period from
November 30, 1997 (date of inception) to December 31, 1999. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Second Fairhaven, LLC at December
31, 1999, and the results of its operations and its cash flows for the period
then ended in conformity with generally accepted accounting principles.
THOMAS S. CHAMBERS
Denton, Maryland
March 6, 2000
FS-1
<PAGE>
SECOND FAIRHAVEN, LLC
BALANCE SHEET
December 31, 1999
ASSETS
Property and Equipment, at cost:
Land and improvements $ 104,610
Buildings 1,132,289
Furniture and equipment 7,294
-------------
Total property and equipment 1,244,193
Less: accumulated depreciation (19,306)
-------------
Net property and equipment 1,224,887
-------------
Other Assets:
Cash 1,951
Restricted cash 9,540
Prepaid expenses 8,691
Rent receivable 6,185
Indirect fees 186,142
-------------
Total Other Assets 212,509
-------------
TOTAL ASSETS $ 1,437,396
===========
LIABILITIES AND MEMBERS' EQUITY
Long-term debt $ 1,003,824
-----------
Other liabilities:
Accounts payable 4,061
Interest payable 1,922
Loans payable to members 134,891
Accrued start-up fees 257,800
Security deposits 2,340
------------
Total Other Liabilities 401,014
------------
Members' Equity 32,558
------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 1,437,396
===========
The accompanying notes are an integral part of this financial statement.
FS-2
<PAGE>
SECOND FAIRHAVEN, LLC
STATEMENT OF INCOME AND MEMBERS' EQUITY
Year ended December 31, 1999
REVENUES
Rents $ 58,157
Interest 69
---------
Total Revenue 58,226
---------
EXPENSES
Property expenses:
Grounds Maintenance 1,115
Insurance 3,010
Maintenance and repairs 749
Management fees 5,234
Professional Fees 109
Salaries 10,215
Supplies 1,683
Taxes 7,997
Utilities 6,386
Depreciation and amortization 27,964
Interest 13,476
Miscellaneous 362
-----------
Total Expenses 78,300
-----------
NET LOSS (20,074)
MEMBERS' EQUITY, January 1 52,632
----------
MEMBERS' EQUITY, December 31 $ 32,558
============
The accompanying notes are an integral part of this financial statement.
FS-3
<PAGE>
SECOND FAIRHAVEN, LLC
STATEMENT OF CASH FLOWS
From November 30, 1997 (Date of inception) to December 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received on behalf of tenants $ 51,972
Cash paid to suppliers and employees (41,490)
Interest received 69
Interest paid (11,554)
------------
Net cash used by operating activities (1,003)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,181,193)
Transfers from restricted cash accounts 17,925
Transfers to restricted cash accounts (27,465)
------------
Net cash used by investing activities (1,190,733)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,005,062
Principal paid on long-term debt (1,238)
Security deposits received 2,340
Funds loaned by members 134,891
Members' capital contributions 52,632
------------
Net cash provided by financing activities 1,193,687
-----------
NET INCREASE IN CASH 1,951
Cash, November 30, 1997 -
------------
CASH, DECEMBER 31, 1999 $ 1,951
=============
RECONCILIATION OF NET LOSS TO CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (20,074)
Depreciation and amortization 27,964
Change in receivables and prepaid expenses (14,876)
Change in accounts payable and accrued interest 5,983
-------------
Net Cash Used by Operating Activities $ (1,003)
=============
The accompanying notes are an integral part of this financial statement.
FS-4
<PAGE>
SECOND FAIRHAVEN, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of organization and operations - Second Fairhaven, LLC is a Maryland
limited liability company that was formed in November, 1997 to construct and
operate a 18-unit apartment complex in Federalsburg, Maryland. The project is
administered by the U.S. Department of Agriculture (RECD). Under this program
the Company provides housing to the low and moderate income elderly, subject to
regulation by RECD as to rental charges and operating methods. Lower rental
charges to tenants are recovered by the Company through rent subsidies provided
by RECD.
During the year ended December 31, 1999, rental revenue from RECD totaled
$36,582, representing 62.8% of total revenue.
Accounting method and income taxes - The Company uses the accrual method of
accounting for both financial statement and income tax purposes, whereby income
is recognized as earned and expenses are recognized as incurred.
The company is taxed as a partnership for federal and state income taxes;
therefore, all members recognize their respective shares of income or loss on
their individual tax returns. Consequently, a provision for income taxes has not
been included in the accompanying financial statements.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Cash and cash equivalents - For purposes of the statement of cash flows, the
Company considers all checking and savings accounts available for the normal
operating activities of the business to be cash. Other cash balances that are
restricted for security deposits, property replacements and escrows are excluded
from cash for purposes of cash flows.
Building and equipment - The building, equipment and land are reflected at
original cost to the Company. Depreciation is calculated using straight and
accelerated methods over the following useful lives of the property:
Land improvements 20 years
Buildings 40 years
Furniture, fixtures & equipment 5 - 10 years
Deferred charges - The Company has incurred various start-up costs payable to
brokers and the General Partners. These costs have been capitalized and are
being amortized on a straight-line basis over fifteen years.
FS-5
<PAGE>
SECOND FAIRHAVEN, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE B: RESTRICTED CASH
Restricted cash consists of the following amounts deposited at banks as required
by the mortgage note payable to Farmers' Home Administration:
Tax and insurance escrow $ 1,713
Reserve for replacement 5,480
Security deposits 2,347
-----
Total $ 9,540
========
NOTE C: LONG-TERM DEBT
Long-term debt consists of a mortgage payable to Farmers' Home Administration.
The mortgage is secured by substantially all property of the Company and is
payable in monthly installments of $2,132, including interest at 1.0%, through
April 2049.
Principal retirements in the years subsequent to December 31, 1999 are expected
to be:
2000 $ 2,605
2001 2,786
2002 2,980
2003 3,187
2004 3,409
Thereafter 988,857
-------
Total $ 1,003,824
============
Under the terms of the mortgage with Farmers Home Administration, the Company is
required to make monthly deposits into restricted cash accounts. As of December
31, 1999 those amounts are as follows:
Reserve for replacement $ 877
Tax and insurance escrow 1,485
-----
Total $ 2,326
========
FS-6
<PAGE>
SECOND FAIRHAVEN, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE D: RELATED PARTY TRANSACTIONS
Cabell Corporation, a corporation controlled by the General Member, provides all
personnel for the Company operations and is reimbursed for the direct costs
associated with these services which amounted to $10,215 for the year ended
December 31, 1999. Cabell Corporation is also paid a fee for management of the
project equal to 9% of rent income, which totaled $5,234 for 1999. At December
31, 1999, $812 was owed by the Partnership for these fees.
NOTE E: CAPITALIZED INTEREST
During the period of construction from November 30, 1997 to May 1, 1999, the
Company incurred and paid interest costs in the amount of $46,593. These costs
have been capitalized as a component of buildings.
FS-7
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., Series 7
(A California Limited Partnership)
PRO FORMA BALANCE SHEET
December 31, 1999
ASSETS
Historical Pro Forma Pro Forma
Balance Adjustments Balance
Cash and cash equivalents $ 1,545,749 $ 1,001,440
(82,880)
239,380 $ 2,703,689
Subscriptions receivable 803,590 (239,380) 564,210
Investment in limited
partnerships 341,570 891,029
82,880 1,315,479
Due from affiliate 650,000 - 650,000
Other assets 440 - 440
----------- ----------- -----------
$ 3,341,349 $ 1,892,469 $ 5,233,818
=========== =========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable to
limited partnerships $ - $ 891,029 $ 891,029
Commisions payable 44,730 - 44,730
Accrued fees and
expenses due to
general partner
and affiliates 155,449 - 155,449
----------- ----------- -----------
200,179 891,029 1,091,208
----------- ----------- -----------
Partners' equity (deficit):
General partner (376) (183) (559)
Limited partners 3,141,546 1,001,623 4,143,169
----------- ----------- -----------
Total partners' equity 3,141,170 1,001,440 4,142,610
----------- ----------- -----------
$ 3,341,349 $ 1,892,469 $ 5,233,818
=========== =========== ===========
Unaudited
See Accompanying Notes to Pro Forma Financial Statements
FS-8
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
PRO FORMA STATEMENT OF OPERATIONS
For the Period September 3, 1999 (Date Operations Commenced)
through December 31, 1999
Historical Pro Forma Pro Forma
Balance Adjustments Balance
Interest income $6,082 $6,082
-------- -------
Operating expenses:
Amortization 700 700
Other 12 12
-------- -------
Total operating expenses 712 712
-------- -------
Income from operations 5,370 5,370
Equity in income (loss)
from limited partnerships - (6,690) (6,690)
-------- ------- -------
Net income (loss) $ 5,370 $(6,690) $(1,320)
======== ======== ========
Net income (loss)
allocated to:
General Partner $ 5 $ (1)
======== ========
Limited Partners $ 5,365 $(1,319)
======== ========
Net income (loss) per
limited partnership unit $ 2.41 $ (0.60)
======== ========
Outstanding weighted
limited partnership units 2,229 2,229
======== ========
Unaudited
See Accompanying Notes to Pro Forma Financial Statements
FS-9
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The unaudited pro forma financial statements (the "Pro Forma Financial
Statements") are based upon the historical financial statements of WNC Housing
Tax Credit Fund VI, L.P., Series 7 (the "Partnership"). The historical financial
information included in the Pro Forma Financial Statements represents the
financial position and operations of the Partnership for the period ended
December 31, 1999. The Pro Forma Financial Statements reflect the effects of the
Partnership acquiring an interest in two limited partnerships: 2nd Fairhaven,
LLC ("FAIRHAVEN") and School Square Limited Partnership ("SCHOOL SQUARE").
Each of those entities owns one apartment complex. The Partnership is
negotiating to acquire an interest in Red Oaks Estates, L.P. ("RED OAKS"), which
also owns one apartment complex. These three investments commit the Partnership
to capital contributions totaling $891,029.
The Pro Forma Financial Statements are presented for informational purposes only
and do not purport to be indicative of the results that actually would have been
achieved had such transactions been consummated on the date or for the periods
indicated and do not purport to be indicative of the results of operations for
any future period.
NOTE 2 - PRO FORMA ADJUSTMENTS
The investments commit the Partnership to capital contributions as follows:
FAIRHAVEN $ 359,815
SCHOOL SQUARE 285,574
RED OAKS 245,640
-----------
$ 891,029
===========
FS-10
<PAGE>
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
(A California Limited Partnership)
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (Continued)
- ---------------------------------------------
In accordance with Article 11, Pro Forma Financial Information of
Regulation S-X of the Securities and Exchange Commission, the accompanying pro
forma balance sheet was computed assuming that the limited partnerships
discussed above were acquired on December 31, 1999. The first adjustment to cash
and the adjustment to partners' equity of $1,001,440 reflects the net proceeds
from December 31, 1999 to February 9, 2000 from issuance of 1,304 units of
limited partners' capital ($1,304,000 less notes receivable and commissions and
offering costs of $120,000 and $182,560, respectively.) The third adjustment to
cash and the adjustment to subscriptions receivable of $239,380 reflects the
increase in subscriptions receivable from the above subscriptions. The first
adjustment to investment in limited partnerships and the adjustment to notes
payable to limited partnerships of $891,029 reflects the Partnership's
acquisition of the three limited partnership interests as if the Partnership's
date of acquisition was at December 31, 1999. The second adjustment to
investment in limited partnerships and the second adjustment to cash of $82,880
reflects the acquisition fee from the proceeds raised from December 31, 1999 to
February 9, 2000.
The accompanying pro forma statement of operations was computed assuming that
the limited partnerships were acquired on the date the Partnership commenced
operations. The SCHOOL SQUARE and RED OAKS apartment complexes were under
construction or rehabilitation during the period presented and had no operations
which should be reported. FAIRHAVEN had operations during the period presented
and a pro forma income adjustment of $(6,690) has been recorded to equity in
income (loss) of limited partnerships in the Pro Forma Statement of Operations
to reflect these operations. The Partnership uses the equity method of
accounting to account for its investments in these local limited partnerships
FS-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7
Date: April 14, 2000 By: WNC & Associates, Inc.,
General Partner
By: /s/ MICHAEL L. DICKENSON
Michael L. Dickenson,
Vice President - Chief Financial
Officer
5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
10.2 Second Amended and Restated Operating Agreement of
2nd Fairhaven, LLC
Second Amended and Restated Operating
Agreement of
2nd Fairhaven, LLC
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS ............................................. 1
1.1 "Accountant" ................................... 2
1.2 "Act" .......................................... 2
1.3 "Actual Tax Credit"............................. 2
1.4 "Adjusted Capital Account Deficit" ............. 2
1.5 "Affiliate" .................................... 2
1.6 "Agreement" or "Operating Agreement"............ 2
1.7 "Apartment Housing"............................. 3
1.8 "Assignee" ..................................... 3
1.9 "Bankruptcy" or "Bankrupt"...................... 3
1.10 "Break-even Operations"......................... 3
1.11 "Budget"........................................ 3
1.12 "Capital Account" .............................. 3
1.13 "Capital Contribution" ......................... 4
1.14 "Cash Expenses"................................. 4
1.15 "Cash Receipts"................................. 4
1.16 "Code" ......................................... 4
1.17 "Completion of Construction".................... 4
1.18 "Compliance Period"............................. 5
1.19 "Consent of the Special Member"................. 5
1.20 "Construction Budget"........................... 5
1.21 "Construction Contract"......................... 5
1.22 "Construction Lender"........................... 5
1.23 "Construction Loan" ............................ 5
1.24 "Contractor" ................................... 5
1.25 "Debt Service Coverage"......................... 5
1.26 "Deferred Management Fee"....................... 6
1.27 "Developer"..................................... 6
1.28 "Development Fee" .............................. 6
1.29 "Distributions" ................................ 6
1.30 "Fair Market Value" ............................ 6
1.31 "Financial Interest" ........................... 6
1.32 "First Year Certificate" ....................... 6
1.33 "FmHA" ......................................... 6
1.34 "FmHA Interest Credit Agreement" ............... 6
1.35 "FmHA Loan Agreement" .......................... 7
1.36 "Force Majeure"................................. 7
1.37 "Managing Member" .............................. 7
1.38 "Gross Asset Value" ............................ 7
1.39 "Hazardous Substance"........................... 8
1.40 "Improvements".................................. 8
1.41 "Incentive Management Fee"...................... 8
1.42 "Income and Losses"............................. 8
1.43 "Inspecting Architect".......................... 10
1.44 "Insurance" .................................... 10
1.45 "Insurance Company" ............................ 11
1.46 "Interest" ..................................... 11
1.47 "Involuntary Withdrawal"........................ 11
1.48 "Land Acquisition Fee".......................... 11
1.49 "LIHTC"......................................... 11
i
<PAGE>
1.50 "Investor Member"............................... 11
1.51 "Management Agent".............................. 11
1.52 "Management Agreement".......................... 11
1.53 "Minimum Set-Aside Test"........................ 12
1.54 "Mortgage" or "Mortgage Loan"................... 12
1.55 "Net Operating Income".......................... 12
1.56 "Nonrecourse Deductions"........................ 12
1.57 "Nonrecourse Liability"......................... 12
1.58 "Operating Deficit" ............................ 12
1.59 "Operating Deficit Guarantee Period"............ 13
1.60 "Operating Loans"............................... 13
1.61 "Original Limited Partner" ..................... 13
1.62 "Member(s)" .................................... 13
1.63 "Member Nonrecourse Debt" ...................... 13
1.64 "Member Nonrecourse Debt Minimum Gain" ......... 13
1.65 "Member Nonrecourse Deductions" ................ 13
1.66 "Company" ...................................... 13
1.67 "Company Minimum Gain" ......................... 13
1.68 "Permanent Mortgage Commencement" .............. 13
1.69 "Person" ....................................... 13
1.70 "Plans and Specifications"...................... 13
1.71 "Project Documents" ............................ 14
1.72 "Projected Annual Tax Credits" ................. 14
1.73 "Projected Tax Credits" ........................ 14
1.74 "Rent Restriction Test" ........................ 14
1.75 "Reporting Fee"................................. 14
1.76 "Revised Projected Tax Credits"................. 14
1.77 "Sale or Refinancing"........................... 14
1.78 "Sale or Refinancing Proceeds" ................. 14
1.79 "Special Member"................................ 15
1.80 "State" ........................................ 15
1.81 "State Tax Credit Agency" ...................... 15
1.82 "Substitute Investor Member" ................... 15
1.83 "Syndication Fee"............................... 15
1.84 "Tax Credit" ................................... 15
1.85 "Tax Credit Compliance Fee"........................ 15
1.86 "Tax Credit Conditions"......................... 15
1.87 "Tax Credit Period"............................. 15
1.88 "Title Policy".................................. 15
1.89 "TRA 1986" ..................................... 16
1.90 "Treasury Regulations" ......................... 16
1.91 "Withdrawing" or "Withdrawal"................... 16
II. NAME .................................................... 16
III. PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE ............ 16
3.1 Principal Executive Office ..................... 16
3.2 Agent for Service of Process ................... 16
IV. PURPOSE ................................................. 16
4.1 Purpose of the Company.......................... 16
4.2 Authority of the Company........................ 17
V. TERM .................................................... 17
ii
<PAGE>
VI. MANAGING MEMBER'S CONTRIBUTIONS AND LOANS................ 18
6.1 Capital Contribution of Managing Member......... 18
6.2 Construction Obligations........................ 18
6.3 Operating Obligations........................... 19
6.4 Other Managing Member Loans..................... 19
VII. CAPITAL CONTRIBUTIONS OF INVESTOR MEMBER
AND SPECIAL MEMBER....................................... 19
7.1 Original Limited Partner........................ 19
7.2 Capital Contribution of Investor Member......... 19
7.3 Repurchase of Investor Member's Interest........ 21
7.4 Adjustment of Investor Member's
Capital Contribution............................ 22
7.5 Capital Contribution of Special Member.......... 25
7.6 Return of Capital Contribution.................. 25
7.7 Liability of Investor Member and Special
Investor Member................................. 25
VIII. WORKING CAPITAL AND RESERVES ............................... 25
8.1 Operating and Maintenance Account............... 25
8.2 Reserve for Replacements........................ 25
8.3 Tax and Insurance Account....................... 26
8.4 Other Reserves.................................. 26
IX. MANAGEMENT AND CONTROL .................................. 26
9.1 Power and Authority of Managing Member ......... 26
9.2 Payments to the Managing Members and Others .... 27
9.3 Specific Powers of the Managing Member ......... 28
9.4 Authority Requirements.......................... 29
9.5 Limitations on Managing Member's
Power and Authority ............................ 29
9.6 Restrictions on Authority of Managing Member.... 30
9.7 Duties of Managing Member ...................... 32
9.8 Obligations to Repair and Rebuild Apartment
Housing......................................... 33
9.9 Company Expenses ............................... 33
9.10 Managing Member Expenses ....................... 34
9.11 Other Business of Members ...................... 34
9.12 Covenants, Representations and Warranties....... 35
X. ALLOCATIONS OF INCOME, LOSSES AND CREDITS ............... 39
10.1 General ........................................ 39
10.2 Allocations From Sale or Refinancing............ 39
10.3 Special Allocations............................. 40
10.4 Curative Allocations............................ 42
10.5 Other Allocation Rules.......................... 43
10.6 Tax Allocations: Code Section 704(c)........... 44
10.7 Allocation Among Investor Members............... 44
10.8 Allocation Among Managing Members .............. 44
10.9 Modification of Allocations .................... 45
XI. DISTRIBUTION ............................................ 45
iii
<PAGE>
11.1 Distribution of Net Operating Income ........... 45
11.2 Distribution of Sale or Refinancing Proceeds.... 45
XII. TRANSFERS OF INVESTOR MEMBER'S INTEREST
IN THE COMPANY........................................... 46
12.1 Assignment of Investor Member's Interest ....... 46
12.2 Effective Date of Transfer ..................... 47
12.3 Invalid Assignment ............................. 47
12.4 Assignee's Rights to Allocations
and Distributions .............................. 47
12.5 Substitution of Assignee as Investor Member
or Special Member............................... 47
12.6 Death, Bankruptcy, Incompetency, etc.
of an Investor Member .................................. 48
XIII. WITHDRAWAL, REMOVAL AND REPLACEMENT OF MANAGING
MEMBER ..................................................... 48
13.1 Withdrawal of Managing Member .................. 48
13.2 Removal of Managing Member ..................... 49
13.3 Effects of a Withdrawal......................... 50
13.4 Successor Managing Member....................... 52
13.5 Admission of Additional or Successor
Managing Member ................................ 52
13.6 Transfer of Interest ........................... 53
13.7 No Goodwill Value............................... 53
XIV. BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS,
FISCAL YEAR AND BANKING ................................. 53
14.1 Books and Accounts ............................. 53
14.2 Accounting Reports ............................. 54
14.3 Other Reports .................................. 55
14.4 Late Reports ................................... 57
14.5 Annual Site Visits.............................. 57
14.6 Tax Returns..................................... 57
14.7 Fiscal Year .................................... 57
14.8 Banking ........................................ 57
14.9 Certificates and Elections ..................... 58
XV. DISSOLUTION, WINDING UP, TERMINATION AND
LIQUIDATION OF THE COMPANY .............................. 58
15.1 Dissolution of Company ......................... 58
15.2 Return of Capital Contribution upon
Dissolution .................................... 58
15.3 Distributions of Assets ........................ 59
15.4 Deferral of Liquidation......................... 60
15.5 Liquidation Statement .......................... 60
15.6 Certificates of Dissolution; Certificate of
Cancellation of Articles of Organization........ 60
XVI. AMENDMENTS .............................................. 61
XVII. MISCELLANEOUS .............................................. 61
iv
<PAGE>
17.1 Voting Rights .................................. 61
17.2 Meeting of Company ............................. 61
17.3 Notices ........................................ 62
17.4 Successors and Assigns ......................... 62
17.5 FmHA Regulations................................ 62
17.6 Recording of Articles of Organization........... 63
17.7 Amendment of Articles of Organization........... 63
17.8 Counterparts ................................... 64
17.9 Captions ....................................... 64
17.10 Saving Clause................................... 64
17.11 Certain Provisions............................. 64
17.12 Tax Matters Members............................ 64
17.13 Expiration of Compliance Period................ 65
17.14 Number and Gender ............................. 66
17.15 Entire Agreement .............................. 66
17.16 Governing Law ................................. 66
17.17 Attorney's Fees ............................... 66
17.18 Receipt of Correspondence ..................... 66
17.19 Security Interest and Right of Set-Off ........ 67
EXHIBIT A - Legal Description...................... A-1
EXHIBIT B - Form of Legal Opinion.................. B-1 - B-4
EXHIBIT C - Certification and Agreement............ C-1 - C-4
EXHIBIT D - Form of Completion Certificate......... D-1
EXHIBIT E - Accountant's Certificate............... E-1
EXHIBIT F - Contractor's Letter.....................F-1
EXHIBIT G - Report of Operations................... G-1 - H-10
v
<PAGE>
Second Amended and Restated
Operating Agreement of
2nd Fairhaven, LLC
This Second Amended and Restated Operating Agreement is being entered
into effective as of the date written below by and between Larry C. Porter and
Carter C. Chinnis as the managing members (collectively the "Managing Member"),
WNC Housing Tax Credit Fund VI, L.P., Series 7, a California limited partnership
as a member (the "Investor Member"), and WNC Housing, L.P., as the Special
Member (the "Special Member").
RECITALS
WHEREAS, 2nd Fairhaven, LLC, a Maryland limited liability company (the
"Company") recorded an Articles of Organization with the Maryland Secretary of
State on June 4, 1997. An operating agreement dated June 4, 1997 was entered
into by and between the Managing Members (the "Original Operating Agreement").
WHEREAS, the Company entered into an Articles of Amendment on February
8, 2000 to provide for substitution of Articles 1 through 6 of the Original
Operating Agreement.
WHEREAS, the Members entered into a Amended and Restated Operating
Agreement of 2nd Fairhaven, LLC dated January 25, 2000 to provide for, among
other things, (i) the continuation of the Company, (ii) the admission of the
Investor Member and the Special Member as members of the Company, and (iii) the
determination of the respective rights, obligations and interests of the Members
to each other and to the Company (the "Amended Operating Agreement").
WHEREAS, the Members desire to enter into this Agreement to provide
for, among other things, (i) the continuation of the Company, (ii) the payment
of Capital Contribution by the Investor Member and the Special Member to the
Company, (iii) the allocation of Income, Losses, Tax Credits and distributions
of Net Operating Income and other cash funds of the Company among the Members,
and (iv) certain other matters.
WHEREAS, the Members desire hereby to amend and restate the Amended
Operating Agreement.
NOW, THEREFORE, in consideration of their mutual agreements herein set
forth, the Members hereby agree to amend and restate the Amended Operating
Agreement in its entirety to provide as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 "Accountant" shall mean Thomas S. Chambers, or such other firm of
independent certified public accountants as may be engaged for the Company by
the Managing Members with the Consent of the Special Member. Notwithstanding any
provision of this Agreement to the contrary, the Special Member shall have the
discretion to dismiss the Accountant for cause if such Accountant fails to
provide, or untimely provides, or inaccurately provides, the information
required in Section 14.2 or 14.3 of this Agreement.
Section 1.2 "Act" shall mean the laws of the State governing limited liability
companies, as now in effect and as the same may be amended from time to time.
Section 1.3 "Actual Tax Credit" shall mean as of any point in time, the total
amount of the LIHTC actually allocated by the Company to the Investor Member,
representing 99.98% of the LIHTC actually received by the Company, as shown on
the applicable tax returns of the Company.
Section 1.4 "Adjusted Capital Account Deficit" shall mean with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant fiscal period, after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such Member is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) debit to such Capital Account the items described in 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) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
Section 1.5 "Affiliate" shall mean (a) any Person directly or indirectly
controlling, controlled by, or under common control with another Person; (b) any
Person owning or controlling 10% or more of the outstanding voting securities of
such other Person; (c) any officer, director, trustee, or member of such other
Person; and (d) if such Person is an officer, director, trustee or managing
member, any other Person for which such Person acts in any such capacity.
Section 1.6 "Agreement" or "Operating Agreement" shall mean this Second Amended
and Restated Operating Agreement, as it may be amended from time to time. Words
such as "herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder,"
when used with reference to this Agreement, refers to this Agreement as a whole,
unless the context otherwise requires.
2
<PAGE>
Section 1.7 "Apartment Housing" shall collectively mean the approximately 3.487
acres of land in Federalsburg, Caroline County, Maryland, as more fully
described in Exhibit "A" attached hereto and incorporated herein by this
reference, and the Improvements.
Section 1.8 "Assignee" shall mean a Person who has acquired all or a portion of
the Investor Member's or Special Member's beneficial interest in the Company and
has not become a Substitute Investor Member.
Section 1.9 "Bankruptcy" or "Bankrupt" shall mean the making of an assignment
for the benefit of creditors, becoming a party to any liquidation or dissolution
action or proceeding, the commencement of any bankruptcy, reorganization,
insolvency or other proceeding for the relief of financially distressed debtors,
or the appointment of a receiver, liquidator, custodian or trustee and, if any
of the same occur involuntarily, the same not being dismissed, stayed or
discharged within 90 days; or the entry of an order for relief under Title 11 of
the United States Code. A Member shall be deemed Bankrupt if the Bankruptcy of
such Member shall have occurred and be continuing.
Section 1.10 "Break-even Operations" shall mean at such time as the Company has
Cash Receipts equal to Cash Expenses, as determined by the Accountant and
approved by the Special Member. For purposes of this definition, any one-time
up-front fee paid to the Company from any source shall not be included in Cash
Receipts to calculate Break-even Operations.
Section 1.11 "Budget" shall mean the annual operating Budget of the Company as
more fully described in Section 14.3 of this Agreement.
Section 1.12 "Capital Account" shall mean, with respect to each Member, the
account maintained for such Member comprised of such Member's Capital
Contribution as increased by allocations to such Member of Company Income (or
items thereof) and any items in the nature of income or gain which are specially
allocated pursuant to Section 10.3 or 10.4 hereof, and decreased by the amount
of any Distributions made to such Member, and allocations to such Member of
Company Losses (or items thereof) and any items in the nature of expenses or
losses which are specially allocated pursuant to Section 10.3 or 10.4 hereof. In
the event of any transfer of an interest in the Company in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital Account of
the transferor to the extent it relates to the transferred interest. The
foregoing definition and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury Regulation
Section 1.704-1(b), as amended or any successor thereto, and shall be
interpreted and applied in a manner consistent with such Treasury Regulation.
Section 1.13 "Capital Contribution" shall mean the total amount of money, or the
Gross Asset Value of property contributed to the Company, if any, by all the
3
<PAGE>
Members or any class of Members or any one Member as the case may be (or by a
predecessor-in-interest of such Member or Members), reduced by any such capital
which shall have been returned pursuant to Section 7.3, 7.4 or 7.6 of this
Agreement. A loan to the Company by a Member shall not be considered a Capital
Contribution.
Section 1.14 "Cash Expenses" shall mean all cash operating obligations of the
Company (other than those covered by Insurance) in accordance with the
applicable Budget, including without limitation, the payment of the monthly
Mortgage payments, the Management Agent fees (which shall be deemed to include
that portion of such fees which is currently deferred and not paid), the funding
of reserves in accordance with Article VIII of this Agreement, advertising and
promotion, utilities, maintenance, repairs, Member communications, legal,
telephone, any other expenses which may reasonably be expected to be paid in a
subsequent period but which on an accrual basis is allocable to the period in
question, such as Insurance, real estate taxes and audit, tax or accounting
expenses (excluding deductions for cost recovery of buildings; improvements and
personal property and amortization of any financing fees) and any seasonal
expenses (such as snow removal, the use of air conditioners in the middle of the
summer, or heaters in the middle of the winter) which may reasonably be expected
to be paid in a subsequent period shall be allocated equally per month over the
calendar year. Cash Expenses payable to Members or Affiliates of Members shall
be paid after Cash Expenses payable to third parties. Construction loan interest
and construction costs of any nature whatsoever are not Cash Expenses and shall
not be paid from Cash Receipts. The provisions of Section 6.2 govern the payment
of construction costs and construction interest.
Section 1.15 "Cash Receipts" shall mean actual cash received on a cash basis by
the Company from operating revenues of the Company, including without limitation
rental income (but not any subsidy thereof from the Managing Members or an
Affiliate thereof) and laundry income, but excluding prepayments, security
deposits, Capital Contributions, borrowings, lump-sum payment, any extraordinary
receipt of funds, and any income earned on investment of its funds.
Section 1.16 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
Section 1.17 "Company" shall mean the limited liability company continued under
this Agreement.
Section 1.18 "Company Minimum Gain" shall mean the amount determined in
accordance with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
Section 1.19 "Completion of Construction" shall mean the date the Company
receives the required certificate of occupancy (or the local equivalent) for all
eighteen (18) apartment units in the Apartment Housing. Notwithstanding,
Completion of Construction shall not be deemed to have occurred: if the
4
<PAGE>
statutory time period for the filing of any liens by the contractor,
subcontractors, material suppliers or any one else entitled to file a
construction lien has not lapsed; or if on such date any liens or other
encumbrances as to title to the Apartment Housing exist, other than the
construction loan.
Section 1.20 "Compliance Period" shall mean the period set forth in Section 42
(i)(1) of the Code, as amended, or any successor statute.
Section 1.21 "Consent of the Special Member" shall mean the prior written
consent or approval of the Special Member.
Section 1.22 "Debt Service Coverage" shall mean for the applicable period the
ratio between the Net Operating Income (excluding Mortgage payments) and the
debt service required to be paid on the Mortgage(s). As example, a 1.15 Debt
Service Coverage means that for every $1.00 of debt service required to be paid
there must be $1.15 of Net Operating Income available. A worksheet for the
calculation of Debt Service Coverage is found in the Report of Operations
attached hereto as Exhibit "E" and incorporated herein by this reference.
Section 1.23 "Deferred Management Fee" shall have the meaning set forth in
Section 9.2(c) hereof.
Section 1.24 "Developer" shall mean Carter C. Chinnis.
Section 1.25 "Development Fee" shall mean the fee payable to the Developer for
services incident to the development and construction of the Apartment Housing
in accordance with the Amended Development Fee Agreement between the Company and
the Developer dated the even date herewith and incorporated herein by this
reference. Development activities do not include services for the acquisition of
the land or syndication activities.
Section 1.26 "Distributions" shall mean the total amount of money, or the Gross
Asset Value of property (net of liabilities securing such distributed property
that such Member is considered to assume or take subject to under Section 752 of
the Code), distributed to Members with respect to their Interests in the
Company, but shall not include any payments to the Managing Members or its
Affiliates for fees or other compensation as provided in this Agreement or any
guaranteed payment within the meaning of Section 707(c) of the Code, as amended,
or any successor thereto.
Section 1.27 "Fair Market Value" shall mean, with respect to any property, real
or personal, the price a ready, willing and able buyer would pay to a ready,
willing and able seller of the property, provided that such value is reasonably
agreed to between the parties in arm's-length negotiations and the parties have
sufficiently adverse interests.
Section 1.28 "Financial Interest" shall mean the Managing Members' capital
interest in the Company to be contributed and maintained pursuant to the
requirements of FmHA Instruction 1944-E, Section 1944.211(a)(13)(ii) or any
5
<PAGE>
amendments thereto. Such Financial Interest shall not affect the Members'
allocable share of the Profits, Losses, Tax Credits or Cash Flow From Operations
as set forth in this Agreement.
Section 1.29 "First Year Certificate" shall mean the certificate to be filed by
the Managing Members with the Secretary of the Treasury as required by Code
Section 42(1)(1), as amended, or any successor thereto.
Section 1.30 "FmHA" shall mean the United States Department of Agriculture,
Rural Development-Maryland (formerly Farmers Home Administration) or any
successor thereto.
Section 1.31 "FmHA Interest Credit Agreement" shall mean the Multiple Family
Housing Interest Credit and Rental Assistance Agreement (Form FmHA 1944-7 or any
successor thereof) between the FmHA and the Company whereby FmHA will provide a
monthly credit subsidy to the Company's Mortgage account when the Company makes
each monthly payment on the Mortgage.
Section 1.32 "FmHA Loan Agreement" shall mean the Loan Agreement for an RRH Loan
to an limited liability company Operating on a Limited Profit Basis (Form FmHA
1944-34 or any successor thereof) between the FmHA and the Company made in
consideration of the Mortgage Loan to the Company by the FmHA pursuant to
Section 515(b) of the Housing Act of 1949 to build a low to moderate income
apartment complex.
Section 1.33 "Force Majeure" shall mean any act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockage, public
riot, fire, flood, explosion, governmental action, governmental delay or
restraint.
Section 1.34 "Gross Asset Value" shall mean 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 Member
to the Company shall be the Fair Market Value of such asset, as determined by
the contributing Member and the Managing Member, provided that, if the
contributing Member is a Managing Member, the determination of the Fair Market
Value of a contributed asset shall be determined by appraisal;
(b) the Gross Asset Values of all Company assets shall be adjusted to
equal their respective Fair Market Values, as determined by the Managing Member,
as of the following times: (1) the acquisition of an additional Interest in the
Company by any new or existing Member in exchange for more than a de minimis
Capital Contribution; (2) the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an Interest in
the Company; and (3) the liquidation of the Company within the meaning of
6
<PAGE>
Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that the
adjustments pursuant to clauses (1) and (2) above shall be made only with the
Consent of the Special Member and only if the Managing Member reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in the Company;
(c) the Gross Asset Value of any Company asset distributed to any Member
shall be adjusted to equal the Fair Market Value of such asset on the date of
distribution as determined by the distributee and the Managing Member, provided
that, if the distributee is a Managing Member, the determination of the Fair
Market Value of the distributed asset shall be determined by appraisal; and
(d) the Gross Asset Values of Company 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 Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset Values shall not be adjusted
pursuant to this Section 1.34(d) to the extent the Managing Member determines
that an adjustment pursuant to Section 1.34(b) hereof is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 1.34(d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section 1.34(a), Section 1.34(b), or Section 1.34(d) hereof, such
Gross Asset Value shall thereafter be adjusted by the depreciation taken into
account with respect to such asset for purposes of computing Income and Losses.
Section 1.35 "Hazardous Substance" shall mean and include any substance,
material or waste, including asbestos, petroleum and petroleum products
(including crude oil), that is or becomes designated, classified or regulated as
"toxic" or "hazardous" or a "pollutant" or that is or becomes similarly
designated, classified or regulated, under any federal, state or local law,
regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications promulgated pursuant thereto.
Section 1.36 "Improvements" shall mean the five buildings containing eighteen
(18) apartment units and ancillary and appurtenant facilities (including those
intended for commercial use, if any,) being constructed for the elderly built
and in accordance with the Project Documents. It shall also include all
furnishings, equipment and personal property used in connection with the
operation thereof.
Section 1.37 "Incentive Management Fee" shall have the meaning set forth in
Section 9.2(e) hereof.
Section 1.38 "Income and Losses" shall mean, for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
7
<PAGE>
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 Company that is exempt from federal income tax and
not otherwise taken into account in computing Income or Losses pursuant to this
Section 1.38 shall be added to such taxable income or loss;
(b) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Income and Losses pursuant to this Section 1.38 shall be subtracted
from such taxable income or loss;
(c) in the event the Gross Asset Value of any Company asset is adjusted
pursuant to Section 1.38(a) or (b) hereof, the amount of such adjustment shall
be taken into account as gain or loss from the disposition of such asset for
purposes of computing Income and Losses;
(d) gain or loss resulting from any disposition of Company assets 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 taken into account in computing such taxable income or loss, there
shall be taken into account depreciation for such fiscal year or other period,
computed as provided below; and
(f) notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Sections 10.3 or 10.4 hereof shall not
otherwise be taken into account in computing Income or Losses.
Depreciation for each fiscal year or other period shall be calculated as
follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period for federal income tax purposes, 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 or other period, depreciation shall be 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
or other period bears to such beginning adjusted tax basis; provided, however,
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
Managing Member.
For purposes of this Agreement, the term Income when used alone shall
include all items of income or revenue contemplated in this Section and the term
Losses when used alone shall include all items of loss or deductions
contemplated in this Section.
8
<PAGE>
Section 1.39 "Insurance" shall mean:
(a) during operations the Company will provide and maintain business
interruption coverage covering actual sustained loss for 12 months; worker's
compensation; hazard coverage (including but not limited to fire, or other
casualty loss to any structure or building on the Apartment Housing in an amount
equal to the full replacement value of the damaged property without deducting
for depreciation); and comprehensive general liability coverage against
liability claims for bodily injury or property damage in the minimum amount of
$1,000,000 per occurrence and an aggregate of $2,000,000;
(b) all liability coverage shall include an umbrella liability coverage
in a minimum amount of $4,000,000 per occurrence and an aggregate of $4,000,000;
(c) all Insurance polices shall name the Company as the named insured,
the Investor Member as an additional insured, and WNC & Associates, Inc. as
the certificate holder;
(d) all Insurance policies shall include a provision to notify the
insured, the Investor Member and the certificate holder prior to cancellation;
and
(e) hazard coverage must include inflation and building or ordinance
endorsements.
Section 1.40 "Insurance Company" shall mean any insurance company engaged by the
Managing Member for the Company with the Consent of the Special Member which
Insurance Company shall have an A rating or better for financial safety by A.M.
Best or Standard & Poor's.
Section 1.41 "Interest" shall mean the entire ownership interest of a Member in
the Company at any particular time, including the right of such Member to any
and all benefits to which a Member may be entitled hereunder and the obligation
of such Member to comply with the terms of this Agreement.
Section 1.42 "Investor Member" shall mean WNC Housing Tax Credit Fund VI, L.P.,
Series 7, a California limited partnership, and such other Persons as are
admitted to the Company as additional or Substitute Investor Members pursuant to
this Agreement.
Section 1.43 "Involuntary Withdrawal" shall mean any Withdrawal of a Managing
Member caused by death, adjudication of insanity or incompetence, Bankruptcy, or
the removal of a Managing Member pursuant to Section 13.2 hereof.
Section 1.44 "Land Acquisition Fee" shall mean the fee payable to the Managing
Member in an amount equal to $3,138 for the Managing Member's services in
locating, negotiating and closing on the purchase of the real property upon
which the Improvements are, or will be, erected.
9
<PAGE>
Section 1.45 "LIHTC" shall mean the low-income housing tax credit established by
TRA 1986 and which is provided for in Section 42 of the Code, as amended, or any
successor thereto.
Section 1.46 "Management Agent" shall mean the property management company which
oversees the property management functions for the Apartment Housing and which
is on-site at the Apartment Housing. The initial Management Agent shall be
Cabell Corporation.
Section 1.47 "Management Agreement" shall mean the agreement between the Company
and the Management Agent for property management services. The management fee
shall equal 9% of gross revenues. Neither the Management Agreement nor ancillary
agreement shall provide for an initial rent-up fee, a set-up fee, nor any other
similar pre-management fee payable to the Management Agent. The Management
Agreement shall provide that it will be terminable at will by the Company at
anytime following the Withdrawal or removal of the Managing Member and, in any
event, on any anniversary of the date of execution of the Management Agreement,
without payment or penalty for failure to renew the same.
Section 1.48 "Managing Members" shall collectively mean Larry C. Porter and
Carter C. Chinnis and such other Persons as are admitted to the Company as
additional or substitute Managing Members pursuant to this Agreement. If there
is more than one Managing Member of the Company, the term "Managing Member"
shall be deemed to collectively refer to such Managing Members or individually
may mean any Managing Member as the context dictates.
Section 1.49 "Member(s)" shall collectively mean the Managing Member, the
Investor Member, and the Special Member or individually may mean any Member as
the context dictates.
Section 1.50 "Member Nonrecourse Debt" shall have the meaning set forth in
Section 1.704-2(b)(4) of the Treasury Regulations.
Section 1.51 "Member Nonrecourse Debt Minimum Gain" shall mean an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
Section 1.52 "Member Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2 (i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
Section 1.53 "Minimum Set-Aside Test" shall mean the 40-60 set-aside test
pursuant to Section 42(g), as amended and any successor thereto, of the Code
with respect to the percentage of apartment units in the Apartment Housing to be
occupied by tenants whose incomes are equal to or less than the required
10
<PAGE>
percentage of the area median gross income. Notwithstanding, the Managing Member
has agreed that 16 apartment units will be rented to tenants with incomes of 40%
or less of the area median income adjusted for family size.
Section 1.54 "Mortgage" or "Mortgage Loan" shall mean the permanent nonrecourse
financing wherein the Company promises to pay FmHA, or its successor or
assignee, the principal sum of $1,000,000, plus interest on the principal at
6.75% per annum over a term of 30 years and amortized over 50 years. Where the
context admits, the term "Mortgage" or "Mortgage Loan" shall include any
mortgage, deed, deed of trust, note, regulatory agreement, security agreement,
assumption agreement or other instrument executed in connection with the
Mortgage which is binding on the Company; and in case any Mortgage is replaced
or supplemented by any subsequent mortgage or mortgages, the Mortgage shall
refer to any such subsequent mortgage or mortgages. The Debt Service Coverage
shall not fall below 1.15 on the current Cash Expenses and Cash Receipts.
Section 1.55 "Net Operating Income" shall mean the cash available for
Distribution on an annual basis, when Cash Receipts exceed Cash Expenses.
Section 1.56 "Nonrecourse Deductions" shall have the meaning given it in
Treasury Regulations Section 1.704-2(b)(1).
Section 1.57 "Nonrecourse Liability" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(3).
Section 1.58 "Operating Deficit" shall mean, for the applicable period,
insufficient funds to pay operating costs when Cash Expenses exceed Cash
Receipts, as determined by the Accountant and approved by the Special Member.
Section 1.59 "Operating Deficit Guarantee Period" shall mean the period
commencing the date the first apartment unit in the Apartment Housing is
available for its intended use and ending eighteen months following three
consecutive months of Break-Even Operations. The Operating Deficit Guarantee
Period will not expire unless the Company has achieved Completion of
Construction of the Apartment Housing.
Section 1.60 "Operating Loans" shall mean loans made by the Managing Member to
the Company pursuant to Article VI of this Agreement, which loans do not bear
interest and are repayable only as provided in Article XI of this Agreement.
Section 1.61 "Permanent Mortgage Commencement" shall mean the first date on
which all of the following have occurred: (a) the Mortgage shall have closed and
funded; and (b) amortization of the Mortgage shall have commenced.
Section 1.62 "Person" shall collectively mean an individual, proprietorship,
trust, estate, joint venture, association, company, corporation or other entity.
11
<PAGE>
Section 1.63 "Project Documents" shall mean all documents relating to the
Mortgage Loan and all documents required by any governmental agency having
jurisdiction over the Apartment Housing in connection with the operation and
financing of the Apartment Housing.
Section 1.64 "Projected Annual Tax Credits" shall mean LIHTC in the amount of
$47,035 per year for each of the years 2000 through 2009, which the Managing
Member has projected to be the total amount of LIHTC which will be allocated to
the Investor Member by the Company, constituting 99.98% of the aggregate amount
of LIHTC of $470,441 to be available to the Company.
Section 1.65 "Projected Tax Credits" shall mean LIHTC in the aggregate amount
of $470,441.
Section 1.66 "Qualified Tenants" shall mean any tenants who have incomes of 60%
or less of the area median gross income, as adjusted for family size, so as to
make the Project eligible for LIHTC.
Section 1.67 "Rent Restriction Test" shall mean the test pursuant to Section 42
of the Code whereby the gross rent charged to tenants of the low-income
apartment units in the Apartment Housing cannot exceed 30% of the qualifying
income levels of those units under Section 42.
Section 1.68 "Reporting Fee" shall have the meaning set forth in Section 9.2(d)
hereof.
Section 1.69 "Revised Projected Tax Credits" shall have the meaning set forth
in Section 7.4(a) hereof.
Section 1.70 "Sale or Refinancing" shall mean any of the following items or
transactions: a sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, a condemnation of or casualty at
the Apartment Housing or any part thereof, a claim against a title insurance
company, the refinancing or any Mortgage or other indebtedness of the Company
and any similar item or transaction; provided, however, that the payment of
Capital Contributions by the Members shall not be included within the meaning of
the term "Sale or Refinancing."
Section 1.71 "Sale or Refinancing Proceeds" shall mean all cash receipts of the
Company arising from a Sale or Refinancing (including principal and interest
received on a debt obligation received as consideration in whole or in part, on
a Sale or Refinancing) less the amount paid or to be paid in connection with or
as an expense of such Sale or Refinancing, and with regard to damage recoveries
or insurance or condemnation proceeds, the amount paid or to be paid for
repairs, replacements or renewals resulting from damage to or partial
condemnation of the Apartment Housing.
Section 1.72 "Special Member" shall mean WNC Housing, L.P., a California limited
partnership, and such other Persons as are admitted to the Company as additional
or substitute Special Members pursuant to this Agreement.
12
<PAGE>
Section 1.73 "State" shall mean the State of Maryland.
Section 1.74 "State Tax Credit Agency" shall mean the state agency of Maryland
which has the responsibility and authority to administer the LIHTC program in
Maryland.
Section 1.75 "Substitute Investor Member" shall mean any Person who is admitted
to the Company as an Investor Member pursuant to Section 12.5 or acquires the
Interest of the Investor Member pursuant to Section 7.3 of this Agreement.
Section 1.76 "Syndication Fee" shall mean the fee payable to the Managing Member
in an amount equal to $10,000 for the Managing Member's services in forming the
Company, locating and approving the Investor Member and Special Member as the
investors in the Company, negotiating and finalizing this Company Agreement and
for such other services referenced in Treasury Regulation Section 1.709-2(B).
Section 1.77 "Tax Credit" shall mean any credit permitted under the Code or the
law of any state against the federal or a state income tax liability of any
Member as a result of activities or expenditures of the Company including,
without limitation, LIHTC.
Section 1.78 "Tax Credit Compliance Fee" shall mean the fee payable to the
Managing Member in accordance with Section 9.2(f) of this Agreement.
Section 1.79 "Tax Credit Conditions" shall mean, for the duration of the
Compliance Period, any and all restrictions including, but not limited to,
applicable federal, state and local laws, rules and regulations, which must be
complied with in order to qualify for the LIHTC or to avoid an event of
recapture in respect of the LIHTC.
Section 1.80 "Tax Credit Period" shall mean the ten year time period referenced
in Code Section 42(f)(1) over which the Projected Tax Credits are allocated to
the Members. It is the intent of the Members that the Projected Tax Credits will
be allocated during the Tax Credit Period and not a longer term.
Section 1.81 "Title Policy" shall mean the policy of insurance covering the fee
simple title to the Apartment Housing from a company approved by the Special
Member. The Title Policy shall be an ALTA owners title policy naming the Company
as insured and including a non-imputation and fairway endorsement. The Title
Policy shall also insure against rights-of-way, easements, or claims of
easements, not shown by public records. The Title Policy shall be in an amount
equal to the Mortgage Loan amount and the Investor Member's Capital
Contribution.
Section 1.82 "TRA 1986" shall mean the Tax Reform Act of 1986.
13
<PAGE>
Section 1.83 "Treasury Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
Section 1.84 "Withdrawing" or "Withdrawal" (including the verb form "Withdraw"
and the adjectival forms "Withdrawing" and "Withdrawn") shall mean, as to a
Managing Member, the occurrence of the death, adjudication of insanity or
incompetence, Bankruptcy of such Member, the withdrawal, removal or retirement
from the Company of such Member for any reason, including any sale, pledge,
encumbering, assignment or other transfer of all or any part of its Managing
Member Interest and those situations when a Managing Member may no longer
continue as a Managing Member by reason of any law or pursuant to any terms of
this Agreement.
ARTICLE II
NAME
The name of the Company shall be "2nd Fairhaven, LLC."
ARTICLE III
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1 Principal Executive Office. The principal executive office
of the Company is located at 410 Market Street, Denton, Maryland 21629, or at
such other place or places within the State as the Managing Member may hereafter
designate.
Section 3.2 Agent for Service of Process. The name of the agent for
service of process on the Company is Larry C. Porter, whose address is 410
Market Street, P.O. Box 499, Denton, Maryland 21629.
ARTICLE IV
PURPOSE
Section 4.1 Purpose of the Company. The purpose of the Company is to
own and operate the Apartment Housing in order to provide, in part, Tax Credits
to the Members in accordance with the provisions of the Code and the Treasury
Regulations applicable to LIHTC and to sell the Apartment Housing. The Company
shall not engage in any business or activity which is not incident to the
attainment of such purpose.
Section 4.2 Authority of the Company. In order to carry out its
purpose, the Company is empowered and authorized to do any and all acts and
things necessary, appropriate, proper, advisable or incidental to the
furtherance and accomplishment of its purpose, and for protection and benefit of
the Company, including but not limited to the following:
14
<PAGE>
(a) own, maintain and operate the Apartment Housing in accordance with
the Project Documents;
(b) provide housing to Qualified Tenants, subject to the Minimum
Set-Aside Test and the Rent Restriction Test and consistent with the
requirements of the Project Documents so long as any Project Documents remain in
force;
(c) maintain and operate the Apartment Housing, including hiring the
Management Agent (which Management Agent may be any of the Members or an
Affiliate thereof) and entering into any agreement for the management of the
Apartment Housing during its rent-up and after its rent-up period in accordance
with this Agreement;
(d) enter into the Mortgage;
(e) rent dwelling units in the Apartment Housing from time to time,
in accordance with the provisions of the Code applicable to LIHTC; and
(f) do any and all other acts and things necessary or proper in
accordance with this Agreement.
ARTICLE V
TERM
The Company term commenced upon the filing of the Articles of
Organization in the office of, and on the form prescribed by, the Secretary of
State of the State, and shall continue until December 31, 2055 unless terminated
earlier in accordance with the provisions of this Agreement or as otherwise
provided by law.
ARTICLE VI
MANAGING MEMBER'S CONTRIBUTIONS AND LOANS
Section 6.1 Capital Contribution of Managing Member. The Managing Member
shall make a Capital Contribution equal to $52,632.
Section 6.2 Construction Obligations.
(a) The Managing Member hereby guarantees a lien free completion of
construction of the Apartment Housing on or before April 30, 1999("Completion
Date") at a total development cost of not more than $1,433,546 ("Development
Budget"), which includes all hard and soft costs incident to the acquisition,
development and construction of the Apartment Housing in accordance with the
construction budget, the construction contract, and the Project Documents. If
the Special Member ascertains that the Development Budget exceeds the sum of the
Capital Contributions, the Mortgage amount and the Development Fee then the
Managing Member shall be responsible for and shall be obligated to pay the
15
<PAGE>
difference thereof within thirty days of receiving written notice from the
Special Member. Any advances by the Managing Member pursuant to the previous
sentence shall not be repayable, shall not change the Interest of any Member in
the Company and shall be considered a guaranteed payment to the Company for cost
overruns. Upon such notice from the Special Member, the Managing Member shall
advance the requested funds into the construction lender's construction account.
(b) In addition, if (1) the Improvements are not completed on or before
the Completion Date (which date may be extended in the events of Force Majeure,
but in no event longer than three months from the Completion Date); (2) prior to
completing the Improvements, the construction lender sends a notice of default
under the construction loan; or (3) a foreclosure action is commenced against
the Company, then at the Special Member's election, either the Managing Member
will be removed from the Company and the Special Member will be admitted as
successor Managing Member, all in accordance with Article XIII hereof, or the
Managing Member will repurchase the Interest of the Investor Member and the
Special Member for an amount equal to the amounts theretofore paid by the
Investor Member and the Special Member, and the Investor Member and the Special
Member shall have no further Interest in the Company. If the Special Member
elects to have the Managing Member repurchase the Interest of the Investor
Member then the repurchase shall occur within 60 days after the Managing Member
receives written demand from the Investor Member. If the Special Member elects
to remove the Managing Member then the provisions of Article XIII apply.
Section 6.3 Operating Obligations. From the date the first apartment
unit in the Apartment Housing is available for its intended use until three
consecutive months of Break-even Operations, the Managing Member will
immediately provide the Company the necessary funds to pay Operating Deficits,
which funds shall not be repayable, shall not change the Interest of any Member
and shall be considered a guaranteed payment to the Company for cost overruns.
For the balance of the Operating Deficit Guarantee Period the Managing Member
will immediately provide Operating Loans to pay any Operating Deficits. The
aggregate maximum amount of the Operating Loan(s) the Managing Member will be
obligated to lend will be equal to one year's operating expenses (including debt
and reserves) approved by the Managing Member and the Special Member. Each
Operating Loan shall be nonrecourse to the Members, and shall be repayable out
of 50% of the available Net Operating Income or Sale or Refinancing Proceeds in
accordance with Article XI of this Agreement.
Section 6.4 Other Managing Member Loans. After expiration of the
Operating Deficit Guarantee Period, with the Consent of the Special Member, the
Managing Member may loan to the Company any sums required by the Company and not
otherwise reasonably available to it. Any such loan shall bear simple interest
(not compounded) at the 10-year Treasury money market rate in effect as of the
day of the Managing Member loan, or, if lesser, the maximum legal rate. The
maturity date and repayment schedule of any such loan shall be as agreed to by
the Managing Member and the Special Member. The terms of any such loan shall be
16
<PAGE>
evidenced by a written instrument. The Managing Member shall not charge a
prepayment penalty on any such loan. Any loan in contravention of this Section
shall be deemed an invalid action taken by the Managing Member and such advance
will be classified as a Managing Member Capital Contribution.
ARTICLE VII
CAPITAL CONTRIBUTIONS OF INVESTOR MEMBER
AND SPECIAL MEMBER
Section 7.1 Capital Contribution of Investor Member. The Investor
Member shall make a Capital Contribution in the amount of $359,815, as may be
adjusted in accordance with Section 7.3 of this Agreement, deposited into an
escrow account evidenced by an escrow agreement ("Escrow Agreement") dated
January 11, 2000, subject to the conditions hereinafter set forth.
(a) $359,815 shall be payable upon the Investor Member's receipt and
approval of the following documents:
(1) a legal opinion in a form substantially similar to the
form of opinion attached hereto as Exhibit "B" and incorporated herein by this
reference;
(2) a fully executed Certification and Agreement in the form
attached hereto as Exhibit "C" and incorporated herein by this reference;
(3) a copy of an ALTA owner's title insurance policy naming
the Investor Member as a co-insured and including a non-imputation and fairway
endorsement to the Title Policy ("Title Insurance")dated no more than ten days
prior to the scheduled Capital Contribution providing an as-built survey and
confirming that there are no liens, claims or rights to a lien or judgments
filed against the property or the Apartment Housing during the time period since
the issuance of the Title Policy. The Title Insurance shall be in an amount
equal to the Mortgage Loan and the Investor Member's capital contribution.
(4) a copy of the recorded grant deed (warranty deed);
(5) a certificate of occupancy (or equivalent evidence of
local occupancy approval if a permanent certificate is not available) on all the
apartment units in the Apartment Housing;
(6) Insurance required during operations;
(7) Mortgage Loan documents signed and the Mortgage funded;
(8) the current rent roll;
(9) copies of all initial tenant files including completed
applications, completed questionnaires or checklist of income and assets,
documentation of third party verification of income and assets, and income
certification forms (LIHTC specific) collected by the Management Agent, or
Managing Member, verifying each tenant's eligibility pursuant to the Minimum
Set-Aside Test;
17
<PAGE>
(10) copies of the executed lease agreement with the tenants;
(11) a copy of the declaration of restrictive
covenants/extended use agreement entered into between the Company and the State
Tax Credit Agency;
(12) a construction cost certification (which includes an
itemized cost breakdown);
(13) the Accountant's final Tax Credit certification in a form
substantially similar to the form attached hereto as Exhibit "E" and
incorporated herein by this reference;
(14) Internal Revenue Code Form 8609, or any successor form;
(15) approval by the Investor Member's acquisition committee;
and
(16) any documents previously not provided to the Investor
Member but required pursuant to this Section 7.1.
Section 7.2 Repurchase of Investor Member's Interest. Within 60 days
after the Managing Member receives written demand from the Investor Member
and/or the Special Member, the Company shall repurchase the Investor Member's
Interest and/or the Special Member's Interest in the Company by refunding to it
in cash the full amount of the Capital Contribution which the Investor Member
and/or the Special Member has theretofore made in the event that, for any
reason, the Company shall fail to meet both the Minimum Set-Aside Test and the
Rent Restriction Test not later than December 31 of the first year the Company
elects the LIHTC to commence in accordance with the Code.
Section 7.3 Adjustment of Investor Member's and Special Member's
Capital Contribution.
(a) The amount of the Investor Member's and Special Member's Capital
Contribution was determined in part upon the amount of Tax Credits that were
expected to be available to the Company, and was based on the assumption that
the Company would be eligible to claim, in the aggregate, the Projected Tax
Credits. If the anticipated amount of Projected Tax Credits to be allocated to
the Investor Member and Special Member as evidenced by IRS Form 8609, Schedule A
thereto, and the audited construction cost certification provided to the
Investor Member and Special Member are less than $470,494 (the new Tax Credit
amount, if applicable, shall be referred to as the "Revised Projected Tax
Credits") then the Investor Member's and Special Member's Capital Contribution
provided for in Section 7.1 and Section 7.4 respectively shall be adjusted by
the amount which will make the total Capital Contribution to be paid by the
Investor Member and Special Member to the Company equal to 76.5% of the Revised
18
<PAGE>
Projected Tax Credits so anticipated to be allocated to the Investor Member and
Special Member. If the Capital Contribution adjustment referenced in this
Section 7.3(a) is a reduction which is greater than the remaining Capital
Contribution to be paid by the Investor Member and the Special Member then the
Managing Member shall have ninety days from the date the Managing Member
receives notice from either the Investor Member or the Special Member to pay the
shortfall. If the Capital Contribution adjustment referenced in this Section
7.3(a) is an increase then the Investor Member and Special Member shall have
sixty days from the date the Investor Member and Special Member have received
notice from the Managing Member to pay the increase.
(b) The Managing Member is required to use its best efforts to rent
100% of the Apartment Housing's apartment units to tenants who meet the Minimum
Set-Aside Test throughout the Compliance Period. If at the end of each calendar
year during the first three calendar years following the year in which the
Apartment Housing is placed in service, the Actual Tax Credit for any fiscal
year or portion thereof is or will be less than the Projected Annual Tax Credit
then the next Capital Contribution owed by the Investor Member shall be reduced
to reflect the reduced tax credit amount (Annual Credit Shortfall"), and any
portion of such Annual Credit Shortfall in excess of such Capital Contribution
shall be applied to reduce succeeding Capital Contributions of the Investor
Member. If the Annual Credit Shortfall is greater than the Investor Member's
remaining Capital Contributions then the Managing Member shall pay to the
Investor Member the excess of the Annual Credit Shortfall over the remaining
Capital Contributions. The Managing Member shall have ninety days to pay the
Annual Credit Shortfall from the date the Managing Member receives notice from
the Investor Member. The provisions of this Section 7.3(b) shall apply equally
to the Special Member in proportion to its Capital Contribution and anticipated
annual Tax Credit.
(c) In the event that, for any reason, at any time after the first
three calendar years following the year in which the Apartment Housing is placed
in service, there is an Annual Credit Shortfall, then there shall be a reduction
in the Managing Member's share of Net Operating Income in an amount equal to the
Annual Credit Shortfall and said amount shall be paid to the Investor Member. In
the event there are not sufficient funds to pay the full Annual Credit Shortfall
to the Investor Member at the time of the next Distribution of Net Operating
Income, then the unpaid Annual Credit Shortfall shall be repaid in the next year
in which sufficient monies are available from the Managing Member's share of Net
Operating Income. In the event a Sale or Refinancing of the Apartment Housing
occurs prior to repayment in full of the Annual Credit Shortfall then the excess
will be paid in accordance with Section 11.2(b). The provisions of this Section
7.3(c) shall apply equally to the Special Member in proportion to its Capital
Contribution and anticipated annual Tax Credit.
(d) The Members recognize and acknowledge that the Investor Member and
the Special Member are making their Capital Contribution, in part, on the
expectation that the Projected Tax Credits are allocated to the Members over the
Tax Credit Period. If the Projected Tax Credits are not allocated to the Members
during the Tax Credit Period then the Investor Member's and Special Member's
Capital Contribution shall be reduced by an amount agreed upon by the Members,
in good faith, to provide the Investor Member and the Special Member with their
anticipated internal rate of return.
19
<PAGE>
(e) In the event there is: (1) a filing of a tax return by the Company
evidencing a reduction in the qualified basis of the Apartment Housing causing a
recapture of Tax Credits previously allocated to the Investor Member; (2) a
reduction in the qualified basis of the Apartment Housing for income tax
purposes following an audit by the Internal Revenue Service (IRS) resulting in a
recapture of Tax Credits previously claimed; (3) a decision by the United States
Tax Court upholding the assessment of such deficiency against the Company with
respect to any Tax Credit previously claimed in connection with the Apartment
Housing, unless the Company shall timely appeal such decision and the collection
of such assessment shall be stayed pending the disposition of such appeal; or
(4) a decision of a court affirming such decision upon such appeal then, in
addition to any other payments to which the Investor Member and/or Special
Member are entitled under the terms of this Section 7.3, the Managing Member
shall pay to the Investor Member and the Special Member within sixty days of
receiving notice from the Investor Member and/or the Special Member the sum of
(A) the income tax deficiency assessed against the Investor Member or Special
Member as a result of the Tax Credit recapture, (B) any interest and penalties
imposed on the Investor Member or Special Member with respect to such
deficiency, and (C) an amount sufficient to pay any tax liability owed by the
Investor Member or Special Member resulting from the receipt of the amounts
specified in (A) and (B).
Section 7.4 Capital Contribution of Special Member. The Special Member
shall make a Capital Contribution of $36 at the time of the Investor Member's
Capital Contribution payment referenced in Section 7.1(a) upon the same
conditions. The Special Member shall be in a different class from the Investor
Member and, except as otherwise expressly stated in this Agreement, shall not
participate in any rights allocable to or exercisable by the Investor Member
under this Agreement.
Section 7.5 Return of Capital Contribution. From time to time the
Company may have cash in excess of the amount required for the conduct of the
affairs of the Company, and the Managing Member may, with the Consent of the
Special Member, determine that such cash should, in whole or in part, be
returned to the Members, pro rata, in reduction of their Capital Contribution.
No such return shall be made unless all liabilities of the Company (except those
to Members on account of amounts credited to them pursuant to this Agreement)
have been paid or there remain assets of the Company sufficient, in the sole
discretion of the Managing Member, to pay such liabilities.
Section 7.6 Liability of Investor Member and Special Member. The
Investor Member and Special Member shall not be liable for any of the debts,
liabilities, contracts or other obligations of the Company. The Investor Member
and Special Member shall be liable only to make Capital Contributions in the
amounts and on the dates specified in this Agreement and, except as otherwise
expressly required hereunder, shall not be required to lend any funds to the
Company or, after their respective Capital Contributions have been paid, to make
any further Capital Contribution to the Company.
20
<PAGE>
ARTICLE VIII
WORKING CAPITAL AND RESERVES
Section 8.1 Operating and Maintenance Account. The Managing Member, on
behalf of the Company, shall establish an operating and maintenance account and
shall deposit thereinto, or provide a letter of credit, in an amount required by
the FmHA, to be used for initial operating capital as permitted or required by
applicable FmHA regulations. Said amount shall be reimbursed, without interest,
out of Apartment Housing funds as shall be authorized in accordance with
applicable FmHA regulations, and if not so reimbursed within five years of the
deposit, any amount remaining unreimbursed shall be forgiven and shall
constitute an ordinary and necessary business expense of the Managing Member as
part consideration for the payment of the Development Fee.
Section 8.2 Reserve for Replacements. The Company shall fund, establish
and maintain a reserve account in an amount required by the FmHA Loan Agreement
which funds shall be used in accordance with FmHA Regulation 7 CFR Part 1930-C,
or any successor thereof, as evidenced by the FmHA Loan Agreement.
Section 8.3 Tax and Insurance Account. The Managing Member, on behalf
of the Company, may establish a tax and insurance account ("T & I Account") for
the purpose of making the requisite Insurance premium payments and the real
estate tax payments. The annual deposit to the T & I Account shall equal the
total annual Insurance payment and the total annual real estate tax payment.
Said amount shall be deposited monthly in equal installments. Withdrawals from
such account shall be made only for its intended purpose. Any balance remaining
in the account at the time of a sale of the Apartment Housing shall be allocated
and distributed equally between the Managing Member and the Investor Member.
Section 8.4 Other Reserves. The Managing Member, shall establish out of
funds available to the Company a reserve account sufficient in its sole
discretion to pay any unforeseen contingencies which might arise in connection
with the furtherance of the Company business including, but not limited to, (a)
any rent subsidy required to maintain rent levels in compliance with the Code
and applicable FmHA regulations; and (b) any real estate taxes, Insurance, debt
service or other payments for which other funds are not provided for hereunder
or otherwise expected to be available to the Company. The Managing Member shall
not be liable for any good-faith estimate which it shall make in connection with
establishing or maintaining any such reserves nor shall the Managing Member be
required to establish or maintain any such reserves if, in its sole discretion,
such reserves do not appear to be necessary.
ARTICLE IX
MANAGEMENT AND CONTROL
Section 9.1 Power and Authority of Managing Member. Subject to the
Consent of the Special Member or the consent of the Investor Member where
required by this Agreement, and subject to the other limitations and
21
<PAGE>
restrictions included in this Agreement, the Managing Member shall have complete
and exclusive control over the management of the Company business and affairs,
and shall have the right, power and authority, on behalf of the Company, and in
its name, to exercise all of the rights, powers and authority of a member of a
company without investor members. If there is more than one Managing Member, all
acts, decisions or consents of the Managing Members shall require the
concurrence of all of the Managing Members. No actions taken without the
authorization of all the Managing Members shall be deemed valid actions taken by
the Managing Members pursuant to this Agreement. No Investor Member or Special
Member (except one who may also be a Managing Member, and then only in its
capacity as Managing Member within the scope of its authority hereunder) shall
have any right to be active in the management of the Company's business or
investments or to exercise any control thereover, nor have the right to bind the
Company in any contract, agreement, promise or undertaking, or to act in any way
whatsoever with respect to the control or conduct of the business of the
Company, except as otherwise specifically provided in this Agreement.
Section 9.2 Payments to the Managing Members and Others.
(a) The Company shall pay to the Developer a Development Fee in the
amount of $164,800 in accordance with the Amended Development Fee Agreement
entered into by and between the Developer and the Company on the even date
hereof. The Amended Development Fee Agreement provides, in part, that the
Development Fee shall first be paid from available proceeds in accordance with
Section 9.2(b) of this Agreement and if not paid in full then the balance of the
Development Fee will be paid in accordance with Section 11.1 of this Agreement.
(b) The Company shall utilize the proceeds from the Capital
Contributions paid pursuant to Section 7.1 and Section 7.4 of this Agreement for
development costs including, but not limited to, land costs, Land Acquisition
Fee, architectural fees, survey and engineering costs, financing costs, loan
fees, Syndication Fee, building materials and labor. If any Capital Contribution
proceeds are remaining after Completion of Construction, then the remainder
shall: first be paid to the Developer in payment of the Development Fee; second
be paid to the Managing Member as a reduction of the Managing Member's Capital
Contribution; and any remaining Capital Contribution proceeds shall be paid to
the Managing Member as a Company oversight fee.
(c) The Company shall pay to the Management Agent a property management
fee for the leasing and management of the Apartment Housing in an amount in
accordance with the Management Agreement. The term of the Management Agreement
shall not exceed three years, and the execution or renewal of any Management
Agreement shall be subject to the prior Consent of the Special Member. If the
Management Agent is an Affiliate of the Managing Member then commencing with the
termination of the Operating Deficit Guarantee Period, in any year in which the
Apartment Housing has an Operating Deficit, 40% of the management fee will be
deferred ("Deferred Management Fee"). Deferred Management Fees, if any, shall be
paid to the Management Agent in accordance with Section 11.1 of this Agreement.
22
<PAGE>
(1) The Managing Member shall, upon receiving any request of
the Mortgage Lender requesting such action, dismiss the Management Agent as the
entity responsible for management of the Apartment Housing under the terms of
the Management Agreement; or, the Managing Member shall dismiss the Management
Agent at the request of the Special Member for cause.
(2) The appointment of any successor Management Agent is
subject to the Consent of the Special Member, which may only be sought after the
Managing Member has provided the Special Member with accurate and complete
disclosure respecting the proposed Management Agent.
(d) The Company shall pay to the Investor Member a fee (the "Reporting
Fee") commencing in 2000 equal to 15% of the Net Operating Income but in no
event less than $750 for the Investor Member's services in monitoring the
operations of the Company and for services in connection with the Company's
accounting matters and assisting with the preparation of tax returns and the
reports required in Sections 14.2 and 14.3 of this Agreement. The Reporting Fee
shall be payable within seventy-five (75) days following each calendar year and
shall be payable from Net Operating Income in the manner and priority set forth
in Section 11.1 of this Agreement; provided, however, that if in any year Net
Operating Income is insufficient to pay the full $750, the unpaid portion
thereof shall accrue and be payable on a cumulative basis in the first year in
which there is sufficient Net Operating Income, as provided in Section 11.1, or
sufficient Sale or Refinancing Proceeds, as provided in Section 11.2.b.
(e) The Company shall pay to the Managing Member through the Compliance
Period an annual Incentive Management Fee equal to $1,211 of the remaining Net
Operating Income commencing in 2000 for overseeing the marketing, lease-up and
continued occupancy of the Company's apartment units, obtaining and monitoring
the Mortgage Loan, maintaining the books and records of the Company, selecting
and supervising the Company's Accountants, bookkeepers and other Persons
required to prepare and audit the Company's financial statements and tax
returns, and preparing and disseminating reports on the status of the Apartment
Housing and the Company, all as required by Article XIV of this Agreement. The
Members acknowledge that the Incentive Management Fee is being paid as an
inducement to the Managing Member to operate the Company efficiently, to
maximize occupancy and to increase the Net Operating Income. The Incentive
Management Fee shall be payable from Net Operating Income in the manner and
priority set forth in Section 11.1 of this Agreement upon completion and
delivery of the annual audit pursuant to Section 14.2(a) of this Agreement. If
the Incentive Management Fee is not paid in any year, it shall not accrue for
payment in subsequent years.
(f) The Company shall pay to the Managing Member through the Compliance
Period an annual Tax Credit Compliance Fee equal to $1,211 commencing in 2000
for the services of the Managing Member in ensuring compliance by the Company
and the Apartment Housing with all Tax Credit rules and regulations. The Tax
23
<PAGE>
Credit Compliance Fee shall be payable from Net Operating Income in the manner
and priority set forth in Section 11.1 of this Agreement upon completion and
delivery of the annual audit pursuant to Section 14.2(a) of this Agreement. If
the Tax Credit Compliance Fee is not paid in any year it shall not accrue for
payment in subsequent years.
Section 9.3 Specific Powers of the Managing Member. Subject to the
other provisions of this Agreement, the Managing Member, in the Company's name
and on its behalf, may:
(a) employ, contract and otherwise deal with, from time to time,
Persons whose services are necessary or appropriate in connection with
management and operation of the Company business, including, without limitation,
contractors, agents, brokers, Accountants and Management Agents (provided that
the selection of any Accountant or Management Agent has received the Consent of
the Special Member) and attorneys, on such terms as the Managing Member shall
determine within the scope of this Agreement;
(b) pay as a Company expense any and all costs and expenses associated
with the formation, development, organization and operation of the Company,
including the expense of annual audits, tax returns and LIHTC compliance;
(c) deposit, withdraw, invest, pay, retain and distribute the Company's
funds in a manner consistent with the provisions of this Agreement;
(d) execute the Mortgage; and
(e) execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing.
Section 9.4 Authority Requirements. During the Compliance Period, the
following provisions shall apply.
(a) Each of the provisions of this Agreement shall be subject to, and
the Managing Member covenants to act in accordance with, the Tax Credit
Conditions and all applicable federal, state and local laws and regulations.
(b) The Tax Credit Conditions and all such laws and regulations, as
amended or supplemented, shall govern the rights and obligations of the Members,
their heirs, executors, administrators, successor and assigns, and they shall
control as to any terms in this Agreement which are inconsistent therewith, and
any such inconsistent terms of this Agreement shall be unenforceable by or
against any of the Members.
(c) Upon any dissolution of the Company or any transfer of the
Apartment Housing, no title or right to the possession and control of the
Apartment Housing and no right to collect rent therefrom shall pass to any
Person who is not, or does not become, bound by the Tax Credit Conditions in a
manner that, in the opinion of counsel to the Company, would avoid a recapture
of Tax Credits thereof on the part of the former owners.
24
<PAGE>
(d) Any conveyance or transfer of title to all or any portion of the
Apartment Housing required or permitted under this Agreement shall in all
respects be subject to the Tax Credit Conditions and all conditions, approvals
or other requirements of the rules and regulations of any authority applicable
thereto.
Section 9.5 Limitations on Managing Member's Power and Authority.
Notwithstanding the provisions of this Article IX, the Managing Member shall
not:
(a) except as required by Section 9.4, act in contravention of this
Agreement;
(b) act in any manner which would make it impossible to carry on the
ordinary business of the Company;
(c) confess a judgment against the Company;
(d) possess Company property, or assign the Member's right in specific
Company property, for other than the exclusive benefit of the Company;
(e) admit a Person as a Managing Member except as provided in this
Agreement;
(f) admit a Person as an Investor Member except as provided in this
Agreement;
(g) violate any provision of the Mortgage;
(h) cause the Apartment Housing apartment units to be rented to anyone
other than Qualified Tenants;
(i) violate the Minimum Set-Aside Test or the Rent Restriction Test for
the Apartment Housing;
(j) cause any recapture of the Tax Credits;
(k) permit any creditor who makes a nonrecourse loan to the Company to
have, or to acquire at any time as a result of making such loan, any direct or
indirect interest in the profits, income, capital or other property of the
Company, other than as a secured creditor;
(l) commingle funds of the Company with the funds of another Person; or
(m) take any action which requires the Consent of the Special Member or
the consent of the Investor Member unless the Managing Member has received said
Consent.
25
<PAGE>
Section 9.6 Restrictions on Authority of Managing Member. Without the
Consent of the Special Member the Managing Member shall not:
(a) sell, exchange, lease (except in the normal course of business to
Qualified Tenants) or otherwise dispose of the Apartment Housing;
(b) incur indebtedness other than the Mortgage Loan in the name of the
Company;
(c) engage in any transaction not expressly contemplated by this
Agreement in which the Managing Member has an actual or potential conflict of
interest with the Investor Member or the Special Member;
(d) contract away the fiduciary duty owed to the Investor Member and
the Special Member at common law;
(e) take any action which would cause the Apartment Housing to fail
to qualify, or which would cause a termination or discontinuance of the
qualification of the Apartment Housing, as a "qualified low income housing
project" under Section 42(g)(1) of the Code, as amended, or any successor
thereto, or which would cause the Investor Member to fail to obtain the
Projected Tax Credits or which would cause the recapture of any LIHTC;
(f) make any expenditure of funds, or commit to make any such
expenditure, other than in response to an emergency, except as provided for in
the annual budget approved by the Special Member, as provided in Section 14.3(g)
hereof;
(g) cause the merger or other reorganization of the Company;
(h) dissolve the Company;
(i) acquire any real or personal property (tangible or intangible) in
addition to the Apartment Housing the aggregate value of which shall exceed
$10,000 (other than easement or similar rights necessary or appropriate for the
operation of the Apartment Housing);
(j) become personally liable on or in respect of, or guarantee, the
Mortgage or any other indebtedness of the Company;
(k) pay any salary, fees or other compensation to a Managing Member or
any Affiliate thereof, except as authorized by Section 9.2 and Section 9.9
hereof or specifically provided for in this Agreement;
(l) terminate the services of the Accountant or Management Agent, or
terminate, amend or modify the Project Document, or
grant any material waiver or consent thereunder;
(m) cause the Company to redeem or repurchase all or any portion of
the Interest of a Member;
(n) cause the Company to convert the Apartment Housing to cooperative
or condominium ownership;
26
<PAGE>
(o) cause or permit the Company to make loans to the Managing Member
or any Affiliate;
(p) bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the Company; or
Section 9.7 Duties of Managing Member. The Managing Member agrees that
it shall at all times:
(a) diligently and faithfully devote such of its time to the business
of the Company as may be necessary to properly conduct the affairs of the
Company;
(b) file and publish all certificates, statements or other instruments
required by law for the formation and operation of the Company as a limited
liability company in all appropriate jurisdictions;
(c) cause the Company to carry Insurance from an Insurance Company;
(d) have a fiduciary responsibility for the safekeeping and use of all
funds and assets of the Company, whether or not in its immediate possession or
control and not employ or permit another to employ such funds or assets in any
manner except for the benefit of the Company;
(e) use its best efforts so that all requirements shall be met which
are reasonably necessary to obtain or achieve (1) compliance with the Minimum
Set-Aside Test, the Rent Restriction Test, and any other requirements necessary
for the Apartment Housing to initially qualify, and to continue to qualify, for
LIHTC; (2) issuance of all necessary certificates of occupancy, including all
governmental approvals required to permit occupancy of all of the apartment
units in the Apartment Housing; and (3) compliance with all provisions of the
Project Documents.
(f) make inspections of the Apartment Housing and assure that the
Apartment Housing is in decent, safe, sanitary and good condition, repair and
working order, ordinary use and obsolescence excepted, and make or cause to be
made from time to time all necessary repairs thereto (including external and
structural repairs) and renewals and replacements thereof;
(g) pay, before the same shall become delinquent and before penalties
accrue thereon all Company taxes, assessments and other governmental charges
against the Company or its properties, and all of its other liabilities, except
to the extent and so long as the same are being contested in good faith by
appropriate proceedings in such manners as not to cause any material adverse
effect on the Company's property, financial condition or business operations,
with adequate reserves provided for such payments;
(h) permit, and cause the Management Agent to permit, the Special
Member and its representatives: (1) to have access to the Apartment Housing and
personnel employed by the Company and by the Management Agent at all times
27
<PAGE>
during normal business hours after reasonable notice; (2) to examine all
agreements, LIHTC compliance data and plans and specifications; and (3) to make
copies thereof;
(i) exercise good faith in all activities relating to the conduct of
the business of the Company, including the development, operation and
maintenance of the Apartment Housing, and shall take no action with respect to
the business and property of the Company which is not reasonably related to the
achievement of the purpose of the Company;
(j) make any Capital Contributions, advances or loans required to be
made by the Managing Member under the terms of this Agreement;
(k) establish and maintain all reserves required to be established and
maintained under the terms of this Agreement;
(l) cause the Management Agent to manage the Apartment Housing in such
a manner that the Apartment Housing will be eligible to receive LIHTC with
respect to 100% of the apartment units in the Apartment Housing. To that end,
the Managing Member agrees, without limitation: (1) to make all elections
requested by the Special Member under Section 42 of the Code to allow the
Company or its Members to claim the Tax Credit; (2) to file Form 8609 with
respect to the Apartment Housing as required, for at least the duration of the
Compliance Period; (3) to operate the Apartment Housing and cause the Management
Agent to manage the Apartment Housing so as to comply with the requirements of
Section 42 of the Code, as amended, or any successor thereto, including, but not
limited to, Section 42(g) and Section 42(i)(3) of the Code, as amended, or any
successors thereto; (4) to make all certifications required by Section 42(l) of
the Code, as amended, or any successor thereto; and (5) to operate the Apartment
Housing and cause the Management Agent to manage the Apartment Housing so as to
comply with all other Tax Credit Conditions; and
(m) perform such other acts as may be expressly required of it under
the terms of this Agreement.
Section 9.8 Obligations to Repair and Rebuild Apartment Housing. With
the approval of any lender, if such approval is required, any Insurance proceeds
received by the Company due to fire or other casualty affecting the Apartment
Housing will be utilized to repair and rebuild the Apartment Housing in
satisfaction of the conditions contained in Section 42(j)(4) of the Code and to
the extent required by any lender. Any such proceeds received in respect of such
event occurring after the Compliance Period shall be so utilized or, if
permitted by the Project Documents and with the Consent of the Special Member,
shall be treated as Sale or Refinancing Proceeds.
Section 9.9 Company Expenses.
(a) All of the Company's expenses shall be billed directly to and paid
by the Company to the extent practicable. Reimbursements to the Managing Member,
or any of its Affiliates, by the Company shall be allowed only for the Company's
Cash Expenses unless the Managing Member is obligated to pay the same as an
Operating Deficit during the Operating Deficit Guarantee Period, and subject to
28
<PAGE>
the limitations on the reimbursement of such expenses set forth herein. For
purposes of this Section, Cash Expenses shall include fees paid by the Company
to the Managing Member or any Affiliate of the Managing Member permitted by this
Agreement and the actual cost of goods, materials and administrative services
used for or by the Company, whether incurred by the Managing Member, an
Affiliate of the Managing Member or a nonaffiliated Person in performing the
foregoing functions. As used in the preceding sentence, "actual cost of goods
and materials" means the actual cost of goods and materials used for or by the
Company and obtained from entities which are not Affiliates of the Managing
Member, and actual cost of administrative services means the pro rata cost of
personnel (as if such persons were employees of the Company) associated
therewith, but in no event to exceed the amount which would be charged by
nonaffiliated Persons for comparable goods and services.
(b) Reimbursement to the Managing Member or any of its Affiliates of
operating cash expenses pursuant to Subsection (a) hereof shall be subject to
the following:
(1) no such reimbursement shall be permitted for services
for which the Managing Member or any of its Affiliates is entitled to
compensation by way of a separate fee; and
(2) no such reimbursement shall be made for (A) rent or
depreciation, utilities, capital equipment or other such administrative items,
and (B) salaries, fringe benefits, travel expenses and other administrative
items incurred or allocated to any "controlling person" of the Managing Member
or any Affiliate of the Managing Member. For the purposes of this Section
9.9(b)(2), "controlling person" includes, but is not limited to, any Person,
however titled, who performs functions for the Managing Member or any Affiliate
of the Managing Member similar to those of: (i) chairman or member of the board
of directors; (ii) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (iii) senior
management, such as the vice president of an operating division who reports
directly to executive management; or (iv) those holding 5% or more equity
interest in such Managing Member or any such Affiliate of the Managing Member or
a person having the power to direct or cause the direction of such Managing
Member or any such Affiliate of the Managing Member, whether through the
ownership of voting securities, by contract or otherwise.
Section 9.10 Managing Member Expenses. The Managing Member or
Affiliates of the Managing Member shall pay all Company expenses which are not
permitted to be reimbursed pursuant to Section 9.9 and all expenses which are
unrelated to the business of the Company.
Section 9.11 Other Business of Members. Any Member may engage
independently or with others in other business ventures wholly unrelated to the
Company business of every nature and description, including, without limitation,
the operation and management of real estate projects and developments of every
type on their own behalf or on behalf of other companies, joint ventures,
corporations or other business ventures formed by them or in which they may have
29
<PAGE>
an interest, including, without limitation, business ventures similar to,
related to or in direct or indirect competition with the Apartment Housing.
Neither the Company nor any Member shall have any right by virtue of this
Agreement or the company relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived therefrom.
Conversely, no Person shall have any rights to Company assets, incomes or
proceeds by virtue of such other ventures or activities of any Member.
Section 9.12 Covenants, Representations and Warranties. The Managing
Member covenants, represents and warrants that the following are presently true,
will be true at the time of each Capital Contribution payment made by the
Investor Member and will be true during the term of this Agreement, to the
extent then applicable.
(a) The Company is a duly organized limited liability company validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of the
Investor Member and the Special Member.
(b) The Operating Agreement and the Project Documents are in full force
and effect and neither the Company nor the Managing Member are in breach or
violation of any provisions thereof.
(c) Improvements will be completed in a timely and workerlike manner in
accordance with all applicable requirements of all appropriate governmental
entities and the plans and specifications of the Apartment Housing.
(d) All conditions to the funding of the Mortgage have been met.
(e) The Apartment Housing is being operated in accordance with
standards and procedures which are prudent and customary for the operation of
properties similar to the Apartment Housing.
(f) No Member has or will have any personal liability with respect to
or has or will have personally guaranteed the payment of the Mortgage.
(g) The Company is in compliance with all use codes applicable to the
Apartment Housing and is not in violation of any environmental or similar
regulations applicable to the Apartment Housing.
(h) All appropriate public utilities, including sanitary and storm
sewers, water, gas and electricity, are currently available and operating
properly for all units in the Apartment Housing at the time of first occupancy
and throughout the term of the Company.
(i) All roads necessary for the full utilization of the Improvements
have either been completed or the necessary rights of way therefore have been
acquired by the appropriate governmental authority or have been dedicated to
public use and accepted by said governmental authority.
30
<PAGE>
(j) The Company has obtained Insurance written by an Insurance Company.
(k) The Company owns the fee simple interest in the Apartment Housing.
(l) The Company will require the Accountant to depreciate the
Improvements over a 27 1/2 year term. Site work shall be broken out separately
from Improvements and depreciated over 15 years using the cost recovery system,
mid-year 200% declining balance depreciation method. Landscaping and personal
property (cabinets, appliances, carpet and window coverings) shall be
depreciated over 5 years for regular tax or 9 years for alternative minimum tax.
(m) To the best of the Managing Member's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Apartment Housing and (2) no aboveground or
underground storage tanks are now or have ever been located on or under the
Apartment Housing. The Managing Member will not install or allow to be installed
any aboveground or underground storage tanks on the Apartment Housing. The
Managing Member covenants that the Apartment Housing shall be kept free of
Hazardous Substance and shall not be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce or process
Hazardous Substance, except in connection with the normal maintenance and
operation of any portion of the Apartment Housing. The Managing Member shall
comply, or cause there to be compliance, with all applicable Federal, state and
local laws, ordinances, rules and regulations with respect to Hazardous
Substance and shall keep, or cause to be kept, the Apartment Housing free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The Managing Member must promptly notify the Investor Member and
the Special Member in writing (3) if it knows, or suspects or believes there may
be any Hazardous Substance in or around any part of the Apartment Housing, any
Improvements constructed on the Apartment Housing, or the soil, groundwater or
soil vapor, (4) if the Managing Member or the Company may be subject to any
threatened or pending investigation by any governmental agency under any law,
regulation or ordinance pertaining to any Hazardous Substance, and (5) of any
claim made or threatened by any Person, other than a governmental agency,
against the Company or Managing Member arising out of or resulting from any
Hazardous Substance being present or released in, on or around any part of the
Apartment Housing.
(n) The Managing Member has not executed and will not execute any
agreements with provisions contradictory to, or in opposition to, the provisions
of this Agreement.
(o) The Company will allocate to the Investor Member the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(p) No charges, liens or encumbrances exist with respect to the
Apartment Housing other than those which are created or permitted by the Project
Documents or Mortgage or are noted or excepted in the Title Policy.
31
<PAGE>
(q) The buildings on the Apartment Housing site constitute or shall
constitute a "qualified low-income housing project" as defined in Section 42(g)
of the Code, and as amplified by the Treasury Regulations thereunder. In this
connection, not later than December 31 of the first year in which the Members
elect the LIHTC to commence in accordance with the Code, the Apartment Housing
will satisfy the Minimum Set-Aside Test.
(r) All accounts of the Company are required to be maintained under the
terms of the Project Documents, including, without limitation, any reserves in
accordance with Article VIII hereof, are currently funded to required levels,
including levels required by any authority.
(s) The Managing Member has not lent or otherwise advanced any funds to
the Company other than its Capital Contribution, or Operating Deficit Loan, if
applicable, and the Company has no unsatisfied obligation to make any payments
of any kind to the Managing Member or any Affiliate thereof.
(t) No event has occurred which constitutes a default under any of the
Project Documents.
(u) No event has occurred which has caused, and the Managing Member has
not acted in any manner which will cause (1) the Company to be treated for
federal income tax purposes as an association taxable as a corporation, (2) the
Company to fail to qualify as a limited liability company under the Act, or (3)
the Investor Member to be liable for Company obligations; provided however, the
Managing Member shall not be in breach of this representation if all or a
portion of an Investor Member's agreed upon Capital Contributions are used to
satisfy the Company's obligations to creditors of the Company and such action by
the Managing Member is otherwise authorized under this Agreement and; provided
further, however, the Managing Member shall not be in breach of this
representation if the action causing the Investor Member to be liable for the
Company obligations is undertaken by the Investor Member.
(v) No event or proceeding, including, but not limited to, any legal
actions or proceedings before any court, commission, administrative body or
other governmental authority, and acts of any governmental authority having
jurisdiction over the zoning or land use laws applicable to the Apartment
Housing, has occurred the continuing effect of which has: (1) materially or
adversely affected the operation of the Company or the Apartment Housing; or (2)
materially or adversely affected the ability of the Managing Member to perform
its obligations hereunder or under any other agreement with respect to the
Apartment Housing.
(w) Neither the Company nor the Managing Member has any liabilities,
contingent or otherwise, which have not been disclosed in writing to the
Investor Member and the Special Member and which in the aggregate affect the
ability of the Investor Member to obtain the anticipated benefits of its
investment in the Company.
32
<PAGE>
(x) The Managing Member has and shall maintain a combined net worth
equal to at least $1,000,000 computed in accordance with generally accepted
accounting principles.
(z) The Company's and Managing Member's computer hardware and software
used to produce financial reports and tax return information are year 2000
compliant. To the best of the Managing Member's knowledge after due inquiry: the
Company's and Managing Member's office machinery and equipment are year 2000
compliant; and the Management Agent's financial reporting systems and office
machinery and equipment are year 2000 compliant.
The Managing Member shall be liable to the Investor Member for any
costs, damages, loss of profits, diminution in the value of its investment in
the Company, or other losses, of every nature and kind whatsoever, direct or
indirect, realized or incurred by the Investor Member as a result of any
material breach of the representations and warranties set forth in this Section
9.12.
ARTICLE X
ALLOCATIONS OF INCOME, LOSSES AND CREDITS
Section 10.1 General. All items includable in the calculation of Income
or Loss not arising from a Sale or Refinancing, and all Tax Credits, shall be
allocated 99.98% to the Investor Member, 0.01% to the Special Member and 0.01%
to the Managing Member.
Section 10.2 Allocations From Sale or Refinancing. All Income and
Losses arising from a Sale or Refinancing shall be allocated between the Members
as follows:
(a) As to Income:
(1) first, an amount of Income equal to the aggregate negative
balances (if any) in the Capital Accounts of all Members having negative Capital
Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of the related Sale or Refinancing Proceeds, but after giving
effect to Distributions of Net Operating Income and allocations of other Income
and Losses pursuant to this Article X up to the date of the Sale or Refinancing)
shall be allocated to such Members in proportion to their negative Capital
Account balances until all such Capital Accounts shall have zero balances; and
(2) the balance, if any, of such Income shall be allocated to
the Members in the proportion necessary so that the Members will receive the
amount to which they are entitled pursuant to Section 11.2 hereof;
(b) Losses shall be allocated 99.98% to the Investor Member, 0.01%
to the Special Member and 0.01% to the Managing Member.
33
<PAGE>
(c) Notwithstanding the foregoing provisions of Section 10.2(a) and
(b), in no event shall any Losses be allocated to the Investor Member or the
Special Member if and to the extent that such allocation would create or
increase an Adjusted Capital Account Deficit for the Investor Member or the
Special Member. In the event an allocation of 99.98% or 0.01% of each item
includable in the calculation of Income or Loss not arising from a Sale or
Refinancing, would create or increase an Adjusted Capital Account Deficit for
the Investor Member or the Special Member, respectively, then so much of the
items of deduction other than projected depreciation shall be allocated to the
Managing Member instead of the Investor Member or the Special Member as is
necessary to allow the Investor Member or the Special Member to be allocated
99.98% and 0.01%, respectively, of the items of Income and Apartment Housing
depreciation without creating or increasing an Adjusted Capital Account Deficit
for the Investor Member or the Special Member, it being the intent of the
parties that the Investor Member and the Special Member always shall be
allocated 99.98% and 0.01%, respectively, of the items of Income not arising
from a Sale or Refinancing and 99.98% and 0.01%, respectively, of the Apartment
Housing depreciation.
Section 10.3 Special Allocations. The following special allocations
shall be made in the following order.
(a) Except as otherwise provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Company Minimum Gain during any Company fiscal year, each
Member shall be specially allocated items of Company income and gain for such
fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to
such Person's share of the net decrease in Company Minimum Gain, determined in
accordance with Treasury 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 Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Section 1.704-2(f)(6) and
1.704-2(j)(2) of the Treasury Regulations. This Section 10.3(a) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Treasury Regulations and shall be interpreted consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the
Treasury Regulations, notwithstanding any other provision of this Article X, if
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any Company fiscal year, each Person who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the
Treasury Regulations, shall be specially allocated items of Company income and
gain for such fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Person's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
34
<PAGE>
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i)(4) and
1.704-2(j)(2) of the Treasury Regulations. This Section 10.3(b) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of
the Treasury Regulations and shall be interpreted consistently therewith.
(c) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially
allocated to each such Member in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible, provided that an allocation
pursuant to this Section 10.3(c) shall be made if and only to the extent that
such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 10.3 have been tentatively made as if
this Section 10.3(c) were not in the Agreement.
(d) In the event any Member has a deficit Capital Account at the end of
any Company fiscal year which is in excess of the sum of (i) the amount such
Member is obligated to restore, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be
specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.3(d) shall be made if and only to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 10.3 have been tentatively made as if this Section
10.3(d) and Section 10.3(c) hereof were not in the Agreement.
(e) Nonrecourse Deductions for any fiscal year shall be especially
allocated 99.98% to the Investor Member, 0.01% to the Special Member and 0.01%
to the Managing Member.
(f) Any Member Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Member who bears the economic risk of loss with
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete liquidation of
his interest in the Company, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Members in accordance with
their interests in the Company in the event that Treasury Regulations Section
1.704-1 (b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was
made in the event that Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4)
applies.
35
<PAGE>
(h) To the extent the Company has taxable interest income with respect
to any promissory note pursuant to Section 483 or Section 1271 through 1288 of
the Code:
(1) such interest income shall be specially allocated to the
Investor Member to whom such promissory note relates; and
(2) the amount of such interest income shall be excluded from
the Capital Contributions credited to such Member's Capital Account in
connection with payments of principal with respect to such promissory note.
(i) In the event the adjusted tax basis of any investment tax credit
property that has been placed in service by the Company is increased pursuant to
Code Section 50(c), such increase shall be specially allocated among the Members
(as an item in the nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to such property is shared
among the Members.
(j) Any reduction in the adjusted tax basis (or cost) of Company
investment tax credit property pursuant to Code Section 50(c) shall be specially
allocated among the Members (as an item in the nature of expenses or losses) in
the same proportions as the basis (or cost) of such property is allocated
pursuant to Treasury Regulations Section 1.46-3(f)(2)(i).
(k) Any income, gain, loss or deduction realized as a direct or
indirect result of the issuance of an interest in the Company by the Company to
a Member (the "Issuance Items") shall be allocated among the Members so that, to
the extent possible, the net amount of such Issuance Items, together with all
other allocations under this Agreement to each Member, shall be equal to the net
amount that would have been allocated to each such Member if the Issuance Items
had not been realized.
(l) If any Company expenditure treated as a deduction on its federal
income tax return is disallowed as a deduction and treated as a distribution
pursuant to Section 731(a) of the Code, there shall be a special allocation of
gross income to the Member deemed to have received such distribution equal to
the amount of such distribution.
(m) Interest deduction on the Company indebtedness referred to in
Section 6.3 shall be allocated 100% to the Managing Member.
(n) In the event all or part of the Incentive Management Fee or the Tax
Credit Compliance Fee is disallowed by the Internal Revenue Service, then any
interest or income chargeable to the Company for such disallowance shall be
allocated to the Managing Member.
Section 10.4 Curative Allocations. The allocations set forth in
Sections 10.2(c), 10.3(a), 10.3(b), 10.3(c), 10.3(d), 10.3(e), 10.3(f), and
10.3(g) hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of the Treasury Regulations. It is the intent of the
Members that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
36
<PAGE>
items of Company income, gain, loss, or deduction pursuant to this Section 10.4.
Therefore, notwithstanding any other provision of this Article X (other than the
Regulatory Allocations), with the Consent of the Special Member, the Managing
Member shall make such offsetting special allocations of Company income, gain,
loss, or deduction in whatever manner the Managing Member, with the Consent of
the Special Member, determines appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 10.1, 10.2(a), 10.2(b), 10.3(h), 10.3(i),
10.3(j), 10.3(k), 10.3(l), 10.3(m) and 10.5. In exercising its authority under
this Section 10.4, the Managing Member shall take into account future Regulatory
Allocations under Section 10.3(a) and 10.3(b) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
10.3(e) and 10.3(f).
Section 10.5 Other Allocation Rules.
(a) The basis (or cost) of any Company investment tax credit property
shall be allocated among the Members in accordance with Treasury Regulations
Section 1.46-3(f)(2)(i). All Tax Credits (other than the investment tax credit)
shall be allocated among the Members in accordance with applicable law.
Consistent with the foregoing, the Members intend that LIHTC will be allocated
99.98% to the Investor Member, 0.01% to the Special Member and 0.01% to the
Managing Member.
(b) In the event Company investment tax credit property is disposed of
during any taxable year, profits for such taxable year (and, to the extent such
profits are insufficient, profits for subsequent taxable years) in an amount
equal to the excess, if any, of (1) the reduction in the adjusted tax basis (or
cost) of such property pursuant to Code Section 50(c), over (2) any increase in
the adjusted tax basis of such property pursuant to Code Section 50(c) caused by
the disposition of such property, shall be excluded from the profits allocated
pursuant to Section 10.1 and Section 10.2(a) hereof and shall instead be
allocated among the Members in proportion to their respective shares of such
excess, determined pursuant to Section 10.3(i) and 10.3(j) hereof. In the event
more than one item of such property is disposed of by the Company, the foregoing
sentence shall apply to such items in the order in which they are disposed of by
the Company, so the profits equal to the entire amount of such excess with
respect to the first such property disposed of shall be allocated prior to any
allocations with respect to the second such property disposed of, and so forth.
(c) For purposes of determining the Income, Losses, or any other items
allocable to any period, Income, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Managing
Member with the Consent of the Special Member, using any permissible method
under Code Section 706 and the Treasury Regulations thereunder.
37
<PAGE>
(d) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company within the meaning of
Treasury Regulations Section 1.752-3(a)(3), the Members' interests in Company
profits are as follows: Investor Member: 99.98%; Special Member: 0.01%; Managing
Member: 0.01%.
(e) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the Managing Member shall endeavor to treat Distributions as having
been made from the proceeds of a Nonrecourse Liability or a Member Nonrecourse
Debt only to the extent that such Distributions would cause or increase an
Adjusted Capital Account Deficit for any Member who is not a Managing Member.
(f) In the event that the deduction of all or a portion of any fee paid
or incurred out of Net Operating Income by the Company to a Member or an
Affiliate of a Member is disallowed for federal income tax purposes by the
Internal Revenue Service with respect to a taxable year of the Company, the
Company shall then allocate to such Member an amount of gross income of the
Company for such year equal to the amount of such fee as to which the deduction
is disallowed.
Section 10.6 Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss,
and deduction with respect to any property contributed to the capital of the
Company shall, solely for tax purposes, be allocated among the Members so as to
take account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its initial Gross Asset Value
(computed in accordance with Section 1.33(a) hereof).
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to Section 1.33(b) hereof, subsequent allocations of income, gain,
loss, and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Managing Member with the Consent of the Special Member in any manner
that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 10.6 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account
in computing, any Person's Capital Account or share of Income, Losses, other
items, or distributions pursuant to any provision of this Agreement.
Section 10.7 Allocation Among Investor Members. In the event that the
Interest of the Investor Member hereunder is at any time held by more than one
Investor Member all items which are specifically allocated to the Investor
Member for any month pursuant to this Article X shall be apportioned among such
Persons according to the ratio of their respective profit-sharing interests in
the Company at the last day of such month.
38
<PAGE>
Section 10.8 Allocation Among Managing Members. In the event that the
Interest of the Managing Member hereunder is at any time held by more than one
Managing Member all items which are specifically allocated to the Managing
Member for any month pursuant to this Article X shall be apportioned among such
Persons in such percentages as may from time to time be determined by agreement
among them without amendment to this Agreement or consent of the Investor Member
or Consent of the Special Member.
Section 10.9 Modification of Allocations. The provisions of Articles X
and XI and other provisions of this Agreement are intended to comply with
Treasury Regulations Section 1.704 and shall be interpreted and applied in a
manner consistent with such section of the Treasury Regulations. In the event
that the Managing Member determines, in its sole discretion, that it is prudent
to modify the manner in which the Capital Accounts of the Members, or any debit
or credit thereto, are computed in order to comply with such section of the
Treasury Regulations, the Managing Member may make such modification, but only
with the Consent of the Special Member, to the minimum extent necessary, to
effect the plan of allocations and Distributions provided for elsewhere in this
Agreement. Further, the Managing Member shall make any appropriate
modifications, but only with the Consent of the Special Member, in the event it
appears that unanticipated events (e.g., the existence of a Company election
pursuant to Code Section 754) might otherwise cause this Agreement not to comply
with Treasury Regulation Section 1.704.
ARTICLE XI
DISTRIBUTION
Section 11.1 Distribution of Net Operating Income. Except as otherwise
provided, Net Operating Income for each fiscal year shall be distributed within
seventy-five (75) days following each calendar year and shall be applied in the
following order of priority:
(a) to pay the current Reporting Fee and then to pay any accrued Reporting
Fees which have not been paid in full from previous years;
(b) to pay the Development Fee;
(c) to pay the Operating Loans, if any, as referenced in Section 6.3 of
this Agreement, limited to 50% of the Net Operating Income remaining after
reduction for the payments made pursuant to subsections (a) through (c) of this
Section 11.1;
(d) to pay the Incentive Management Fee;
(e) to pay the Tax Credit Compliance Fee; and
(f) the balance, 30% to the Investor Member and 70% to the Managing Member.
39
<PAGE>
Section 11.2 Distribution of Sale or Refinancing Proceeds. Sale or
refinancing Proceeds shall be distributed in the following order:
(a) to the payment of the Mortgage and other matured debts and liabilities
of the Company, other than accrued payments, debts or other liabilities owing to
Members or former Members;
(b) to any accrued payments, debts or other liabilities owing to the
Members or former Members, including, but not limited to, accrued Reporting Fees
and Operating Loans, to be paid prorata if necessary;
(c) to the establishment of any reserves which the Managing Member, with
the Consent of the Special Member, shall deem reasonably necessary for
contingent, unmatured or unforeseen liabilities or obligations of the Company;
and
(d) thereafter, 40% to the Investor Member and 60% to the Managing Member.
ARTICLE XII
TRANSFERS OF INVESTOR
MEMBER'S INTEREST IN THE COMPANY
Section 12.1 Assignment of Investor Member's Interest. The Investor
Member and Special Member shall have the right to assign all or any part of
their respective Interests to any other Person, whether or not a Member, upon
satisfaction of the following:
(a) a written instrument setting forth the name and address of the proposed
transferee, the nature and extent of the Interest which is proposed to be
transferred and the terms and conditions upon which the transfer is proposed to
be made, stating that the Assignee accepts and agrees to be bound by all of the
terms and provisions of this Agreement, and providing for the payment of all
reasonable expenses incurred by the Company in connection with such assignment,
including but not limited to the cost of preparing any necessary amendment to
this Agreement; and
(b) upon receipt by the Managing Member of the Assignee's written
representation that the Company Interest is to be acquired by the Assignee for
the Assignee's own account for long-term investment and not with a view toward
resale, fractionalization, division or distribution thereof.
(c) Notwithstanding any provision to the contrary, the Investor Member may
assign its Interest to an Affiliate or assign its Interest to USBank or its
successors as collateral to secure a capital contribution loan without
satisfying the conditions of Sections 12.1(a) and (b) above. The Managing Member
will not be held responsible for any recapture of Tax Credit caused by such
assignment of Investor Member's Interest as stated in this Section 12.1 of the
Agreement.
40
<PAGE>
THE INVESTOR MEMBERSHIP INTEREST AND THE SPECIAL MEMBERSHIP INTEREST
DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED OR UNDER ANY STATE SECURITIES LAW. THESE INTERESTS MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Section 12.2 Effective Date of Transfer. Any assignment of an Investor
Member's Interest or Special Member's Interest pursuant to Section 12.1 shall
become effective as of the first day of the calendar month in which the last of
the conditions to such assignment are satisfied.
Section 12.3 Invalid Assignment. Any purported assignment of an
Interest of an Investor Member or Special Member otherwise than in accordance
with Section 12.1 or Section 12.6 shall be of no effect as between the Company
and the purported assignee and shall be disregarded by the Managing Member in
making allocations and Distributions hereunder.
Section 12.4 Assignee's Rights to Allocations and Distributions. An
Assignee shall be entitled to receive allocations and Distributions from the
Company attributable to the Interest acquired by reason of any permitted
assignment from the effective date of transfer as determined in Section 12.2
above. The Company and the Managing Member shall be entitled to treat the
assignor of such Company Interest as the absolute owner thereof in all respects,
and shall incur no liability for allocations and Distributions made in good
faith to such assignor, until such time as the written instrument of assignment
has been received by the Company.
Section 12.5 Substitution of Assignee as Investor Member or Special
Member.
(a) An Assignee shall not have the right to become a Substitute
Investor Member or Substitute Special Member in place of his assignor unless the
written consent of the Investor Member or Special Member to such substitution
shall have been obtained.
(b) A nonadmitted transferee of an Investor Member's Interest or
Special Member's Interest in the Company shall only be entitled to receive that
share of allocations, Distributions and the return of Capital Contribution to
which its transferor would otherwise have been entitled with respect to the
Interest transferred, and shall have no right to obtain any information on
account of the Company's transactions, to inspect the Company's books and
records or have any other of the rights and privileges of an Investor Member or
Special Member, provided, however, that the Company shall, if a transferee and
transferor jointly advise the Managing Member in writing of a transfer of an
Interest in the Company, furnish the transferee with pertinent tax information
at the end of each fiscal year of the Company.
Section 12.6 Death, Bankruptcy, Incompetency, etc. of an Investor
Member. Upon the death, dissolution, adjudication of bankruptcy, or adjudication
of incompetency or insanity of an Investor Member or Special Member, such
41
<PAGE>
Member's executors, administrators or legal representatives shall have all the
rights of an Investor Member or Special Member, as the case may be, for the
purpose of settling or managing such Member's estate, including such power as
such Member possessed to constitute a successor as a transferee of its Interest
in the Company and to join with such transferee in making the application to
substitute such transferee as a Member. However, such executors, administrators
or legal representatives will not have the right to become Substitute Investor
Members or substitute Special Members in the place of their respective
predecessors-in-interest unless the Managing Member shall so consent.
ARTICLE XIII
WITHDRAWAL, REMOVAL AND REPLACEMENT OF
MANAGING MEMBER
Section 13.1 Withdrawal of Managing Member.
(a) The Managing Member may not Withdraw (other than as a result of an
Involuntary Withdrawal) without the Consent of the Special Member. Withdrawal
shall be conditioned upon the agreement of the Special Member to be admitted as
a successor Managing Member, or if the Special Member declines to be admitted as
a successor Managing Member then on the agreement of one or more Persons who
satisfy the requirements of Section 13.5 of this Agreement to be admitted as
successor Managing Member(s).
(b) Each Managing Member shall indemnify and hold harmless the Company
and all Members from its Withdrawal in violation of Section 13.1(a) hereof. Each
Managing Member shall be liable for damages to the Company resulting from its
Withdrawal in violation of Section 13.1(a).
Section 13.2 Removal of Managing Member.
(a) The Special Member or the Investor Member, or both of them, may
remove the Managing Member for cause if such Managing Member, its officers or
directors, if applicable, has:
(1) been subject to Bankruptcy;
(2) committed any fraud, willful misconduct, breach of
fiduciary duty or other negligent conduct in the performance of its duties
under this Agreement;
(3) been convicted of, or entered into a plea of guilty to, a
felony;
(4) been disbarred from participating in any federal or state
housing program;
(5) made personal use of Company funds or properties;
42
<PAGE>
(6) violated the terms of the Mortgage and such violation
prompts FmHA to issue a default letter or acceleration notice to the Company
or Managing Member;
(7) failed to provide any loan, advance, Capital Contribution
or any other payment to the Company, the Investor Member or the Special Member
required under this Agreement;
(8) breached any representation, warranty or covenant
contained in this Agreement;
(9) caused the Projected Tax Credits to be allocated to the
Members for a term longer than the Tax Credit Period unless the provisions of
Section 7.4(e) of this Agreement apply;
(10) violated any federal or state tax law which causes a
recapture of LIHTC;
(11) failed to obtain the consent of the Special Member where
such consent is required pursuant to this Agreement;
(12) failed during any six-month period during the Compliance
Period to cause at least 85% of the total apartment units in the Apartment
Housing to qualify for LIHTC, unless such failure is the result of Force Majeure
or unless such failure is cured within 120 days after the end of the six-month
period.
(b) Written notice of the removal for cause of the Managing Member
("Removal Notice") shall set forth the reasons for removal and shall be served
by the Special Member or the Investor Member, or both of them, upon the Managing
Member in accordance with Section 17.3 of this Agreement. If Section 13.2(a)(2),
(6), (7), (8), (12) or (13) is the basis for the removal for cause, then the
Managing Member shall have thirty days from receipt of the Removal Notice in
which to cure the removal condition; except that in regard to the Mortgage the
cure period shall be the sooner of thirty days or ten days prior to the
expiration of the cure period referenced in the loan documents, if any. If the
condition for the removal for cause is not cured within the thirty day cure
period then the Managing Member's removal shall become effective upon approval
of a majority of the Member's Interest (as specified in Section 10.1 of this
Agreement) at a Member's meeting held in accordance with Section 17.2 of this
Agreement. If the removal for cause is for a condition referenced in Sections
13.2(a)(1), (3), (4), (5), (9), (10), (11), (14), (15), (16), or (18) then the
removal shall become effective upon approval of a majority of the Member's
Interest (as specified in Section 10.1 of this Agreement) at a Member's meeting
held in accordance with Section 17.2 of this Agreement. Upon the Managing
Member's removal, the Managing Member shall deliver to the Special Member within
five business days of the termination of the cure period, or five business days
of the Removal Notice all Company books and records including all bank signature
43
<PAGE>
cards and an authorization to change the signature on the signature cards from
the Managing Member to the Special Member, or a successor managing member so
nominated by the Investor Member and Special Member. The Member's recognize and
acknowledge that if the Managing Member fails to provide the Company books and
records upon the Managing Member's removal then the remaining Members may suffer
irreparable injury. Therefore, in the event the Managing Member does not adhere
to the provisions of this Section 13.2(b), and in addition to other rights or
remedies which may be provided by law and equity or this Agreement, the Investor
Member and/or Special Member shall have the right to specific performance to
compel the Managing Member to perform its obligation under this Section and the
Investor Member and/or Special Member may bring such action, and other actions
to enforce the removal, by way of temporary and/or permanent injunctive relief.
Section 13.3 Effects of a Withdrawal. In the event of a Withdrawal, the
entire Interest of the Withdrawing Managing Member shall immediately and
automatically terminate on the effective date of such Withdrawal, and such
Managing Member shall immediately cease to be a Managing Member, shall have no
further right to participate in the management or operation of the Company or
the Apartment Housing or to receive any allocations or Distributions from the
Company or any other funds or assets of the Company, except as specifically set
forth below. In the event of a Withdrawal, any or all executory contracts,
including but not limited to the Management Agreement, between the Company and
the Withdrawing Managing Member or its Affiliates may be terminated by the
Company, with the Consent of the Special Member, upon written notice to the
party so terminated. Furthermore, notwithstanding such Withdrawal, the
Withdrawing Managing Member shall be and shall remain, liable as a Managing
Member for all liabilities and obligations incurred by the Company or by the
Managing Member prior to the effective date of the Withdrawal, or which may
arise upon such Withdrawal. Any remaining Member shall have all other rights and
remedies against the Withdrawing Managing Member as provided by law or under
this Agreement. The Managing Member agrees that in the event of its Withdrawal
it will indemnify and hold the Investor Member and the Special Member harmless
from and against all losses, costs and expenses incurred in connection with the
Withdrawal, including, without limitation, all legal fees and other expenses of
the Investor Member and the Special Member in connection with the transaction.
The following additional provisions shall apply in the event of a Withdrawal.
(a) In the event of a Withdrawal which is not an Involuntary
Withdrawal, or is not an Involuntary Withdrawal in accordance with Section
13.2(a), the Withdrawing Managing Member shall have no further right to receive
any future allocations or Distributions from the Company or any other funds or
assets of the Company, nor shall it be entitled to receive or to be paid by the
Company any further payments of fees (including fees which have been earned but
are unpaid) or to be repaid any outstanding advances or loans made by it to the
Company or to be paid any amount for its former Interest. From and after the
effective date of such Withdrawal, the former rights of the Withdrawing Managing
Member to receive or to be paid such allocations, Distributions, funds, assets,
fees or repayments shall be assigned to the other Managing Member or Managing
Members (which may include the Special Member), or if there is no other managing
member of the Company at that time, to the Special Member.
(b) In the event of an Involuntary Withdrawal, except as provided in
the preceding paragraph or in Section 13.3(b)(2) below, the Withdrawing Managing
Member shall have no further right to receive any future allocations or
Distributions from the Company or any other funds or assets of the Company,
provided that accrued and payable fees (i.e., fees earned but unpaid as of the
44
<PAGE>
date of Withdrawal) owed to the Withdrawing Managing Member, and any outstanding
loans of the Withdrawing Managing Member to the Company, shall be paid to the
Withdrawing Managing Member in the manner and at the times such fees and loans
would have been paid had the Withdrawing Managing Member not Withdrawn. The
Interest of the Managing Member shall be purchased as follows.
(1) If the Involuntary Withdrawal does not arise from removal
for cause under Section 13.2(a) hereof, and if the Company is to be continued
with one or more remaining or successor Managing Member(s), the Company, with
the Consent of the Special Member, may, but is not obligated to, purchase the
Interest of the Withdrawing Managing Member. The purchase price of such Interest
shall be its Fair Market Value as determined by agreement between the
Withdrawing Managing Member and the Special Member, or, if they cannot agree, by
arbitration in accordance with the then current rules of the American
Arbitration Association. The cost of such arbitration shall be borne equally by
the Withdrawing Managing Member and the Company. The purchase price shall be
paid by the Company by delivering to the Managing Member or its representative
the Company's non-interest bearing unsecured promissory note payable, if at all,
upon liquidation of the Company in accordance with Section 11.2(b). The note
shall also provide that the Company may prepay all or any part thereof without
penalty.
(2) If the Involuntary Withdrawal does not arise from removal
for cause under Section 13.2(a) hereof, and if the Company is to be continued
with one or more remaining or successor Managing Member(s), and if the Company
does not purchase the Interest of the Withdrawing Managing Member in Company
allocations, Distributions and capital, then the Withdrawing Managing Member
shall retain its Interest in such items, but such Interest shall be held as a
Special Member.
(c) Notwithstanding the provisions of Section 13.3(b), if the
Involuntary Withdrawal arises from removal for cause as set forth in Section
13.2(a) hereof, the Withdrawn Managing Member shall have no further right to
receive any future allocations or Distributions from the Company or any other
funds or assets of the Company, nor shall it be entitled to receive and payment
for its Interest, nor shall it be entitled to receive or to be paid by the
Company or any Members or successor members, any further payments of fees
(including fees which have been earned but remain unpaid) or to be repaid any
outstanding advances or loans made by it to the Company.
Section 13.4 Successor Managing Member. Upon the occurrence of an event
giving rise to a Withdrawal of a Managing Member, any remaining Managing Member,
or, if there be no remaining Managing Member, the Withdrawing Managing Member or
its legal representative, shall promptly notify the Special Member of such
Withdrawal (the "Withdrawal Notice"). Whether or not the Withdrawal Notice shall
have been sent as provided herein, the Special Member shall have the right to
become a successor Managing Member if the Withdrawing Managing Member was
45
<PAGE>
previously the sole Managing Member. In order to effectuate the provisions of
this Section 13.4 and the continuance of the Company, the Withdrawal of a
Managing Member shall not be effective until the expiration of 120 days from the
date on which occurred the event giving rise to the Withdrawal, unless the
Special Member shall have elected to become a successor Managing Member as
provided herein prior to expiration of such 120-day period, whereupon the
Withdrawal of the Managing Member shall be deemed effective upon the
notification of all the other Members by the Special Member of such election.
Section 13.5 Admission of Additional or Successor Managing Member. No
Person shall be admitted as an additional or successor Managing Member unless
(a) such Person shall have agreed to become a Managing Member by a written
instrument which shall include the acceptance and adoption of this Agreement;
(b) the Consent of the Special Member to the admission of such Person as a
substitute Managing Member, which consent may be withheld in the discretion of
the Special Member, shall have been given; and (c) such Person shall have
executed and acknowledged any other instruments which the Special Member shall
reasonably deem necessary or appropriate to affect the admission of such Person
as a substitute Managing Member. If the foregoing conditions are satisfied, this
Agreement shall be amended in accordance with the provisions of the Act, and all
other steps shall be taken which are reasonably necessary to effect the
Withdrawal of the Withdrawing Managing Member and the substitution of the
successor Managing Member. Nothing contained herein shall reduce the Investor
Member's Interest or the Special Member's Interest in the Company.
Section 13.6 Transfer of Interest. Except as otherwise provided herein,
the Managing Member may not Withdraw from the Company, or enter into any
agreement as the result of which any Person shall acquire an Interest in the
Company, without the Consent of the Special Member.
Section 13.7 No Goodwill Value. At no time during continuation of the
Company shall any value ever be placed on the Company name, or the right to its
use, or to the goodwill appertaining to the Company or its business, either as
among the Members or for the purpose of determining the value of any Interest,
nor shall the legal representatives of any Member have any right to claim any
such value. In the event of a termination and dissolution of the Company as
provided in this Agreement, neither the Company name, nor the right to its use,
nor the same goodwill, if any, shall be considered as an asset of the Company,
and no valuation shall be put thereon for the purpose of liquidation or
distribution, or for any other purpose whatsoever.
46
<PAGE>
ARTICLE XIV
BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND BANKING
Section 14.1 Books and Accounts.
(a) The Managing Member shall cause the Company to keep and maintain at
its principal executive office full and complete books and records which shall
include each of the following:
(1) a current list of the full name and last known business or
residence address of each Member set forth in alphabetical order together with
the Capital Contribution and the share in Income and Losses of each Member;
(2) a copy of the Articles of Organization and all
certificates of amendment thereto, together with executed copies of any powers
of attorney pursuant to which any Articles has been executed;
(3) copies of the Company's federal, state and local income
tax information returns and reports, if any, for
the six most recent taxable years;
(4) copies of the original of this Agreement and all
amendments thereto;
(5) financial statements of the Company for the six most
recent fiscal years;
(6) the Company's books and records for at least the current
and past three fiscal years; and
(7) in regard to the first tenants to occupy the apartment
units in the Apartment Housing, copies of all tenant files including completed
applications, completed questionnaires or checklist of income and assets,
documentation of third party verification of income and assets, and income
certification forms (LIHTC specific).
(b) Upon the request of the Investor Member, the Managing Member shall
promptly deliver to the Investor Member, at the expense of the Company, a copy
of the information set forth in Section 14.1(a) above. The Investor Member shall
have the right upon reasonable request and during normal business hours to
inspect and copy any of the foregoing, or any of the other books and records of
the Company or the Apartment Housing, at its own expense.
Section 14.2 Accounting Reports.
(a) By March 1 of each calendar year the Managing Member shall provide
to the Investor Member and the Special Member all tax information necessary for
the preparation of their federal and state income tax returns and other tax
returns with regard to the jurisdiction(s) in which the Company is formed and in
which the Apartment Housing is located.
47
<PAGE>
(b) By March 1 of each calendar year the Managing Member shall send to
the Investor Member and the Special Member: (1) a balance sheet as of the end of
such fiscal year and statements of income, Members' equity and cash flow for
such fiscal year prepared in accordance with generally accepted accounting
principles and accompanied by an auditor's report containing an opinion of the
Company's Accountants; (2) a report of any Distributions made at any time during
the fiscal year, separately identifying Distributions from Net Operating Income
for the fiscal year, Net Operating Income for prior years, Sale or Refinancing
Proceeds, and reserves; and (3) a report setting forth the amount of all fees
and other compensation and Distributions and reimbursed expenses paid by the
Company for the fiscal year to the Managing Member or Affiliates of the Managing
Member and the services performed in consideration therefor, subjecte to the
auditing procedures applied in the audit of the financial statements.
(c) Within 60 days after the end of each fiscal quarter in which a Sale
or Refinancing of the Apartment Housing occurs, the Managing Member shall send
to the Investor Member and the Special Member a report as to the nature of the
Sale or Refinancing and as to the Income and Losses for tax purposes and
proceeds arising from the Sale or Refinancing.
Section 14.3 Other Reports. The Managing Member shall provide to the
Investor Member and the Special Member the following reports:
(a) a quarterly tax credit compliance report similar to the worksheet
included in Exhibit "E" due on or before April 30 of each year for the first
quarter, July 31 of each year for the second quarter, October 31 of each year
for the third quarter and January 31 of each year for the fourth quarter. In
order to verify the reliability of the information being provided on the
compliance report the Investor Member may request a sampling of tenant files to
be provided. The sampling will include, but not be limited to, copies of tenant
applications, certifications and third party verifications used to qualify
tenants. If any inaccuracies are found to exist on the tax credit compliance
report or any items of noncompliance are discovered then the sampling will be
expanded as determined by the Special Member;
(b) a quarterly report on operations, in the form attached hereto as
Exhibit "E", due on or before April 30 of each year for the first quarter of
operations, July 31 of each year for the second quarter of operations, October
31 of each year for the third quarter of operations and January 31 of each year
for the fourth quarter of operations which shall include, but is not limited to,
an unaudited income statement showing all activity in the reserve accounts
required to be maintained pursuant to Section VIII of this Agreement, statement
of income and expenses, balance sheet, rent roll as of the end of each calendar
quarter of each year, and third party verification of current utility allowance;
48
<PAGE>
(c) by September 15 of each year, an estimate of LIHTC for that year;
(d) during the Compliance Period, no later than the day any such
certification is filed, copies of any certifications which the Company must
furnish to federal or state governmental authorities administering the Tax
Credit program including, but not limited to, copies of all annual tenant
recertifications required under Section 42 of the Code;
(e) by the annual renewal date each and every year, an executed
original or certified copy of each and every Insurance policy or certificate
required by the terms of this Agreement;
(f) by the payment date of the real estate property taxes each and
every year verification that the same has been paid in full;
(g) on or before November 1 of each calendar year, a copy of the
following year's proposed operating budget as submitted to FmHA for approval.
Each such Budget shall contain all the anticipated Cash Expenses of the Company;
and
(h) notice of the occurrence, or of the likelihood of occurrence, of
any event which has had a material adverse effect upon the Apartment Housing or
the Company, including, but not limited to, any breach of any of the
representations and warranties set forth in Section 9.12 of this Agreement, and
any inability of the Company to meet its cash obligations as they become
payable, within ten days after the occurrence of such event.
Section 14.4 Late Reports. If the Managing Member does not fulfill its
obligations under Section 14.2 within the time periods set forth therein, the
Managing Member, using its own funds, shall pay as damages the sum of $100 per
day (plus interest at the rate established by Section 6.3 of this Agreement) to
the Investor Member until such obligations shall have been fulfilled. If the
Managing Member does not fulfill its obligations under Section 14.3 within the
time periods set forth therein, the Managing Member, using its own funds, shall
pay as damages the sum of $100.00 per week (plus interest at the rate
established by Section 6.3 of this Agreement) to the Investor Member until such
obligations shall have been fulfilled. If the Managing Member shall so fail to
pay, the Managing Member and its Affiliates shall forthwith cease to be entitled
to any fees hereunder (other than the Development Fee) and/or to the payment of
any Net Operating Income or Sale or Refinancing Proceeds to which the Managing
Member may otherwise be entitled hereunder. Payments of fees and Distributions
shall be restored only upon payment of such damages in full.
Section 14.5 Annual Site Visits. On an annual basis a representative of
the Investor Member (upon a fifteen-day notification to the Managing Member), at
the Investor Member's expense, will conduct a site visit which will include, in
part, an inspection of the property, a review of the office and tenant files and
an interview with the property manager. The Investor Member may, in its sole
discretion, cancel all or any part of the annual site visit.
49
<PAGE>
Section 14.6 Tax Returns. The Managing Member shall cause income tax
returns for the Company to be prepared and timely filed with the appropriate
federal, state and local taxing authorities.
Section 14.7 Fiscal Year. The fiscal year of the Company shall be the
calendar year or such other period as may be approved by the Internal Revenue
Service for federal income tax purposes.
Section 14.8 Banking. All funds of the Company shall be deposited into
Provident State Bank, or its successors or assignees. All withdrawals therefrom
shall be made upon checks signed by the Managing Member or by any person
authorized to do so by the Managing Member. The Managing Member shall provide to
any Member who requests same the name and address of the financial institution,
the account number and other relevant information regarding any Company bank
account.
Section 14.9 Certificates and Elections.
(a) The Managing Member shall file the First Year Certificate within 90
days following the close of the first taxable year in the Tax Credit Period with
respect to any qualified low-income building and thereafter shall timely file
any certificates which the Company must furnish to federal or state governmental
authorities administering the Tax Credit programs under Section 42 of the Code.
(b) The Managing Member, with the Consent of the Special Member, may,
but is not required to, cause the Company to make or revoke the election
referred to in Section 754 of the Code, as amended, or any similar provisions
enacted in lieu thereof.
ARTICLE XV
DISSOLUTION, WINDING UP, TERMINATION
AND LIQUIDATION OF THE COMPANY
Section 15.1 Dissolution of Company. The Company shall be dissolved
upon the expiration of its term or the earlier occurrence of any of the
following events.
(a) The effective date of the Withdrawal or removal of the Managing
Member, unless (1) at the time there is at least one other Managing Member
(which may be the Special Member if it elects to serve as successor Managing
Member under Section 13.4 hereof) who will continue as Managing Member, or (2)
within 120 days after the occurrence of any such event the Investor Member
elects to continue the business of the Company.
(b) The sale of the Apartment Housing and the receipt in cash of the
full amount of the proceeds of such sale.
Notwithstanding the foregoing, however, in no event shall the Company
terminate prior to the expiration of its term if such termination would result
in a violation of the Mortgage or any other agreement with or rule or regulation
of any Mortgage lender to which the Company is subject.
50
<PAGE>
Section 15.2 Return of Capital Contribution upon Dissolution. Except as
provided in Sections 7.2 and 7.3 of this Agreement, which provide for a
reduction or refund of the Investor Member's Capital Contribution under certain
circumstances, and which shall represent the personal obligation of the Managing
Member, as well as the obligation of the Company, each Member shall look solely
to the assets of the Company for all Distributions with respect to the Company
(including the return of its Capital Contribution) and shall have no recourse
therefor (upon dissolution or otherwise) against any Managing Member. No Member
shall have any right to demand property other than money upon dissolution and
termination of the Company, and the Company is prohibited from such a
distribution of property absent the Consent of the Special Member.
Section 15.3 Distribution of Assets. Upon a dissolution of the Company,
the Managing Member (or, if there is no Managing Member then remaining, such
other Person(s) designated as the liquidator of the Company by the Investor
Member or by the court in a judicial dissolution) shall take full account of the
Company assets and liabilities and shall liquidate the assets as promptly as is
consistent with obtaining the fair value thereof.
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Company pursuant to Section
11.2(a) through and including 11.2(c), the remaining assets of the Company shall
be distributed to the Members in accordance with the positive balances in their
Capital Accounts, after taking into account all allocations under Article X
hereof.
(b) In the event that a Managing Member has a deficit balance in its
Capital Account following the liquidation of the Company or its Interest, as
determined after taking into account all Capital Account adjustments for the
Company taxable year in which such liquidation occurs, such Managing Member
shall pay to the Company the amount necessary to restore such deficit balance to
zero in compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3).
(1) The deficit reduction amount shall be paid by the Managing
Member by the end of such taxable year (or, if later, within 90 days after the
date of Liquidation) and shall, upon liquidation of the Company, be paid to
creditors of the Company or distributed to other Members in accordance with
their positive Capital Account balances.
(c) With respect to assets distributed in kind to the Members in
liquidation or otherwise:
(1) unrealized appreciation or unrealized depreciation in the
values of such assets shall be deemed to be Income and Losses realized by the
Company immediately prior to the liquidation or other Distribution event; and
(2) such Income and Losses shall be allocated to the Members
in accordance with Section 10.2 hereof, and any property so distributed shall be
51
<PAGE>
treated as a Distribution of an amount in cash equal to the excess of such Fair
Market Value over the outstanding principal balance of and accrued interest on
any debt by which the property is encumbered.
(d) For the purposes of Section 15.3(c), "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the Fair Market
Value of such assets, taking into account the Fair Market Value of the
associated financing but subject to Section 7701(g) of the Code, and the asset's
Gross Asset Value. Section 15.3(c) is merely intended to provide a rule for
allocating unrealized Income and Losses upon liquidation or other Distribution
event, and nothing contained in Section 15.3(c) or elsewhere in this Agreement
is intended to treat or cause such Distributions to be treated as sales for
value. The Fair Market Value of such assets shall be determined by an
independent appraiser to be selected by the Managing Member.
Section 15.4 Deferral of Liquidation. If at the time of liquidation the
Managing Member or other liquidator shall determine that an immediate sale of
part or all of the Company assets could cause undue loss to the Members, the
liquidator may, in order to avoid loss, but only with the Consent of the Special
Member, either defer liquidation and retain all or a portion of the assets or
distribute all or a portion of the assets to the Members in kind. In the event
that the liquidator elects to distribute such assets in kind, the assets shall
first be assigned a value (by appraisal by an independent appraiser) and the
unrealized appreciation or depreciation in value of the assets shall be
allocated to the Members' Capital Accounts, as if such assets had been sold, in
the manner described in Section 10.2, and such assets shall then be distributed
to the Members as provided herein. In applying the preceding sentence, the
Apartment Housing shall not be assigned a value less than the unamortized
principal balance of any loan secured thereby.
Section 15.5 Liquidation Statement. Each of the Members shall be
furnished with a statement prepared or caused to be prepared by the Managing
Member or other liquidator, which shall set forth the assets and liabilities of
the Company as of the date of complete liquidation. Upon compliance with the
distribution plan as outlined in Sections 15.3 and 15.4, the Investor Member and
Special Member shall cease to be such and the Managing Member shall execute,
acknowledge and cause to be filed those certificates referenced in Section 15.6.
Section 15.6 Certificates of Dissolution; Certificate of Cancellation
of Certificate of Investor Membership.
(a) Upon the dissolution of the Company, the Managing Member shall
cause to be filed in the office of, and on a form prescribed by the Secretary of
State of the State, a certificate of dissolution. The certificate of dissolution
shall set forth the Company's name, the Secretary of State's file number for the
Company, the event causing the Company's dissolution and the date of the
dissolution.
(b) Upon the completion of the winding up of the Company's affairs, the
Managing Member shall cause to be filed in the office of, and on a form
prescribed by, the Secretary of State of the State, a certificate of
52
<PAGE>
cancellation of the Articles of Organization. The certificate of cancellation of
the Articles of Organization shall set forth the Company's name, the Secretary
of State's file number for the Company, and any other information which the
Managing Member determines to include therein.
ARTICLE XVI
AMENDMENTS
This Agreement may be amended by a unanimous consent of the Members
after a meeting of the Members, which meeting shall be held after proper notice
as provided in Section 17.2 of this Agreement. For purposes of this Article XVI,
a Member shall grant its consent to a proposed amendment unless such Member
reasonably determines that the proposed amendment is adverse to the Member's
Interest.
ARTICLE XVII
MISCELLANEOUS
Section 17.1 Voting Rights.
(a) The Investor Member shall have no right to vote upon any matters
affecting the Company, except as provided in this Agreement. Notwithstanding, at
a meeting of the Company, the Investor Member may vote:
(1) to approve or disapprove the Sale or Refinancing of the
Apartment Housing prior to such Sale or Refinancing;
(2) to remove the Managing Member and elect a substitute
Managing Member as provided in this Agreement;
(3) to elect a successor Managing Member upon the Withdrawal
of the Managing Member;
(4) to approve or disapprove the dissolution of the Company;
(5) subject to the provisions of Article XVI hereof, to amend
this Agreement; or
(6) to approve or disapprove the refinancing of the Mortgage
prior to such refinancing.
(b) On any matter where the Investor Member has the right to vote,
votes may only be cast at a duly called meeting of the Company or through
written action without a meeting.
(c) The Special Member shall have the right to consent to those actions
or inactions of the Company and/or Managing Member as otherwise set forth in
this Agreement, and the Managing Member is prohibited from any action or
inaction requiring such consent unless such consent has been obtained.
53
<PAGE>
Section 17.2 Meeting of Company. Meetings of the Company may be noticed
either (a) at any time by the Managing Member; or (b) by the Investor Member or
Special Member. The notice for a meeting shall specify the purpose of such
meeting, and the time and the place of such meeting (which shall be by telephone
conference or at the principal place of business of the Company). Any Member
calling a Members meeting shall provide written notice to all Members. The
meeting shall not be held less than 15 days nor more than 30 days from the
Members' receipt of the notice. All meetings and actions of the Investor Member
shall be governed in all respects, including matters relating to proxies, record
dates and actions without a meeting, by the applicable provisions of the Act, as
it shall be amended from time to time.
Section 17.3 Notices. Any notice given pursuant to this Agreement may
be served personally on the Member to be notified or may be sent by overnight
courier, or may be mailed, first class postage prepaid, to the following
address, or to such other address as a party may from time to time designate in
writing:
To the Managing Member: Larry C. Porter
P.O. Box 499
Denton, Maryland 21629
Carter C. Chinnis
P.O. Box 499
Denton, Maryland 21629
To the Investor Member: WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
To the Special
Member: WNC Housing, L.P.
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
Section 17.4 Successors and Assigns. All the terms and conditions of
this Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the Members.
Section 17.5 FmHA Regulations. Notwithstanding any other provisions of
this Agreement, the following will take precedence:
(a) The Company is authorized to execute any documents required by FmHA
in connection with the FmHA Loan Agreement. The Managing Member hereby covenants
to act in accordance with the Project Documents. Any incoming Managing Member
shall, as a condition of receiving a Company interest, agree to be bound by the
Project Documents, and all other documents executed in connection with the FmHA
54
<PAGE>
Loan Agreement to the same extent and on the same terms as any other Managing
Member. Upon any dissolution, no title or right to possession and control of the
Project, and no right to collect the rents therefrom, shall pass to any Person
who is not bound in a manner consistent with Section 515 of the Housing Act and
the rules and regulations thereunder.
(b) In the event that any provision of this Agreement in any way tends
to contradict, modify or in any way change the terms of the Project Documents or
any other agreement related to the Project entered into, or to be entered into,
by or on behalf of the Company with FmHA, the terms of the Project Documents or
such other agreements with FmHA shall prevail and govern.
(c) Any amendment or revision of this Agreement, transfer of a Company
interest or other action requiring approval shall be subject to the written
approval of FmHA, if such approval is required, and any amendment without the
prior written approval of FmHA shall be subject to later amendment to comply
with the requirements of FmHA; provided, however, that no such approval of FmHA
shall be required for any amendment of this Agreement the sole purpose of which
is to provide for the admission of additional or substituted investor members so
long as any such additional or substituted investor member so admitted shall own
in the aggregate less than a 10% investor member interest in the Company.
(d) Any conveyance or transfer of title to all or any portion of the
Project required or permitted under this Agreement shall in all respects be
subject to all conditions, approvals and other requirements of FmHA rules and
regulations applicable thereto.
(e) The Managing Member will at all times maintain the FmHA required
Financial Interest in the Company.
The foregoing paragraphs (a), (b), (c), (d), and (e) will automatically
become void and of no further force and effect with respect to FmHA at such time
as the Mortgage is no longer being provided by FmHA.
Section 17.6 Recording of Articles of Organization. If the Managing
Member should deem it advisable to do so, the Company shall record in the office
of the County Recorder of the county in which the principal place of business of
the Company is located a certified copy of the Articles of Organization, or any
amendment thereto, after such Article or amendment has been filed with the
Secretary of State of the State.
Section 17.7 Amendment of Articles of Organization.
(a) The Managing Member shall cause to be filed, within 30 days after
the happening of any of the following events, an amendment to the Articles of
Organization reflecting the occurrence of any of the following:
(1) a change in the name of the Company;
55
<PAGE>
(2) a change in the street address of the Company's principal
executive office;
(3) the admission of a Managing Member; or
(4) the discovery by the Managing Member of any false or
erroneous material statement contained in the Certificate of Limited Company or
any amendment thereto.
(b) The Articles of Organization may also be amended in conformity with
this Agreement at any time in any other respect that the Managing Member
determines.
(c) The Managing Member shall cause the Articles of Organization to be
amended, when required or permitted as aforesaid, by filing an amendment thereto
in the office of, and on a form prescribed by, the Secretary of State of the
State. The amendment shall set forth the Company's name, the Secretary of
State's file number for the Company and the text of the amendment.
(d) In the event of a Withdrawal or Involuntary Withdrawal of the
Managing Member, and if such Managing Member does not file an amendment to the
Articles of Organization as specified in this Section 17.7, then the Special
Member is hereby granted the specific authority to sign and file such amendment.
Section 17.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and said
counterparts shall constitute but one and the same instrument which may
sufficiently be evidenced by one counterpart.
Section 17.9 Captions. Captions to and headings of the Articles,
Sections and subsections of this Agreement are solely for the conveniences of
the Members, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
Section 17.10 Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Section 17.11 Certain Provisions. If the operation of any provision of
this Agreement would contravene the provisions of applicable law, or would
result in the imposition of general liability on any Investor Member or Special
Member, such provisions shall be void and ineffectual.
Section 17.12 Tax Matters Member. All the Members hereby agree that the
Managing Member shall be the "Tax Matters Member" pursuant to the Code and in
connection with any audit of the federal income tax returns of the Company.
56
<PAGE>
(a) The Tax Matters Member shall furnish to each Member notice and
information with respect to the following: closing conference with an examining
agent; proposed adjustments, rights of appeal, and requirements for filing a
protest; time and place of any appeals conference; acceptance by the Internal
Revenue Service of any settlement offer; consent to the extension of the period
of limitation with respect to all Members; filing of a request for
administrative adjustment on behalf of the Company; filing by the Tax Matters
Member or any other Member of any petition for judicial review; filing of any
appeal with respect to any judicial determination; and a final judicial
redetermination.
(b) If the Tax Matters Member shall determine to litigate any
administrative determination relating to federal income tax matters, then the
Tax Matters Member shall litigate such matter in such court as the Tax Matters
Member shall decide in its sole discretion.
(c) In discharging its duties and responsibilities, the Tax Matters
Member shall act as a fiduciary (1) to the Investor Member (to the exclusion of
the other Member(s) insofar as tax matters related to the Tax Credits are
concerned, and (2) to all of the Members in other respects.
(d) The Members consent and agree that in connection with any audit of
the Company, or if the Tax Matters Member withdraws from the Company or the Tax
Matters Member becomes Bankrupt, then the Special Member may become, in its sole
discretion, a special managing member, and become the Tax Matters Member. The
Investor Member will make no claim against the Company in respect of any action
or omission by the Tax Matters Member during such time as the Special Member
acts as the Tax Matters Member.
Section 17.13 Expiration of Compliance Period.
(a) Notwithstanding any provision hereof to the contrary (other than
this Section 17.13), the Special Member shall have the right at any time after
the beginning of the last year of the Compliance Period to require, by written
notice to the Managing Member, that the Managing Member promptly submit a
written request to the applicable State Tax Credit Agency pursuant to Section
42(h) of the Code (or any successor provision) that such agency endeavor to
locate within one year from the date of such written request a purchaser for the
Apartment Housing who will continue to operate the Apartment Housing as a
qualified low income property, at a purchase price that is not less than the
minimum amount set forth in Section 42(h)(6) of the Code (or any successor
provision). In the event that the State Tax Credit Agency obtains an offer
satisfying the conditions of the preceding sentence, the Managing Member shall
promptly notify the Special Member in writing with respect to the terms and
conditions of such offer, and, if the Special Member notifies the Managing
Member that such offer should be accepted, the Managing Member shall cause the
Company promptly to accept such offer and to proceed to sell the Apartment
Housing pursuant to such offer.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Special Member shall have the right at any time after the end of
the Compliance Period to require, by written notice to the Managing Member (the
"Required Sale Notice"), that the Managing Member promptly use its best efforts
57
<PAGE>
to obtain a buyer for the Apartment Housing on the most favorable terms then
available. The Managing Member shall submit the terms of any proposed sale to
the Special Member for its approval in the manner set forth in Section 17.13(a)
hereof. If the Managing Member shall fail to so obtain a buyer for the Apartment
Housing within six months of receipt of the Required Sale Notice or if the
Consent of the Special Member in its sole discretion shall be withheld to any
proposed sale, then the Special Member shall have the right at any time
thereafter to obtain a buyer for the Apartment Housing on terms acceptable to
the Special Member (but not less favorable to the Company than any proposed sale
previously rejected by the Special Member). In the event that the Special Member
so obtains a buyer, it shall notify the Managing Member in writing with respect
to the terms and conditions of the proposed sale and the Managing Member shall
cause the Company promptly to sell the Apartment Housing to such buyer.
(c) A sale of the Apartment Housing prior to the end of the Compliance
Period may only take place if the conditions of Section 42(j)(6) of the Code (or
any successor provision) will be satisfied upon such sale by having the
purchaser of the Apartment Housing post the required bond on behalf of the
Company.
Section 17.14 Number and Gender. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the Person or Persons may require.
Section 17.15 Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
all prior understandings and agreements between the parties, written or oral,
respecting this transaction are merged in this Agreement.
Section 17.16 Governing Law. This Agreement and its application shall
be governed by the laws of the State.
Section 17.17 Attorney's Fees. If a suit or action is instituted in
connection with an alleged breach of any provision of this Agreement, the
prevailing party shall be entitled to recover, in addition to costs, such sums
as the court may adjudge reasonable as attorney's fees, including fees on any
appeal.
Section 17.18 Receipt of Correspondence. The Members agree that the
Managing Member shall send to the Investor Member and the Special Member within
five days of receipt a copy of any correspondence relative to the Apartment
Housing's noncompliance with the Mortgage, relative to the Apartment Housing's
noncompliance with the Tax Credit rules or regulations, relative to the
acceleration of the Mortgage and/or relative to the disposition of the Apartment
Housing.
Section 17.19 Security Interest and Right of Set-Off. As security for
the performance of the respective obligations to which any Member may be subject
58
<PAGE>
under this Agreement, the Company shall have (and each Member hereby grants to
the Company) a security interest in their respective Interests of such Member in
all funds distributable to said Member to the extent of the amount of such
obligation.
IN WITNESS WHEREOF, this Second Amended and Restated Operating
Agreement of 2nd Fairhaven, LLC, a Maryland limited liability company, is made
and entered into as of the 31st day of March, 2000.
MANAGING MEMBER
/s/LARRY C. PORTER
------------------------
Larry C. Porter
/s/CARTER C. CHINNIS
------------------------
Carter C. Chinnis
59
<PAGE>
INVESTOR MEMBER
WNC Housing Tax Credit Fund VI, L.P., Series 7,
A California limited partnership
By: WNC & Associates, Inc.,
General Partner
/s/DAVID N. SHAFER
By: ------------------------
David N. Shafer,
Executive Vice President
SPECIAL MEMBER
WNC Housing, L.P.
By: WNC & Associates, Inc.,
General Partner
/s/DAVID N. SHAFER
By: -----------------------
David N. Shafer,
Executive Vice President
60
<PAGE>
EXHIBIT A TO OPERATING AGREEMENT
LEGAL DESCRIPTION
All that lot or parcel of land situate lying and being in the Town of
Federalsburg, Fifth Election District, Caroline County, Maryland and being more
particularly described as follows: Beginning for the same at a point at the
northwesterly corner of the herein described land, said point bearing South 76
degrees 34 minutes 26 seconds East 61.50 ft. from a concrete monument found at
the southwesterly corner of the land of People for Better Housing, Inc. (Liber
210, Folio 138) and the northwesterly corner of the land of R. Levi Saunders, et
al. (Liber 221, Folio 526 and part, and from said place of beginning running 1)
with the said People For Better Housing land South 76 degrees 34 minutes 26
seconds East 337.42 ft.; thence 2) with a new division line South 15 degrees 26
minutes 15 seconds East 462.07 ft. to the land of Ronald M. Fluharty and Joyce
W. Fluharty (Liber 171, Folio 303); thence 3) with the said Fluharty land North
86 degrees 37 minutes 14 seconds West 84.92 ft. to a marble monument found and
the land of Shu-Chai Willy Lin and H. Sharon Lin (Liber 209, Folio 290); thence
with the said Lin land the following two courses and distances: 4) North 04
degrees 06 minutes 01 seconds East 3.95 ft. to a concrete monument found; thence
5) South 82 degrees 49 minutes 35 seconds West 223.25 ft.; thence with a new
division line the following two courses and distances; 6) North 15 degrees 26
minutes 15 seconds West 546.26 ft.; thence 7) North 00 degrees 45 minutes 36
seconds East 16.12 ft to the place of beginning, containing 3.487 acres of land,
more or less.
A-1
<PAGE>
EXHIBIT B TO OPERATING AGREEMENT
FORM OF LEGAL OPINION
WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Avenue, Suite 120
Costa Mesa, California 92626
RE: 2nd Fairhaven, LLC
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the investment by WNC Housing Tax Credit Fund VI, L.P., Series
7, a California limited partnership (the "Investor Member") in 2nd Fairhaven,
LLC (the "Company"), a Maryland limited liability company formed to own, finance
and operate an apartment complex for low-income persons (the "Apartment
Complex") in Federalsburg, Caroline County, Maryland. The managing member(s) of
the Company are Larry C. Porter and Carter C. Chinnis (the "Managing
Member(s)").
In rendering the opinions stated below, we have examined and relied
upon the following:
(i) [Articles of Organization];
(ii) [Operating Agreement] (the "Operating Agreement");
(iii) A preliminary reservation letter from [State Allocating
Agency] (the "State Agency") dated _________, 200________
conditionally awarding $_______________ in Federal tax credits
annually for each of ten years and $_______________ in California
tax credits annually for each of four years for the Apartment
Complex; and
(iv) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred
to in this letter.
For purposes of rendering the opinions stated below we have assumed
that, in those cases in which we have not been involved directly in the
preparation, execution or the filing of a document, that (a) the document
reviewed by us is an original document, or a true and accurate copy of the
original document, and has not been subsequently amended, (b) the signatures on
each original document are genuine, and (c) each party who executed the document
had proper authority and capacity.
Based on the foregoing we are of the opinion that:
(a) ________________________, one of the Managing Members, is an
individual and has full power and authority to enter into and perform its
obligations under the Operating Agreement. _____________________, one of the
other Managing Members, is an individual and has full power and authority to
enter into and perform its obligations under the Operating Agreement.
B-1
<PAGE>
WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
______________, 200___
Page 2
(b) The Company is a limited liability company duly formed and validly
existing under the laws of the State of Maryland.
(c) The Company is validly existing under and subject to the laws of
Maryland with full power and authority to own, finance and operate the Apartment
Complex and to otherwise conduct business under the Operating Agreement.
(d) Execution of the Operating Agreement by the Managing Member(s) has
been duly and validly authorized by or on behalf of the Managing Member(s) and,
having been executed and delivered in accordance with its terms, the Operating
Agreement constitutes the valid and binding agreement of the Managing Member(s),
enforceable in accordance with its terms.
(e) The execution and delivery of the Operating Agreement by the
Managing Member(s) does not conflict with and will not result in a breach of any
of the terms, provisions or conditions of any agreement or instrument known to
counsel to which any of the Managing Member(s) or the Company is a party or by
which any of them may be bound, or any order, rule, or regulation to be
applicable to any of such parties of any court or governmental body or
administrative agency having jurisdiction over any of such parties or over the
property.
(f) To the best of counsel's knowledge, after due inquiry, there is no
litigation or governmental proceeding pending or threatened against, or
involving the Apartment Complex, the Company or any Managing Member which would
materially adversely affect the condition (financial or otherwise) or business
of the Apartment Complex, the Company or any of the Members of the Company.
(g) The Investor Member and the Special Member have been admitted to
the Company as investor members of the Company under __________ law and are
entitled to all of the rights of investor members under the Operating Agreement.
Except as described in the Operating Agreement, no person is a member of or has
any legal or equitable interest in the Company, and all former members of record
or known to counsel have validly withdrawn from the Company and have released
any claims against the Company arising out of their participation as members
therein.
(h) Liability of the Investor Member for obligations of the Company is
limited to the amount of the Investor Member's capital contributions required by
the Operating Agreement.
(i) Neither the Managing Member(s) of the Company nor the Investor
Member nor the Special Member will have any liability for the Mortgage
represented thereby (as those terms are defined in the Operating Agreement, and
the lender of the Mortgage Loan will look only to its security in the Apartment
Complex for repayment of the Mortgage Loan.
B-2
<PAGE>
WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
______________, 200___
Page 3
(j) The Company owns a fee simple interest in the Apartment Complex.
(k) To the best of our actual knowledge and belief, after due inquiry,
the Company has obtained all consents, permissions, licenses, approvals, or
orders required by all applicable governmental or regulatory agencies for the
development, [construction/rehabilitation] and operation of the Apartment
Complex, and the Apartment Complex conforms to all applicable Federal, state and
local land use, zoning, health, building and safety laws, ordinances, rules and
regulations.
(l) The Apartment Complex has obtained a preliminary reservation of low
income housing tax credits ("LIHTC") from the State Agency. The final allocation
of the LIHTC and ultimately eligibility of the Apartment Complex for such final
allocation are subject to a series of requirements which must be met, performed
or achieved at various times prior to and after such final allocation. Assuming
all such requirements are met, performed or achieved at the time or times
provided by applicable laws and regulations, the Apartment Complex will qualify
for LIHTC.
All of the opinions set forth above are qualified to the extent that
the validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to, the applicability
of, or liability under, any Federal, state or local law, ordinance or regulation
governing or pertaining to environmental matters, hazardous wastes, toxic
substances or the like.
We express no opinion as to any matter except those set forth above.
These opinions are rendered for use by the Investor Member and its legal counsel
which will rely on this opinion in connection with federal income tax opinions
to be rendered by that firm. This opinion may not be delivered to or relied upon
by any other person or entity without our express written consent.
Sincerely,
- --------------------
B-3
<PAGE>
EXHIBIT C TO OPERATING AGREEMENT
CERTIFICATION AND AGREEMENT
CERTIFICATION AND AGREEMENT made as of the date written below by 2nd
Fairhaven, LLC, a Maryland limited liability company (the "Company"); Larry C.
Porter and Carter C. Chinnis (collectively referred to as the "Managing Member")
for the benefit of WNC Housing Tax Credit Fund VI, L.P., Series 7, a California
limited partnership (the "Investment Membership"), and WNC & Associates, Inc.
("WNC").
WHEREAS, the Company proposes to admit the Investment Membership as an
Investor member thereof pursuant to an Second Amended and Restated Operating
Agreement of the Company (the "Operating Agreement"), in accordance with which
the Investment Membership will make substantial capital contributions to the
Company; and
WHEREAS, the Investment Membership and WNC have relied upon certain
information and representations described herein in evaluating the merits of
investment by the Investment Membership in the Company;
NOW, THEREFORE, to induce the Investment Membership to enter into the
Operating Agreement and become an Investor member of the Company, and for $1.00
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and the Managing Member hereby agree as follows
for the benefit of the Investment Membership and WNC.
1. Representations, Warranties and Covenants of the Company
and the Managing Member
The Company and the Managing Member jointly and severally represent,
warrant and certify to the Investment Membership and WNC that, with respect to
the Company, as of the date hereof:
1.1 The Company is duly organized and in good standing as a
limited liability company pursuant to the laws of the state of its formation
with full power and authority to own its apartment complex (the "Apartment
Complex") and conduct its business; the Company and the Managing Member have the
power and authority to enter into and perform this Certification and Agreement;
the execution and delivery of this Certification and Agreement by the Company
and the Managing Member have been duly and validly authorized by all necessary
action; the execution and delivery of this Certification and Agreement, the
fulfillment of its terms and consummation of the transactions contemplated
hereunder do not and will not conflict with or result in a violation, breach or
termination of or constitute a default under (or would not result in such a
conflict, violation, breach, termination or default with the giving of notice or
passage of time or both) any other agreement, indenture or instrument by which
C-1
<PAGE>
the Company or any Managing Member is bound or any law, regulation, judgment,
decree or order applicable to the Company or any Managing Member or any of their
respective properties; this Certification and Agreement constitutes the valid
and binding agreement of the Company and the Managing Member enforceable against
each of them in accordance with its terms.
1.2 The Managing Member has delivered to the Investment
Membership, WNC or their affiliates all documents and information which would be
material to a prudent investor in deciding whether to invest in the Company. All
factual information provided to the Investment Membership, WNC or their
affiliates either in writing or orally, did not, at the time given, and does
not, on the date hereof, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
are made.
1.3 Each of the representations and warranties contained
in the Operating Agreement is true and correct as of the date hereof.
1.4 Each of the covenants and agreements of the Company and
the Managing Member contained in the Operating Agreement has been duly performed
to the extent that performance of any covenant or agreement is required on or
prior to the date hereof.
1.5 All conditions to admission of the Investment Membership
as the investor member of the Company contained in the Operating Agreement have
been satisfied.
1.6 No default has occurred and is continuing under the
Operating Agreement or any of the Project Documents (as such term is defined in
the Operating Agreement) for the Company.
1.7 The Company will allocate to the Investor Member the
Projected Annual Tax Credits, or the Revised Projected Tax Credits, if
applicable.
1.8 The Managing Member agrees to take all actions necessary
to claim the Projected Tax Credit, including, without limitation, the filing of
Form(s) 8609 with the Internal Revenue Service.
1.9 No person or entity other than the Company holds any
equity interest in the Apartment Complex.
1.10 The Company has the sole responsibility to pay all
maintenance and operating costs, including all taxes levied and all insurance
costs, attributable to the Apartment Complex.
1.11 The Company, except to the extent it is protected by
insurance and excluding any risk borne by lenders, bears the sole risk of loss
if the Apartment Complex is destroyed or condemned or there is a diminution in
the value of the Apartment Complex.
1.12 No person or entity except the Company has the right to
any proceeds, after payment of all indebtedness, from the sale, refinancing, or
leasing of the Apartment Complex.
C-2
<PAGE>
1.13 No Managing Member is related in any manner to the
Investment Membership, nor is any Managing Member acting as an agent of the
Investment Membership.
2. Miscellaneous
2.1 This Certification and Agreement is made solely for the
benefit of the Investment Membership and WNC, and their respective successors
and assignees, and no other person shall acquire or have any right under or by
virtue of this Agreement.
2.2 This Certification and Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, all of
which together shall constitute one and the same instrument.
2.3 Capitalized terms used but not defined in this
Certification Agreement shall have the meanings given to them in the Operating
Agreement.
IN WITNESS WHEREOF, this Certificate and Agreement is made and entered
into as of the day of ____________, 2000.
COMPANY
- -------
2nd Fairhaven, LLC
- -------------------------
Larry C. Porter,
Managing Member
- -------------------------
Carter C. Chinnis,
Managing Member
MANAGING MEMBER
- ---------------
- -------------------------
Larry C. Porter
- -------------------------
Carter C. Chinnis
C-3
<PAGE>
EXHIBIT D TO OPERATING AGREEMENT
[ACCOUNTANT'S CERTIFICATE]
[Accountant's Letterhead]
_______________, 200____
WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Ave., Suite 120
Costa Mesa, California 92626
RE: Company
Certification as to Amount
of Eligible Tax Credit Base
Gentlemen:
In connection with the acquisition by WNC Housing Tax Credit Fund VI, L.P.,
Series 7 (the "Investor Member") of a membership interest in 2nd Fairhaven, LLC,
a Maryland limited liability company (the "Company") which owns a certain parcel
of land located in Federalsburg, Caroline County, Maryland and improvements
thereon (the "Apartment Housing"), the Investor Member has requested our
certification as to the amount of low-income housing tax credits ("Tax Credits")
available with respect to the Apartment Housing under Section 42 of the Internal
Revenue Code of 1986, as amended (the "Code"). Based upon our review of [the
financial information provided by the Company] of the Company, we are prepared
to file the Federal information tax return of the Company claiming annual Tax
Credits in the amount of $_______________, which amount is based on an eligible
basis (as defined in Section 42(d) of the Code) of the Apartment Housing of
$________________, a qualified basis (as defined in Section 42(c) of the Code)
of the Apartment Housing of $_________________ and an applicable percentage (as
defined in Section 42(b) of the Code) of _____%.
Sincerely,
- -------------------------
D-1
<PAGE>
EXHIBIT E TO THE OPERATING AGREEMENT
REPORT OF OPERATIONS
QUARTER ENDED:____________________________,200X
- ------------------------------------- -----------------------------------
LOCAL PARTNERSHIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
GENERAL PARTNER:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
FIRM NAME:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PROPERTY NAME:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
-----------------------------------
- ------------------------------------- -----------------------------------
RESIDENT MANAGER:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ACCOUNTANT:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
FIRM:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------ -----------------------------------
MANAGEMENT COMPANY
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
ADDRESS:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CITY, STATE, ZIP:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
PHONE:
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
CONTACT:
- ------------------------------------- -----------------------------------
- -------------------------------------------------------------------------------
OCCUPANCY INFORMATION
A. Number of Units_____ Number of RA Units_____ Number of Section 8 Tenants ____
B. Occupancy for the Quarter has: Increased ____ Decreased_____
Remained the Same _____
<PAGE>
C. Number of: Move-Ins ______ Move-Outs __________ % of Occupancy ______
D. Average length of tenant residency: 1-6 months ______ 6-12 months ______
1-3 years ______ Over 4 years_____
E. Number of Basic rent qualified applicants on waiting list: ________
F. If the apartments are less than 90% occupied, please explain why and
describe what efforts are being made to lease-up remaining units.
___________________________________________________________________________
G. On site manager: Full Time__________ Part Time____________.
If part-time, the number of hours per week_____________.
E-1
<PAGE>
OPERATIONAL INFORMATION
Rent Schedule and Increases from Previous Quarter
Number Monthly Rent Rent Increases Effective
of Units Basic / Market Amount Percent Date
1 Bedroom ________ ______________ _________________ ________
2 Bedroom ________ ______________ _________________ ________
3 Bedroom ________ ______________ _________________ ________
PROPOSED MAINTENANCE
Completed Funded by
Type Description or Operations or Amount
Planned Reserves
- ------------------------------------------------------------------------------
Interior Painting
- ------------------------------------------------------------------------------
Exterior Painting
- ------------------------------------------------------------------------------
Siding
- ------------------------------------------------------------------------------
Roofing
- ------------------------------------------------------------------------------
Drainage
- ------------------------------------------------------------------------------
Paving
- ------------------------------------------------------------------------------
Landscaping
- ------------------------------------------------------------------------------
Playground
- ------------------------------------------------------------------------------
Community Room
- ------------------------------------------------------------------------------
Laundry Room
- ------------------------------------------------------------------------------
Common Areas
- ------------------------------------------------------------------------------
Carpet
- ------------------------------------------------------------------------------
Appliances
- ------------------------------------------------------------------------------
Lighting
- ------------------------------------------------------------------------------
Other
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Please describe in detail any major repairs:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E-2
<PAGE>
CONDITION OF PROPERTY
THE OVERALL APPEARANCE OF THE BUILDING(S) IS:
Excellent Good Fair Bad
THE OVERALL APPEARANCE OF THE GROUNDS IS:
Excellent Good Fair Bad
EXTERIOR CONDITION (Please Check Appropriate Box)
- ------------------------------------------------------------------------------
Type of Condition Excellent Good Fair Problems/Comments
- ------------------------------------------------------------------------------
Signage
- -------------------------------------------------------------------------------
Parking Lots
- -------------------------------------------------------------------------------
Office/Storage
- -------------------------------------------------------------------------------
Equipment
- -------------------------------------------------------------------------------
Community Building
- -------------------------------------------------------------------------------
Laundry Room
- -------------------------------------------------------------------------------
Benches/Playground
- -------------------------------------------------------------------------------
Lawns, Plantings
- -------------------------------------------------------------------------------
Drainage, Erosion
- -------------------------------------------------------------------------------
Carports
- -------------------------------------------------------------------------------
Fences
- -------------------------------------------------------------------------------
Walks/Steps/Guardrails
- -------------------------------------------------------------------------------
Lighting
- -------------------------------------------------------------------------------
Painting
- -------------------------------------------------------------------------------
Walls/Foundation
- -------------------------------------------------------------------------------
Roof/Flashing/Vents
- -------------------------------------------------------------------------------
Gutters/Splashblocks
- -------------------------------------------------------------------------------
Balconies/Patios
- -------------------------------------------------------------------------------
Doors Windows/Screens
- -------------------------------------------------------------------------------
Elevators
- -------------------------------------------------------------------------------
INTERIOR CONDITION
- -------------------------------------------------------------------------------
Stairs
- -------------------------------------------------------------------------------
Flooring
- -------------------------------------------------------------------------------
Doors/Cabinets/Hardware
- -------------------------------------------------------------------------------
Drapes/Blinds
- -------------------------------------------------------------------------------
Interior Painting
- -------------------------------------------------------------------------------
Refrig/Stoves/Sinks
- -------------------------------------------------------------------------------
Bathroom/Tubs/Showers
Toilets
- -------------------------------------------------------------------------------
E-3
<PAGE>
FINANCIAL STATUS
A. Replacement Reserve is: Fully-funded Under-funded Amount
(complete attached schedule)
Tax/Insurance Escrow is: Fully-funded Under-funded Amount
(complete attached schedule)
Property is operating at a: Surplus Deficit Amount
If deficit, General Partner funding? Yes No Amount
Mortgage Payments are: On Schedule Delinquent Amount
Are the taxes current? Yes No
(please provide copy of paid tax bill)
Is the insurance current? Yes No Renewal Date
(please provide copy of yearly renewal)
B. Please note and explain any significant changes in the following:
Administrative Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Repairs/Maintenance Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Utility Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Taxes/Insurance Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
C. Do you anticipate making a return to owner distribution? Yes No
Explanation:
------------------------------------------------------------------------
------------------------------------------------------------------------
D. Please explain in detail any change in the financial condition:
------------------------------------------------------------------------
------------------------------------------------------------------------
E. Any insurance claims files? Yes______ No______
If yes, please explain:
------------------------------------------------------------------------
------------------------------------------------------------------------
E-4
<PAGE>
SCHEDULE OF RESERVES
Replacement Tax & Insurance Other Total
Beginning Balance:
Deposits:
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
Total Deposits
----------- ---------- ------- -------
Authorized Disbursements:
Description:
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
Total Disbursements: ----------- ---------- -------- ------
Ending Balance: (1) ----------- ---------- -------- ------
Required Balance: ----------- ---------- -------- ------
Over/under funding: ----------- ---------- -------- ------
(1) Must agree with amount shown on the balance sheet.
Prepared By: Date:
- -------------------------------------------------------------------------------
Firm: Telephone:
- -------------------------------------------------------------------------------
Reminder: Please include the following documents:
1. Completed Report of Operations
2. Balance Sheet
3. Statement of Income & Expenses
4. Rent roll for quarter ending
5. Tax Credit Compliance Report
E-5
<PAGE>
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
Fund: Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
Property Name: [ ] 20/50 or [ ] 40/60 Election
Address: Does the 51% average apply?
[ ] Y [ ] N
Deeper Set-Aside __% @ 50% AMI
County:
Management Company
[ ] Multi-Family Contact Person:
[ ] Elderly
24 Number of Units Phone #
Number of Exempt
Units
LIHTC Project#
- -----------------------------------------------------------------------------
Gross Move-In
Unit First Time Move-In No. of No. in Income Income
No. Tenant Name Date Bdrms Sq. Ft. Set-Aside Unit Move-In Limits
- -------------------------------------------------------------------------------
BIN # Certificate of Occupancy Date:
- -----------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BIN # Certificate of Occupancy Date:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BIN # Certificate of Occupancy Date:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
(CONTINUED)
Tenant Tenant
Income Income Asset Unit Rent Tenant Utility
Qualified Verification Verification Rent Subsidy Payment Allowance
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
YES
- -------------------------------------------------------------------------------
<PAGE>
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
(CONTINUED)
Tenant Tenant Overall
Gross Maximum Rent Tenant
Rent Rent Qualified Eligible
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
YES YES
- -------------------------------------------------------------------------------
E-6
<PAGE>
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
Quarter Ending: Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
[ ] 20/50 or [ ] 40/60 Election
Does the 51% average apply? [ ] Y [ ] N
Deeper Set-Aside : ( List Details)
County: Allocation: Management Company:
Pre-1990 (Rent based on number of persons) Contact Person:
Elected to change No. Bedrm
Post-1989 (Based on number of Bedroom)
[ ] Multi-Family [ ] Elderly Phone No.
Number of Units
Number of Exempt Units Fax No.
Prepared by:
LIHTC Project#
- -----------------------------------------------------------------------------
Gross Annual
Unit Tenant Move-In No. Of Inc. Set- No. In Annual Income
No. Name Date Bdrms Pct. Aside Unit Income Limits
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
(CONTINUED)
Annual Tenant Less
Recert. Income Income Assets Unit Rent Tenant
Date Qualified Verified Verified Rent Subsidy Payment
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Tenant Tenant Overall
Utility Gross Maximum Rent Tenat
Allow. Rent Rent Qualified Eligible
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
E-7
<PAGE>
Tenant Tax Credit Compliance Audit
Document Transmittal Checklist
Unit Number Property Name Date
Tenant Name Completed By:
Initial _________ Annual________
Check Box for Type of Certification Management Company
This Section For WNC Use Only
Check Documents Being Sent
Received. Reviewed
___Internal Checklist or worksheet
___Initial - Rental Application/Rental Agreement
___Initial - Questionnaire of Income/Assets
___Recertification - Questionnaire of Income/Assets
___Recertification - Addendum to Lease
___Employment Verification
___Employment Termination Verification
___Military Verification
___Verification of Welfare Benefits
___Verification of Social Security Benefits
___Verification of Disability Benefits
___Unemployment Verification
___Verification of Unemployment Compensation
___Verification Worksmen Compensation
___Retirement/Annuities Verification
___Verification of Veterans Pension
___Verification of Child Support
___Verification of Alimony Support
___Disposed of Assets Last 2 yrs.
___Real Estate
___Investment
___Assets Verifications (savings, stocks etc.)
___Trusts/with Current Tax Return
___Lump Sum Settlements
___Notarized Affidavit of Support
___Certification of Handicap
___Notarized Self-Employed-Tax Return
___Notarized statement of no income
___Tenant Certification
- ------------------------------------------------------------------------------
This Section For WNC Use Only
YES NO
Are all required forms completed?
Are all required forms dated?
Did the Manager and Tenant sign all documents?
Third party verification of income completed?
Third party verification of assets completed?
Are verifications completed for all members 18 yrs. and
over?
Did all the members of the household 18 yrs. and
over sign all documents?
Is lease completed with a minimum of six months/ SRO
monthly?
Addendum completed?
Tenant Certification completed?
Are all members of the household full-time students?
Is utility allowance correct?
Is correct income limit being used?
Is correct rent limit being used?
For tenants with no income
Was notarized statement of no income obtained with tax
return?
or Were all sources verified (AFDC, Unemployment,
Soc. Sec., Disability)?
E-8
<PAGE>
TAX CREDIT COMPLIANCE MONITORING:
ANNUAL CERTIFICATION
As Managing Member of 2nd Fairhaven, LLC, I hereby certify as to the
following:
1. 2nd Fairhaven, LLC owns a eighteen (18) unit project ("Apartment
Housing") in Federalsburg, Caroline County, Maryland .
2. An annual income certification (including supporting documentation) has
been received from each tenant. The income certification reflects that the
tenant's income meets the income limitation applicable to the Apartment Housing
pursuant to Section 42(g)(1) of the Internal Revenue Code ("Code").
3. The Apartment Housing satisfies the requirements of the applicable
minimum set aside test as defined in Section 42(g)(1) of the Code.
4. Each unit within the Apartment Housing is rent restricted as defined in
Section 42(g)(2)of the Code.
5. Each unit in the Apartment Housing is available for use by the general
public and not for use on a transient basis.
6. Each building in the Apartment Housing is suitable for occupancy in
accordance with local health, safety, and building codes.
7. During the preceding calendar year, there had been no change in the
eligible basis, as defined in Section 42(d)of the Code, of any building within
the Apartment Housing.
8. All common area facilities included in the eligible basis of the
Apartment Complex are provided to the tenants on a comparable basis without a
separate fee to any tenant in the Apartment Housing.
9. During the preceding calendar year when a unit in the Apartment Housing
became vacant reasonable attempts were made to rent that unit to tenants whose
incomes met the income limitation applicable to the Apartment Housing pursuant
to Section 42(g)(1) of the Code and while that unit was vacant no units of
comparable or smaller size were rented to tenants whose income did not meet the
income limitation applicable to the Apartment Housing pursuant to Section
42(g)(1) of the Code.
10. If the income of a tenant in a unit increased above the limit allowed
in Section 42 (g)(2)(D)(ii), then the next available unit of comparable or
smaller size was rented to tenants whose incomes met the income limitation
applicable to the Apartment Housing pursuant to Section 42(g)(1) of the Code.
E-9
<PAGE>
IN VERIFICATION OF THE FOREGOING ENCLOSED HEREWITH IS A COPY OF THE ANNUAL
INCOME CERTIFICATION RECEIVED FROM EACH TENANT IN THE PROJECT. UPON REQUEST I
WILL PROVIDE COPIES OF ALL DOCUMENTATION RECEIVED FROM THE TENANT TO SUPPORT
THAT CERTIFICATION.
I declare under penalty of perjury under the law of the State of
Maryland that the foregoing is true and correct.
Executed this day of at , .
--- ---------- ------------- ----------------
- ------------------------------------
E-10
<PAGE>
Calculation of Debt Service Coverage
Month 1 Month 2 Month 3
------------ ------------ ------------
INCOME
Gross Potential Rent
Other Income
Vacancy Loss
------------ ------------ ------------
Adjusted Gross Income
------------ ------------ ------------
OPERATING EXPENSES
Utilities
Maintenance
Management Fee
Administration
Insurance
Real Estate Taxes
Other Expenses
------------ ------------ ------------
Total Operating Expenses
------------ ------------ ------------
Net Operating Income (1)
Accrual adjustments for:
R/E Taxes
Insurance
Tax/ Accounting
Other
Replacement Reserves
------------ ------------ ------------
Income for DSC Calculation
============ ============ ============
------------ ------------ ------------
Stabilized Debt Service
------------ ------------ ------------
------------ ------------ ------------
Debt Service Coverage (2)
------------ ------------ ------------
Please submit this form along with the following supporting
documentation:
Monthly Financial Reports (income statement, balance sheet,
general ledger and rent rolls) Operating Budget Copies of bank
statements.
(1) This number should reconcile easily with the monthly financial
statements
(2) The ratio between the Income for DSC calculation and
Stabilized Debt Service. As example, a 1.15 DSC means that for
every $1.00 of Stabilized Debt Service required to be paid there
must be $1.15 of Net Operating Income available.
E-11
<PAGE>
AMENDED DEVELOPMENT FEE AGREEMENT
This Amended Development Fee Agreement ("Agreement"), is entered into
as of the date written below by and between Carter C. Chinnis ("Developer") and
2nd Fairhaven, LLC, a Maryland limited liability company ("Owner"). Developer
and Owner collectively may be referred to as the "Parties" or individually may
be referred to as a "Party".
RECITALS
A. Owner has acquired the real property located in Federalsburg,
Caroline County, Maryland, as more particularly described in Exhibit A attached
hereto and incorporated herein (the "Real Property").
B. Owner developed on the Real Property an eighteen (18) unit
low-income rental housing complex and other related improvements, which
qualifies for federal low-income housing tax credits (the "Apartment Housing").
C. Owner and Developer have entered into a Development Fee Agreement
on January 1, 1999 (the "Original Development Fee Agreement").
D. Prior to the date of this Agreement and pursuant to the Original
Development Fee Agreement Developer has performed substantial development
services with respect to the Apartment Housing as specified in Section 2.3 of
this Agreement. Developer also oversaw the development of the Apartment Housing
until all construction work was completed and provided certain services relating
thereto. The Parties recognize and acknowledge that the Developer is, and has
been, an independent contractor in all services rendered to, and to be rendered
to, the Owner pursuant to this Amended Development Fee Agreement.
E. Owner desires to amend and restate the Original Development Fee
Agreement with Developer through this Amended Development Fee Agreement for
Developer's services to manage, oversee, and complete development of the
Apartment Housing. Developer desires to commit its existing development
agreement with Owner into writing through this Amended Development Fee Agreement
and Developer is willing to assign all development rights to the Apartment
Housing to Owner, to undertake performance of such development services, and to
fulfill all obligations of the Developer set forth in this Agreement, in
consideration of Owner's restated promise to pay to Developer the fee specified
in this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises and undertakings in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Owner and Developer agree as follows.
SECTION I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall, when capitalized,
have the following meanings:
1
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Department" means the Maryland agency responsible for the reservation
and allocation of Tax Credits.
"Development Fee" means the fee for development services described in
Section 2 of this Agreement.
"Amended Operating Agreement" shall mean the Second Amended and
Restated Operating Agreement of 2nd Fairhaven, LLC, a Maryland limited liability
company, which Amended Operating Agreement is incorporated herein by this
reference. Any terms capitalized but not defined herein shall have the meaning
ascribed in the Operating Agreement.
"Tax Credits" means the low-income housing tax credits found in Section
42 of the Code, and all rules, regulations, rulings, notices and other
promulgations thereunder.
SECTION 2
ENGAGEMENT OF DEVELOPER; FEE; SERVICES
2.1 Engagement; Term. Owner hereby confirms the engagement of Developer
to act as developer of the Apartment Housing, and to perform the various
covenants and obligations of the Developer under this Agreement. Developer
hereby confirms and accepts such engagement and agrees to perform fully and
timely each and every one of its obligations under this Agreement. The term of
such engagement shall commence on the date hereof and subject to the pre-payment
provisions of Section 3 shall expire on December 31, 2010.
2.2 Development Fee. In consideration of Developer's prior activities
and Developer's agreement to provide development services during the term of
this Agreement, Owner agrees to pay the Developer a Development Fee in the
amount of $164,800. The Development Fee shall be payable in accordance with
Section 3 of this Agreement.
2.3 Development Services.
(a) Prior Services. Owner acknowledges that Developer has, prior
to the date hereof, performed substantial development services relating to the
Apartment Housing. Such services (the "Prior Services") have included the
following.
(1) Services Rendered Prior to December 31, 1999.
(A) Developer negotiated and conferred with the
contractor and recommended to the Owner to enter into a construction contract
with the contractor for the building of the Apartment Housing.
(B) Developer: estimated the cost of
construction; determined the construction period; prepared a monthly-estimated
construction chart reflecting the construction services required each month; and
prepared a preliminary construction budget.
(C) Developer reviewed the plans and
specifications for compliance with design criteria and construction contracts.
2
<PAGE>
(D) Developer negotiated and conferred with
public authorities relating to traffic control, flood control and other matters
affecting the development of the Apartment Housing.
(E) Developer negotiated and conferred with an
architect and recommended to the Owner to execute an architectural contract for
the planning and design of the Apartment Housing.
(F) Developer created, refined and analyzed the
financial projections for the Apartment Housing.
(G) Developer negotiated, conferred, and worked
with the Apartment Housing architects, engineers and contractor with regard to
preparation, refinement, and finalization of the plans and specifications for
the Apartment Housing, and projected construction schedules and costs.
(H) Developer negotiated and conferred with the
construction lender to obtain the construction loan.
(I) Developer negotiated and conferred with an
insurance carrier to provide a builder's risk policy during construction.
(J) Developer exerted its best efforts to ensure
that the contractor performed its obligations under the construction documents
in a diligent and timely manner.
(K) Developer participated in and provided
assistance with regard to pre-construction conferences and pre-construction
documents, including drawings, specifications, contracts, and schedules.
(L) Developer reviewed all construction
documents, identified construction issues and participated in the resolution of
such issues.
(M) Developer reviewed and approved subcontract
bids received by the contractor.
(N) Developer established and administered
field order and change order procedures.
(O) Developer coordinated performance of Owner's
obligations under the construction phase for the Apartment Housing, including
the preparation of draw requests.
(P) Developer attended construction progress
meetings at the Apartment Housing site to monitor construction progress and
advised Owner and the contractor with respect to the resolution of construction
issues.
(Q) Developer reviewed the contractor's monthly
pay applications.
(R) Developer monitored the contractor's
progress with respect to the approved Apartment Housing schedule and kept the
Owner informed of all pertinent Apartment Housing issues and construction
progress.
3
<PAGE>
(S) Developer advised Owner with respect to
relations with engineers, architects, and other construction professionals.
(T) Developer was available for immediate
response in critical situations arising during the construction of the Apartment
Housing.
(U) Developer coordinated relations with the
City of Federalsburg and other governmental authorities having jurisdiction over
development of the Apartment Housing.
(2) Tax Credit Matters. The Developer provided the
following services to Owner with regard to the Tax Credits which services did
not constitute the rendering of legal or tax advice:
(A) Developer consulted with and advised Owner
concerning construction issues that could affect the amount of Tax Credits for
which the Apartment Housing is eligible.
(B) Developer consulted with and advised Owner
with respect to the requirements of the Department as they relate to the
construction and development of the Apartment Housing.
(C) Developer monitored construction progress
with respect to the Apartment Housing schedule agreed to with the Department, if
any.
(b) Assignment of Development Rights. Developer hereby assigns to Owner
all rights to the development of the Apartment Housing, including but not
limited to, all tangible and intangible rights arising with respect to the name
2nd Fairhaven, LLC, the design of the Apartment Housing, the plans and
specifications for the Apartment Housing and all rights arising under the
agreements with Apartment Housing architects, engineers and other Apartment
Housing design and construction professionals.
SECTION 3
DEVELOPMENT FEE PAYMENTS
Payment of Development Fee. The Development Fee shall be paid to the
Developer from Capital Contribution payments received by the Owner in accordance
with Section 9.2(b) of the Operating Agreement. If the Development Fee is not
paid in full in accordance with Section 9.2(b) of the Amended Operating
Agreement then the balance of the Development Fee shall be paid from available
Net Operating Income in accordance with the terms of Section 11.1 of the
Operating Agreement, but in no event later than December 21, 2010. Also, if the
Development Fee is not paid in full in accordance with Section 9.2(b) of the
Operating Agreement then the unpaid portion shall accrue interest at a rate
equal to the 5-year Treasury money market rate in effect as of the date of the
last Capital Contribution payment referenced in Section 7.1(b) of the Operating
Agreement.
SECTION 4
TERMINATION
Neither Party to this Agreement shall have the right to terminate this
Agreement prior to the expiration of the term without cause. Owner may terminate
4
<PAGE>
this Agreement without further liability, for cause, which shall mean any one of
the following:
(a) a material breach by Developer of its obligations under this
Agreement that is not cured within thirty (30) days after notice thereof (or, as
to any non-monetary obligations that is not reasonably capable of cure within 30
days, and provided that cure is commenced within 10 days of notice and
diligently pursued thereafter to completion, within such time as may reasonably
be necessary to complete such cure);
(b) a fraudulent or intentionally incorrect report by Developer to
Owner with respect to the Apartment Housing; or
(c) any intentional misconduct or gross negligence by Developer
with respect to its duties under this Contract.
Upon proper termination of this Agreement by Owner pursuant to this
Section 4, all rights of Developer to receive unearned Development Fees pursuant
to this Agreement with respect to services not yet performed shall terminate.
Developer shall receive the full Development Fee for Prior Services and shall
receive a portion of the Development Fee for Future Services based on the
percentage of completion of construction of the Apartment Housing at the time of
termination. Nothing in this Section 4 shall be deemed to prevent Owner from
bringing an action against Developer to recover fully all damages resulting from
any of the causes set forth in paragraphs (a), (b) or (c) above, or to prevent
Owner from contending in any action or proceeding that the Future Services were
not earned by Developer.
SECTION 5
GENERAL PROVISIONS
5.1 Notices. Notices required or permitted to be given under this
Agreement shall be in writing sent by registered or certified mail, postage
prepaid, return receipt requested, to the Parties at the following addresses, or
such other address as is designated in writing by the Party, the date of
registry thereof, or the date of certification receipt therefor being deemed the
date of such notice; provided, however, that any written communication
containing such information sent to a Party actually received by a Party shall
constitute notice for all purposes of this Agreement.
If to Developer: Carter C. Chinnis
410 Market Street
Denton, Maryland 21629
5
<PAGE>
If to Owner: 2nd Fairhaven, LLC
c/o Larry C. Porter
410 Market Street
Denton, Maryland 21629
5.2 Interpretation.
(a) Headings. The section headings in this Agreement are included for
convenience only; they do not give full notice of the terms of any portion of
this Agreement and are not relevant to the interpretation of any provision of
this Agreement.
(b) Relationship of the Parties. Neither Party hereto shall be deemed
an agent, member, joint venturer, or related entity of the other by reason of
this Agreement and as such neither Party may enter into contracts or agreements
which bind the other Party.
(c) Governing Law. The Parties intend that this Agreement shall be
governed by and construed in accordance with the laws of the state of Maryland
applicable to contracts made and wholly performed within Maryland by persons
domiciled in Maryland.
(d) Severability. Any provision of this Agreement that is deemed
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without rendering invalid or unenforceable the remaining
provisions of this Agreement.
5.3 Integration; Amendment. This Agreement constitutes the entire
agreement of the Parties relating to the subject matter hereof. There are no
promises, terms, conditions, obligations, or warranties other than those
contained herein. This Agreement supersedes all prior communications,
representations, or agreements, verbal or written, among the Parties relating to
the subject matter hereof. This Agreement may not be amended except in writing.
5.4 Attorney's Fees. If any suit or action arising out of or related to
this Agreement is brought by any Party to any such document, the prevailing
Party shall be entitled to recover the costs and fees (including without
limitation reasonable attorneys' fees and costs of experts and consultants,
copying, courier and telecommunication costs, and deposition costs and all other
costs of discovery) incurred by such Party in such suit or action, including
without limitation to any post-trial or appellate proceeding.
5.5 Binding Effect. This Agreement shall bind and inure to the
benefit of, and be enforceable by, the Parties hereto and their respective
successors, heirs, and permitted assigns.
5.6 Assignment. Neither Party may assign this Agreement without the
consent of the other Party. No assignment shall relieve any Party of liability
under this Agreement unless agreed in writing to the contrary.
5.7 Third-Party Beneficiary Rights. No person not a Party to this
Agreement is an intended beneficiary of this Agreement, and no person not a
Party to this Agreement shall have any right to enforce any term of this
6
<PAGE>
Agreement. Notwithstanding the Parties acknowledge that WNC Housing Tax Credit
Fund VI, L.P., Series 7 shall have the right to enforce any term of this
Agreement.
5.8 Related Parties. The Parties acknowledge that the Owner and
Developer are related parties under Code Section 267 and that Owner is an
accrual basis taxpayer. As such, the Parties agree and consent that each and
every year during the term of this Agreement that Owner accrues any or all of
the principal and/or interest of the Development Fee that the Developer (whether
or not an accrual basis taxpayer) will include an equal amount in Developer's
income tax return for that year.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all the Parties, notwithstanding that all Parties are not signatories to the
same counterpart.
5.10 Further Assurances. Each Party agrees, at the request of the other
Party, at any time and from time to time after the date hereof, to execute and
deliver all such further documents, and to take and forbear from all such
action, as may be reasonably necessary or appropriate in order more effectively
to perfect the transfers or rights contemplated herein or otherwise to confirm
or carry out the provisions of this Agreement.
5.11 Mandatory Arbitration. Any person enforcing this Agreement may
require that all disputes, claims, counterclaims, and defenses ("Claims")
relating in any way to this Agreement or any transaction of which this Agreement
is a part (the "Transaction"), be settled by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and Title 9 of the U.S. Code. All claims will be subject to the statutes of
limitation applicable if they were litigated.
If arbitration occurs, one neutral arbitrator will decide all issues
unless either Party's Claim is $100,000.00 or more, in which case three neutral
arbitrators will decide all issues. All arbitrators will be active Maryland
State Bar members in good standing. In addition to all other powers, the
arbitrator(s) shall have the exclusive right to determine all issues of
arbitrability. Judgment on any arbitration award may be entered in any court
with jurisdiction.
If either Party institutes any judicial proceeding relating to the
Transaction, such action shall not be a waiver of the right to submit any Claim
to arbitration. In addition, both Parties have the right before, during, and
after any arbitration to exercise any of the following remedies, in any order or
concurrently: (i) setoff, (ii) self-help repossession, (iii) judicial or
non-judicial foreclosure against real or personal property collateral, (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery, and replevin.
This arbitration clause cannot be modified or waived by either Party
except in a writing that refers to this arbitration clause and is signed by both
Parties.
7
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amended Development Fee
Agreement to be executed as of ___________________, 2000.
DEVELOPER:
----------------------------
Carter C. Chinnis
OWNER: 2nd Fairhaven, LLC
-----------------------------
Larry C. Porter,
Managing Member
-----------------------------
Carter C. Chinnis,
Managing Member
8
<PAGE>
EXHIBIT A
All that lot or parcel of land situate lying and being in the Town of
Federalsburg, Fifth Election District, Caroline County, Maryland and being more
particularly described as follows: Beginning for the same at a point at the
northwesterly corner of the herein described land, said point bearing South 76
degrees 34 minutes 26 seconds East 61.50 ft. from a concrete monument found at
the southwesterly corner of the land of People for Better Housing, Inc. (Liber
210, Folio 138) and the northwesterly corner of the land of R. Levi Saunders, et
al. (Liber 221, Folio 526 and part, and from said place of beginning running 1)
with the said People For Better Housing land South 76 degrees 34 minutes 26
seconds East 337.42 ft.; thence 2) with a new division line South 15 degrees 26
minutes 15 seconds East 462.07 ft. to the land of Ronald M. Fluharty and Joyce
W. Fluharty (Liber 171, Folio 303); thence 3) with the said Fluharty land North
86 degrees 37 minutes 14 seconds West 84.92 ft. to a marble monument found and
the land of Shu-Chai Willy Lin and H. Sharon Lin (Liber 209, Folio 290); thence
with the said Lin land the following two courses and distances: 4) North 04
degrees 06 minutes 01 seconds East 3.95 ft. to a concrete monument found; thence
5) South 82 degrees 49 minutes 35 seconds West 223.25 ft.; thence with a new
division line the following two courses and distances; 6) North 15 degrees 26
minutes 15 seconds West 546.26 ft.; thence 7) North 00 degrees 45 minutes 36
seconds East 16.12 ft to the place of beginning, containing 3.487 acres of land,
more or less.
<PAGE>
GUARANTY AGREEMENT
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, and in consideration of the agreement of Carter C. Chinnis (the
"Developer") to permit deferral of the $164,800 due from 2nd Fairhaven, LLC, a
Maryland limited liability company ("Debtor") to the Developer, the undersigned
Guarantor(s), hereby unconditionally guarantees the full and prompt payment when
due, whether by acceleration or otherwise of that certain Developer Fee from
Debtor to the Developer, evidenced by the Development Fee Agreement dated the
even date herewith, and incorporated herein by this reference. The foregoing
described debt is referred to hereinafter as the "Liabilities" or "Liability."
The undersigned further agree to pay all expenses paid or incurred by
the Debtor or Developer in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing the Liabilities or this Guaranty Agreement (including
reasonable attorneys' fees if collected or enforced by law or through an
attorney-at-law). The undersigned hereby represents and warrants that the
extension of credit or other financial accommodations by the Developer to Debtor
will be to the interest and advantage of the undersigned, and acknowledges that
this Guaranty Agreement is a substantial inducement to the Developer to extend
credit to Debtor and that the Developer would not otherwise extend credit to
Debtor.
Debtor or Developer may, from time to time, without notice to or
consent of the undersigned, (a) retain or obtain a security interest in any
property to secure any of the Liabilities or any obligation hereunder, (b)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the undersigned, with respect to any of the Liabilities and (c)
resort to the undersigned for payment of any of the Liabilities, whether or not
the Debtor or Developer shall have resorted to any property securing any of the
Liabilities or any obligation hereunder or shall have preceded against any other
party primarily or secondarily liable on any of the Liabilities.
Debtor and Developer must mutually agree to (a) extend or renew for any
period this Agreement (whether or not longer than the original period) or alter
any of the Liabilities, (b) release or compromise any Liability of the
undersigned hereunder or any Liability of any other party or parties primarily
or secondarily liable on any of the Liabilities, or (c) release, compromise or
subordinate its title or security interest, or any part thereof, if any, in all
or any property now or hereafter securing any of the Liabilities or any
obligation hereunder, and permit any substitution or exchange for any such
property,
The undersigned hereby expressly waives: (a) notice of the existence or
creation of all or any of the Liabilities, (b) notice of any amendment or
1
<PAGE>
modification of any of the instruments or documents evidencing or securing the
Liabilities, (c) presentment, demand, notice of dishonor and protest, (d) all
diligence in collection or protection of or realization upon the Liabilities or
any thereof, any obligation hereunder, or any security for any of the foregoing,
and (e) the right to require the Developer to proceed against Debtor on any of
the Liabilities, though nothing herein shall prevent the Developer from
proceeding against Debtor on any of the Liabilities.
In the event any payment of Debtor to the Developer is held to
constitute a preference under the bankruptcy laws, or if for any other reason
the Developer is required to refund such payment or pay the amount thereof to
any other party, such payment by Debtor to the Developer shall not constitute a
release of Guarantor from any Liability hereunder, but Guarantor agrees to pay
such amount to the Developer upon demand and this Guaranty shall continue to be
effective or shall be reinstated, as the case may be, to the extent of any such
payment or payments.
No delay or failure on the part of the Developer in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Developer of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy. No action of the
Developer permitted hereunder shall in any way impair or affect this Guaranty
Agreement. For the purpose of this Guaranty Agreement, the Liabilities of Debtor
to the Developer are guaranteed notwithstanding any right or power of Debtor or
anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
impair or affect the obligations of the undersigned hereunder.
Any payment from Guarantor directly to Developer in accordance with
this Agreement shall be classified and booked as a non-refundable cost overrun
payment from Guarantor to Debtor in consideration of this Guaranty Agreement and
then a payment by Debtor to Developer in consideration of the Amended
Development Fee Agreement.
This Guaranty Agreement shall be binding upon the undersigned, and upon
the legal representatives, heirs, successors and assigns of the undersigned, and
may be enforced against them by the Debtor or Developer or their legal
representatives, heirs, successors and assigns.
This Guaranty Agreement has been made and delivered in the state of
Maryland and shall be construed and governed under Maryland law.
Whenever possible, each provision of the Guaranty Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition of invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty Agreement.
2
<PAGE>
Whenever the singular or plural number, masculine or feminine or neuter
is used herein, it shall equally include the other where applicable. In the
event this Guaranty Agreement is executed by more than one guarantor, this
Guaranty Agreement and the obligations hereunder are the joint and several
obligation of all the undersigned.
Guarantor consents to the jurisdiction of the courts in the State of
Maryland and/or to the jurisdiction and venue of any United States District
Court in the State of Maryland having jurisdiction over any action or judicial
proceeding brought to enforce, construe or interpret this Guaranty. Guarantor
agrees to stipulate in any such proceeding that this Guaranty is to be
considered for all purposes to have been executed and delivered within the
geographical boundaries of the State of Maryland, even if it was, in fact,
executed and delivered elsewhere.
IN WITNESS WHEREOF, the undersigned have hereunto caused this Guaranty
Agreement to be executed as of _______________________, 2000.
Signed, sealed and delivered GUARANTOR:
in the presence of:
- ---------------------------- --------------------------
Larry C. Porter
Witness
--------------------------
____________________________ Carter C. Chinnis
Notary Public
My Commission Expires:
Address for Guarantor:
Cabell Corporation,
____________________________ P.O. Box 499
(NOTARY SEAL) Denton, Maryland 21629
3
<PAGE>
OPERATING BUDGET AGREEMENT
This Operating Budget Agreement ("Agreement") is entered into as of the
date written below by and between 2nd Fairhaven, LLC, a Maryland limited
liability company ("Owner"), Larry C. Porter and Carter C. Chinnis (collectively
the "Managing Member"), WNC Housing Tax Credit Fund VI, L.P., Series 7, a
California limited partnership ("Investor Member"), and WNC Housing, L.P., a
California limited partnership ("Special Member"). Owner, Managing Member,
Investor Member, and Special Member collectively may be referred to as the
"Parties" or individually may be referred to as a "Party".
RECITALS
A. Owner has acquired 3.487 acres of land in Federalsburg, Caroline
County, Maryland (the "Real Property").
B. Owner developed on the Real Property an eighteen (18) unit
low-income rental housing complex and other related improvements for elderly,
which is intended to qualify for federal low-income housing tax credits (the
"Apartment Housing").
C. On the even date herewith a Second Amended and Restated Operating
Agreement for 2nd Fairhaven, LLC ("Operating Agreement") was entered into by and
between Larry C. Porter and Carter C. Chinnis as the managing members
(collectively the "Managing Member"), WNC Housing Tax Credit Fund VI, L.P.,
Series 7 as the Investor Member and WNC Housing, L.P. as the Special Member (the
Operating Agreement is incorporated herein by this reference as if the same were
reproduced in full and any capitalized terms not defined in this Agreement shall
have the meaning as defined in the Operating Agreement).
D. In determining whether to be admitted into 2nd Fairhaven, LLC and
contribute funds to the operation of the Apartment Housing, the Investor Member
and Special Member performed a due diligence review. Part of the due diligence
review included an analysis of the available sources of funds to develop the
Apartment Housing and the anticipated revenues associated with the rental of the
Apartment Housing units and the expenses required to operate the Apartment
Housing.
E. The Parties recognize and acknowledge that a final operating budget
involves substantial negotiations with lenders and governmental authorities.
F. Investor Member's and Special Member's decision to execute the
Operating Agreement is based, in part, on their acceptance of the sources of
funds available to develop the Apartment Housing, and the operating budget
necessary to provide a positive Debt Service Coverage.
Now Therefore, in consideration of the foregoing recitals which are a
part of this Agreement, the mutual promises and undertakings in this Agreement,
1
<PAGE>
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows.
1. Source of Funds. Attached hereto as Exhibit "A" and incorporated
herein by this reference is the Apartment Housing Source of Funds. The Source of
Funds have been specified in the Operating Agreement as the construction loan,
the Mortgage, the Capital Contribution of the Managing Member, the Capital
Contribution of the Investor Member and the Capital Contribution of the Special
Member. Unless expressly permitted in the Operating Agreement, Consent of the
Special Member is required for any change to the Source of Funds.
2. Operating Proforma. Attached hereto as Exhibit "B" and incorporated
herein by this reference is the Operating Proforma. Owner acknowledges and
represents that the attached Operating Proforma has been reviewed by and
approved by the Mortgage lender and any governmental authorities if applicable.
3. Notices. Any notice given pursuant to this Agreement may be served
personally on the Party to be notified, or may be mailed, first class postage
prepaid, to the following address, or to such other address as a Party may from
time to time designate in writing:
To the Managing Member: Larry C. Porter
P.O. Box 499
Denton, Maryland 21629
Carter C. Chinnis
P.O. Box 499
Denton, Maryland 21629
To the Investor Member: WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
To the Special Member: WNC Housing, L.P.
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
3. Successors and Assigns. All the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the Parties.
4. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument which may sufficiently be
evidenced by one counterpart.
5. Captions. Captions to and headings of the Sections of this Agreement
are solely for the conveniences of the Parties, are not a part of this
Agreement, and shall not be used for the interpretation or determination of the
validity of this Agreement or any provision hereof.
2
<PAGE>
6. Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
7. Governing Law. This Agreement and its application shall be governed
by the laws of Maryland.
8. Attorney's Fees. If a suit or action is instituted in connection
with an alleged breach of any provision of this Agreement, the prevailing Party
shall be entitled to recover, in addition to costs, such sums as the court may
adjudge reasonable as attorney's fees, including fees on any appeal.
In Witness Whereof, this Operating Budget Agreement is made and entered
into as of _________, 2000.
MANAGING MEMBER
Larry C. Porter
---------------------------------
Carter C. Chinnis
INVESTOR MEMBER
WNC Housing Tax Credit Fund VI, L.P., Series 7
By: WNC & Associates, Inc.,
General Partner
By: _________________________
David N. Shafer,
Executive Vice President
SPECIAL MEMBER
WNC Housing, L.P.
By: WNC & Associates, Inc.,
General Partner
By: ________________________
David N. Shafer,
Executive Vice President
3
<PAGE>
EXHIBIT A
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
SOURCES OF FUNDS
<PAGE>
EXHIBIT B
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
OPERATING PROFORMA
