SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
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KRUPP REALTY FUND, LTD. - III
(Name of Subject Company)
KRUPP REALTY FUND, LTD. - III
(Name of Person Filing Statement)
LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
---------------------------
Laurence Gerber
The Krupp Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
(617) 423-2233
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person(s) filing Statement)
COPY TO:
Scott D. Spelfogel, Esq. James M. Dubin, Esq.
The Berkshire Group Paul, Weiss, Rifkind, Wharton & Garrison
470 Atlantic Avenue 1285 Avenue of the Americas
Boston, Massachusetts 02210 New York, New York 10019-6064
(617) 423-2233 (212) 373-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject partnership is Krupp Realty Fund, Ltd.
- - III, a Massachusetts limited partnership (the "Partnership"), and the address
of its principal executive offices is c/o The Krupp Corporation, 470 Atlantic
Avenue, Boston, Massachusetts 02210. The title of the class of equity securities
to which this statement relates is the Partnership's Units of Investor Limited
Partnership Interests ("Units").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to an unsolicited offer by Krescent
Partners L.L.C., a Delaware limited liability company (the "Purchaser"),
disclosed in a Tender Offer Statement on Schedule 14D-1 dated November 21, 1996
(the "Schedule 14D-1"), to purchase up to 5,117 issued and outstanding Units at
a purchase price of $315 per Unit, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated November 21, 1996 and the related Letter of Transmittal, as each
may be supplemented, modified or amended from time to time (which collectively
constitute the "Krescent Offer" and are contained within the Schedule 14D-1).
The address of the Purchaser's principal executive offices is
1301 Avenue of the Americas, 38th Floor, New York, New York 10019.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Partnership, which is
the person filing this statement, are set forth in Item 1 above.
(b)(i) The general partners responsible for management of the
Partnership's business are The Krupp Corporation, a Massachusetts corporation
(the "Corporate General Partner"), and The Krupp Company, a Massachusetts
limited partnership (together with the Corporate General Partner, the "General
Partners"). Except as described below, there are no material contracts,
agreements, arrangements or understandings or any actual or potential conflicts
of interest between the General Partners or their affiliates and the
Partnership, its executive officers, directors or affiliates.
Pursuant to the Partnership Agreement of the Partnership (the
"Partnership Agreement"), the General Partners are entitled to certain cash
distributions in respect of their interests in the Partnership. The General
Partners have received aggregate cash distributions in respect of such interests
of $1,043, $3,132 and $4,174, respectively, for the years ended December 31,
1994, 1995 and 1996 (projected).
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Pursuant to certain management agreements, an affiliate of the
General Partners receives property management fees for its services as
management agent for the Partnership's properties. Such agreements provide for
the payment of monthly management fees payable at the rate of up to 5% of rents
and other income actually received by the Partnership. In addition, although the
General Partners and their affiliates do not receive any fees from the
Partnership for the partnership administration services they provide, affiliates
of the General Partners are reimbursed by the Partnership for the expenses they
incur in connection with providing those services, which include accounting,
computer, insurance, travel, payroll, legal and the preparation and mailing of
reports and other communication to the Unit holders. The Partnership paid such
affiliates property management fees and reimbursement of expenses aggregating
$585,800, $472,000 and $389,600, respectively, for the three years ended
December 31, 1994, 1995 and 1996 (projected).
Pursuant to the Partnership Agreement, the General Partners
are entitled to a brokerage fee in an amount equal to 3% of the contract sales
price of any real estate acquired by the Partnership, subject to certain
limitations. No brokerage fees have been paid or are projected to be paid to the
General Partners or their affiliates during the three-year period ending
December 31, 1996.
The General Partners are subject to certain conflicts of
interests in connection with the response to the Krescent Offer contained in
this Schedule 14D-9. The Partnership Agreement provides that, without the
concurrence of the General Partners, a majority in interest of the "Investor
Limited Partners" (a person who has been admitted to the Partnership as, and has
the rights afforded to, an Investor Limited Partner, as provided in the
Partnership Agreement) may vote to remove the General Partners or amend the
Partnership Agreement (including amending certain fees and compensation payable
or authorized to be payable to the General Partners or their affiliates), and
the ownership of a large block of Units by any person increases the likelihood
that the General Partners may be removed or that the Partnership Agreement may
be amended should that person become an Investor Limited Partner or otherwise
acquire the voting rights of an Investor Limited Partner. In addition, since
property management agreements between affiliates of the General Partners and
the Partnership are terminable without penalty on not more than 180 days notice,
the removal of the General Partners or the amendment of the Partnership
Agreement could result in a reduction of management fee income from the
Partnership to such affiliates. If a large number of Units were tendered
pursuant to the Krescent Offer, the likelihood of such removal or amendment
would increase. However, as described in Items 3(b)(ii) and 8 below, the
Purchaser is subject to a standstill agreement pursuant to which it has agreed,
among other things, not to acquire more than 25% of the outstanding Units for
the period ending 30 months after receipt from the Partnership and certain other
partnerships affiliated with the General Partners of any list of its unit
holders or investors. Accordingly, during such 30 month period the Purchaser
will not be in a position to unilaterally remove the General Partners or amend
the Partnership Agreement.
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(b)(ii) Except as described below, there are no material
contracts, agreements, arrangements or understandings or any actual or potential
conflicts of interests between the Partnership or its affiliates and the
Purchaser, its executive officers, directors or affiliates.
The Corporate General Partner and Liquidity Financial Group,
L.P., the financial advisor of the Purchaser ("Liquidity"), are parties to a
Settlement Agreement and Release, dated as of June 27, 1996, as amended as of
October 8, 1996 (the "Standstill Agreement"), pursuant to which Liquidity and
any of its affiliates are restricted from, among other things, acquiring more
than 25% of the outstanding Units for the period ending 30 months after receipt
from the Partnership and certain other partnerships affiliated with the General
Partners of any list of its unit holders or investors. Such a list was last
provided on November 20, 1996 and, pursuant to the Standstill Agreement,
additional lists may be requested through June 27, 1997. The Krescent Offer
states that, pursuant to an Assumption Agreement dated November 21, 1996 between
the Purchaser and Liquidity, the Purchaser has agreed to be bound by the
restrictions set forth in the Standstill Agreement.
On October 24, 1996, a representative of Liquidity contacted a
representative of the Partnership to request, on behalf of the Purchaser, that
the General Partners agree to admit the Purchaser as a "Limited Partner" (an
assignee of a Unit holder who, at the discretion of the General Partners, is
admitted as a Unit holder pursuant to the terms of the Partnership Agreement) or
as a recognized or registered owner of Units in the event the Purchaser made an
offer to purchase Units and the Purchaser accepted Units for payment pursuant to
the terms of such offer. During that conversation, the Partnership's
representative indicated that in order to agree to such treatment, the
Partnership had to be satisfied that the consummation of such offer and such
treatment would not cause the Partnership to be classified as a "publicly-traded
partnership" for tax purposes (a "PTP"). Later that day, the Partnership
received a memorandum from counsel to the Purchaser concluding that such a
tender offer would not cause the Partnership to be classified as a PTP and a
letter agreement was sent to the Corporate General Partner requesting that the
Purchaser be treated as a Limited Partner or a recognized or registered owner of
Units upon the acceptance of Units for payment pursuant to an offer anticipated
to be made by the Purchaser. On October 29, 1996, counsel for the Partnership,
in a letter to Liquidity, responded to the memorandum prepared by the
Purchaser's counsel. During the week of November 4th, counsel for the Purchaser
and counsel for the Partnership continued to discuss the PTP status issue. On
November 11, 1996, counsel for the Purchaser and counsel for the Partnership
agreed on a form of opinion letter regarding the PTP issue that would be
delivered upon the treatment of the Purchaser as a Limited Partner or recognized
or registered owner of Units. On November 12, 1996, the Partnership was notified
by Liquidity that the Purchaser planned to commence the Krescent Offer five
business days after the Partnership's receipt of such notice. On November 14,
1996, the Partnership received a request from Liquidity for a current list of
Unit holders and the lists of securityholders of
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various entities affiliated with the Partnership, which lists were delivered to
Liquidity on November 19, 1996 and November 20, 1996. Also on November 19, 1996,
the Corporate General Partner executed a letter to the Purchaser indicating its
agreement to admit the Purchaser, or cause the Purchaser to be admitted, as a
Limited Partner or a recognized or registered owner of Units (i) upon the
Purchaser's payment for Units pursuant to the Krescent Offer, (ii) upon delivery
of an opinion of the Purchaser's counsel (in the agreed form) that the Krescent
Offer would not cause the Partnership to be classified as a PTP and (iii) upon
delivery, in satisfactory form, of the Partnership's standard transfer
paperwork, payment of standard transfer fee and satisfaction of any other
standard ministerial matters. On November 20, 1996, a representative of the
Purchaser contacted a representative of the Partnership for the stated purpose
of confirming the commencement date of the Krescent Offer and to confirm the
fact that the Purchaser did not have any current plan to change the current
management or the operations of the Partnership.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Following receipt of the Krescent Offer, the Corporate
General Partner reviewed and considered the Krescent Offer. The Corporate
General Partner has determined that the Krescent Offer is inadequate and not in
the best interests of the Unit holders, and recommends that the holders of Units
reject the Krescent Offer and not tender their Units pursuant thereto.
(b) In reaching its conclusion described in paragraph (a)
above, the Corporate General Partner considered a number of factors, including
the following:
(i) While the value of the Units is not readily
ascertainable, since there is neither an established trading
market nor a consistent historical pattern of making annual or
periodic distributions in respect of the Units, the price
specified in the Krescent Offer of $315 per Unit represents a
significant discount from the Corporate General Partner's
estimate of the inherent value of such Units. Based on
estimated values of the Partnership's properties and current
market conditions, the Corporate General Partner has estimated
the net asset value of each Unit to be $661. (Such net asset
value assumes a sale of all of the Partnership's properties at
net asset value, after deduction for estimated transaction
costs, and the distribution of the net proceeds of such sale
to the Unit holders. Actual transaction costs and market
conditions will affect the actual amount available for
distribution.) While the actual amount of liquidation proceeds
distributed in respect of a Unit may be either above or below
the estimate, the Corporate General Partner believes its
estimate of the net asset value of a Unit is representative of
current value. The Krescent Offer is less than 48% of such
estimate. The Corporate General Partner recognizes that, in
exchange for receiving the certainty of a cash purchase price
from the Purchaser in
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connection with the Krescent Offer, Unit holders may prefer to
forego the opportunity to hold their Units and receive
proceeds upon the potential future liquidation of the
Partnership's assets in excess of the amount being offered by
the Purchaser. However, the Corporate General Partner believes
that the price specified in the Krescent Offer reflects too
great a discount to value.
(ii) As stated by the Purchaser in the Krescent
Offer, Unit holders who tender Units acquired from the
Partnership in connection with the original issuance thereof
are expected to recognize taxable gain, which will be in
excess of the purchase price received by them from the
Purchaser.
(iii) The Partnership currently is paying a
semi-annual cash distribution of $7.93, or $15.86 annually,
per Unit. Unit holders who sell their Units to the Purchaser
will lose their right to receive future semi-annual
distributions from operations that are payable in respect of
Units. Furthermore, Unit holders who sell their Units to the
Purchaser will lose the right to future distributions from
future sales of Partnership properties.
(iv) As stated by the Purchaser in the Krescent
Offer, the Purchaser is making the Krescent Offer with a view
to making a profit. Accordingly, there is a conflict of
interest between the Purchaser's desire to purchase the Units
at a low price and a Unit holder's desire to sell its Units at
a high price.
(v) As stated by the Purchaser in the Krescent Offer,
if the Krescent Offer is successful, the Purchaser may be in a
position to influence control over the Partnership and to
influence voting decisions, including the removal of the
General Partners.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
Neither the Partnership nor any person acting on its behalf
has employed, retained or compensated, or intends to employ, retain or
compensate, any person to make solicitations or recommendations to Unit holders
on its behalf concerning the Krescent Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Neither the Partnership nor the General Partners have
effected any transactions in the Units during the past 60 days. The General
Partners are not aware of any transactions in the Units during the past 60 days
by any of its executive officers, directors, affiliates or subsidiaries.
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(b) Neither the General Partners nor, to the knowledge of the
General Partners, any of their executive officers, directors, affiliates or
subsidiaries intend to tender Units owned by them to the Purchaser pursuant to
the Krescent Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) No negotiation is being undertaken or is underway by the
Partnership in response to the Krescent Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Partnership; (ii) a purchase, sale or transfer of a material
amount of assets by the Partnership; (iii) a tender offer for or other
acquisition of securities by or of the Partnership; or (iv) any material change
in the present capitalization or dividend policy of the Partnership.
The General Partners and their affiliates may explore
transactions such as asset sales, a consolidation, a merger, financings of
Partnership properties followed by distributions, or possibly a tender offer for
Units at a price in excess of the Krescent Offer. However, no plans for, or
negotiations relating to, any of these types of transactions have been made, and
there can be no assurances that any such discussions or plans will be developed
or that any such transactions could be successfully consummated.
(b) There are no transactions, board resolutions, agreements
in principle or signed contracts in response to the Krescent Offer which relate
to or would result in one or more of the matters referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The General Partners have in the past received numerous
requests from third parties requesting that such parties be provided with a list
of the Partnership's Unit holders. Such a list has only been provided by the
General Partners to parties in cases where the General Partners have been
satisfied that such list has been properly requested by a person entitled by the
Partnership Agreement to receive such a list and/or the party requesting the
list has demonstrated that such party has a proper partnership business purpose
in connection with such request, or the Corporate General Partner has been
satisfied that the Partnership and the Unit holders have obtained appropriate
protections from such party with respect to the use of such list. The Corporate
General Partner agreed to provide a list of the Partnership's Unit holders to
Liquidity, the Purchaser's financial advisor, in connection with obtaining the
agreement by such advisor, pursuant to the Standstill Agreement, that such
advisor and its affiliates, among other things, would refrain from acquiring in
excess of 25% of the Units for the period ending 30 months after receipt from
the Partnership of any list of its Unit holders. The Krescent Offer states that,
pursuant to the Assumption Agreement dated November 21, 1996 between the
Purchaser and
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Liquidity, the Purchaser has agreed to become bound by the same standstill
restrictions applicable to Liquidity.
By letter dated November 4, 1996, Longacre Corp. ("Longacre")
requested that the Partnership provide to it a list of the Partnership's Unit
holders. The letter stated that the request was being made to facilitate a
tender offer by an affiliate of Longacre. As a result of negotiations, the
Corporate General Partner agreed to provide a list of the Partnership's Unit
holders to Longacre in connection with obtaining the agreement by Longacre,
pursuant to a Standstill Agreement dated as of November 26, 1996, that Longacre
and its affiliates, among other things, would refrain from acquiring in excess
of 25% of the Units for a period ending 30 months after receipt from the
Partnership of any list of its Unit holders. The Corporate General Partner was
subsequently advised by Longacre that its affiliate, American Holdings I, L.P.
("American Holdings"), intended to commence an offer to acquire up to 4.9% of
the outstanding Units at a price of $325 per Unit, which is in excess of the
purchase price specified in the Krescent Offer. On December 4, 1996, a
representative of Liquidity advised a representative of the Partnership that an
agreement had been reached between persons affiliated with each of Longacre and
Krescent and that, as a result of such agreement, the offer by American Holdings
"would be withdrawn."
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(i) Form of cover letter to Unit holders from the
Partnership dated December 5, 1996.
(ii) Press release of the Partnership dated December 5,
1996.
(b) Letter of the Partnership to Unit holders dated
November 25, 1996.
(c)(i) Amended Agreement, dated as of June 1, 1982 (the
"Partnership Agreement"), by and among The Krupp
Company and The Krupp Corporation, as general
partners, The Krupp Company, as the Original Limited
Partner, and those persons who have been admitted to
the Partnership as Investor Limited Partners pursuant
to the terms of the Partnership Agreement.
(ii) Form of Property Management Agreement between the
Partnership and Berkshire Property Management
Company.
(iii) Settlement Agreement and Release, dated as
of June 27, 1996, between the Corporate
General Partner and Liquidity Financial
Group, L.P.
(iv) First Amendment to Settlement Agreement and
Release, dated as of October 8, 1996,
between the Corporate General Partner and
Liquidity Financial Group, L.P.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: December 5, 1996
KRUPP REALTY FUND, LTD. - III
By: The Krupp Corporation, a
general partner
By: s/Laurence Gerber
-------------------------------
Name: Laurence Gerber
Title: President
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EXHIBIT INDEX
Exhibit Description Page
1. Form of cover letter to Unit holders from
the Partnership dated December 5, 1996
2. Letter of the Partnership to Unit holders
dated November 25, 1996
3. Press release of the Partnership dated
December 5, 1996
4. Amended Agreement, dated as of June 1,
1982 (the "Partnership Agreement"), by and
---------------------
among The Krupp Company and The Krupp
Corporation, as general partners, The Krupp
Company, as the Original Limited Partner,
and those persons who have been admitted to
the Partnership as Investor Limited Partners
pursuant to the terms of the Partnership
Agreement
5. Form of Property Management Agreement
between the Partnership and Berkshire
Property Management Company
6. Settlement Agreement and Release, dated as
of June 27, 1996, between the Corporate
General Partner and Liquidity Financial
Group, L.P.
7. First Amendment to Settlement Agreement
and Release, dated as of October 8, 1996,
between the Corporate General Partner and
Liquidity Financial Group, L.P.
9
Exhibit 1
KRUPP REALTY FUND, LTD. - III
December 5, 1996
Dear Limited Partner:
As you are by now aware, Krescent Partners L.L.C., a Delaware
limited liability company (the "Purchaser"), has made an offer (the "Krescent
Offer") to purchase limited partnership units ("Units") of Krupp Realty Fund,
Ltd. - III (the "Partnership") for $315 per Unit.
THE KRUPP CORPORATION, A GENERAL PARTNER OF THE PARTNERSHIP (A
"GENERAL PARTNER"), IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, HAS DETERMINED THAT
THE KRESCENT OFFER IS INADEQUATE AND NOT IN THE BEST INTERESTS OF THE UNIT
HOLDERS. THE GENERAL PARTNER RECOMMENDS THAT THE HOLDERS OF UNITS REJECT THE
KRESCENT OFFER AND NOT TENDER THEIR UNITS PURSUANT THERETO. The General Partner
reached this conclusion after considering a number of factors, including, but
not limited to, the following:
o THE PRICE PER UNIT OFFERED BY THE PURCHASER
DOES NOT REFLECT THE VALUE INHERENT IN THE
UNITS. The price being offered by the Purchaser is
less than 48% of the General Partner's estimate of
the Partnership's net asset value of $661 per Unit.
(Such net asset value assumes a sale of all of the
Partnership's properties at net asset value, after
deduction for estimated transaction costs, and the
distribution of the net proceeds of such sale to the
Unit holders. Actual transaction costs and market
conditions will affect the actual amount available
for distribution.) Although Unit holders, in
exchange for receiving the certainty of a cash
purchase price from the Purchaser, may prefer to
forego the opportunity to hold their Units and
receive proceeds upon the potential future
liquidation of the Partnership's assets in excess of
the amount being offered by the Purchaser, the
General Partner believes that the price specified in
the Krescent Offer reflects too great a discount to
value.
o AS STATED BY THE PURCHASER IN THE KRESCENT
OFFER, THE PURCHASER IS MAKING THE KRESCENT
OFFER WITH A VIEW TO MAKING A PROFIT.
Accordingly, there is a conflict of interest between
the
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Purchaser's desire to purchase the Units at a low
price and the Unit holders' desire to sell their
Units at a high price.
o UNIT HOLDERS WHO ACCEPT THE KRESCENT OFFER
WILL NO LONGER RECEIVE CASH DISTRIBUTIONS. The
Partnership currently is paying a semi-annual cash
distribution of $7.93, or $15.86 annually, per Unit.
Unit holders who sell their Units to the Purchaser
will lose their right to receive future semi-annual
distributions from operations that are payable in
respect of Units. Furthermore, Unit holders who sell
their Units to the Purchaser will lose their right
to future distributions from future sales of
Partnership properties.
o AS STATED BY THE PURCHASER IN THE KRESCENT OFFER,
UNIT HOLDERS WHO TENDER UNITS ACQUIRED FROM THE
PARTNERSHIP IN CONNECTION WITH THE ORIGINAL ISSUANCE
THEREOF ARE EXPECTED TO RECOGNIZE TAXABLE GAIN, WHICH
WILL BE IN EXCESS OF THE PURCHASE PRICE RECEIVED BY
THEM FROM THE PURCHASER.
Enclosed is a copy of the Partnership's Statement on Schedule
14D-9 which has been filed with the Securities and Exchange Commission and sets
forth the Partnership's response to the Krescent Offer. Limited partners are
advised to carefully read the Schedule 14D-9.
Unit holders also should be advised that, by letter dated
November 4, 1996, Longacre Corp. ("Longacre") requested that the Partnership
provide to it a list of the Partnership's Unit holders. The letter stated that
the request was being made to facilitate a tender offer by an affiliate of
Longacre. As a result of negotiations, the General Partner agreed to provide a
list of the Partnership's Unit holders to Longacre in connection with obtaining
the agreement by Longacre, pursuant to a Standstill Agreement dated as of
November 26, 1996, that Longacre and its affiliates, among other things, would
refrain from acquiring in excess of 25% of the Units for a period ending 30
months after receipt from the Partnership of any list of its Unit holders. The
General Partner was subsequently advised by Longacre that its affiliate,
American Holdings I, L.P. ("American Holdings"), intended to commence an offer
to acquire up to 4.9% of the outstanding Units at a price of $325 per Unit,
which is in excess of the purchase price specified in the Krescent Offer. On
December 4, 1996, a representative of Liquidity advised a representative of the
Partnership that an agreement had been reached between persons affiliated with
each of Longacre and Krescent and that, as a result of such agreement, the offer
by American Holdings "would be withdrawn."
The General Partner believes that the market value of the
Partnership's assets have recently begun to recover. As you may know, real
estate values fell precipitously during the late 1980's and early 1990's. The
Partnership survived this turbulent period by adopting various measures,
including the suspension of
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distributions in 1990, the sale of certain properties, and the refinancing of
the remaining properties at favorable rates. The Partnership's properties have
begun to generate greater revenues and reflect increased property values.
Encouraged by this improvement, the General Partner authorized the reinstatement
of distributions in 1994.
The General Partner looks forward to continued success in
recovering the loss in value that occurred in the late 1980's and early 1990's.
The General Partner's strategy is to aggressively manage the Partnership's
properties to maximize their value and prepare the properties for sale when this
goal is reached.
Please do not hesitate to call our Investor Communication
representatives at 1-800-255-7877 for assistance in any Partnership matter.
Sincerely yours,
Laurence Gerber
The Krupp Corporation, a General
Partner
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Exhibit 2
Krupp Funds Group
470 Atlantic Avenue, Boston, Massachusetts 02210
Telephone (800) 25-KRUPP (800-255-7877)
Krupp Realty Fund, Ltd. - III
November 25, 1996
Dear Limited Partner:
As you are probably aware by now, Krescent Partners L.L.C., a Delaware limited
liability company, has made an offer (the "Krescent Offer") to purchase limited
partnership units of Krupp Realty Fund Ltd. - III (the "Partnership").
The General Partners of the Partnership will be carefully studying the Krescent
Offer in consultation with the Partnership's outside advisors and, after
completing their evaluation, will announce their conclusion and recommendation
on or before December 9, 1996. Prior to that time, you are urged not to take any
action with respect to the Krescent Offer.
Krupp Realty Fund, Ltd. - III
Exhibit 3
NEWS RELEASE
GENERAL PARTNER OF KRUPP REALTY FUND, LTD. - III
RECOMMENDS REJECTION OF KRESCENT PARTNERS L.L.C. OFFER
BOSTON, MA -- December 5, 1996. Laurence Gerber, President of
the General Partner of Krupp Realty Fund Ltd. - III, said today that, after
carefully considering the unsolicited cash tender offer by Krescent Partners
L.L.C. of $315 per Unit of Limited Partnership Interest, the General Partner has
determined that the Krescent offer is inadequate and not in the best interests
of the Unit holders. The General Partner recommends that the holders of Units
reject the Krescent offer and not tender their Units pursuant to such offer.
In a letter to Unit holders accompanying a recommendation
statement on Schedule 14D-9 filed today with the Securities and Exchange
Commission, Mr. Gerber said that the General Partner had recommended that
holders of Units reject the offer after considering a number of factors,
including, but not limited to the following:
o The General Partner believes the price offered by Krescent
is less than 48% of the General Partner's estimate of the
Fund's net asset value of $661 per Unit.
o Unit holders who accept the Krescent offer will no longer
receive the semi-annual cash distributions currently paid
in respect of Units and will forego any claim to future
distributions from sales of the Fund's properties.
o As noted by Krescent in its offer, Unit holders who
purchased Units at the original offering are expected to
recognize taxable gain in excess of the purchase price
offered by Krescent.
For further information, Unit holders may contact Investor
Communications of the Krupp Funds Group at 1-800-343-0989.
For information on the press release contact: Maryann Merigan
(617) 423-2233
Exhibit 4
KRUPP REALTY FUND, LTD. - III
(A Massachusetts Limited Partnership)
AMENDED AGREEMENT OF LIMITED PARTNERSHIP
AMENDED AGREEMENT dated as of the 1st day of June, 1982, by and among
The Krupp Company, a Massachusetts limited partnership, and The Krupp
Corporation, a Massachusetts corporation, each as a General Partner; The Krupp
Company, as the Original Limited Partner; and those persons who shall hereafter
be admitted to the Partnership as Investor Limited Partners. The Original
Limited Partner and the Investor Limited Partners are collectively referred to
herein as the "Limited Partners" and, together with the General Partners, as the
"Partners." Certain other terms used throughout this Agreement are defined in
Section 17 hereof.
WHEREAS, the General Partners and the Original Limited Partner have
formed a limited partnership (the "Partnership") under an Agreement of Limited
Partnership dated as of April 23, 1982 (the "Original Agreement") and the
provisions of the Massachusetts Uniform Limited Partnership Act; and
WHEREAS, the Partners now wish to amend the Original Agreement and to
provide for the admission of the Investor Limited Partners to the Partnership
subject to the revised terms and conditions herein specified;
NOW THEREFORE, the parties hereto hereby agree as follows:
Section 1. Continuation. The parties hereto hereby agree to continue
the Partnership pursuant to the provisions of the Uniform Limited Partnership
Act of the Commonwealth of Massachusetts.
Section 2. Name and Office. The Partnership shall be conducted under
the name and style of "Krupp Realty Fund, Ltd.-III (A Massachusetts Limited
Partnership)." The principal office and place of business of the Partnership
shall be located at One Liberty Square, Boston, Massachusetts 02109, or at such
other place as the General Partners may from time to time determine and specify
by written notice to all of the Partners.
Section 3. Purposes and Powers.
3.1 Purposes. The purposes of the Partnership are to acquire, invest
in, maintain, operate, lease, improve, hold, encumber, sell, manage and
otherwise deal with the Properties of the Partnership.
3.2 Powers. In furtherance of the above purposes, the Partnership shall
have the powers:
(a) to acquire, improve, mortgage, hold, sell, exchange, and
otherwise deal in Properties situated in any location in the United States and
in any real
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2
property appurtenant thereto and in interests therein as may be necessary or
desirable to carry out the operation, leasing and maintenance of such
Properties;
(b) subject to any applicable statutes and regulations, to
borrow money to further the purposes of the Partnership, to issue evidences of
indebtedness in respect thereof and to secure the same by mortgage or pledge or
grant of lien on or other security interest in a Property or any other assets of
the Partnership;
(c) to do all things, carry on any activities and enter into,
perform, modify, supplement or terminate any contracts necessary to, in
connection with or incidental to the furtherance of the purposes of the
Partnership, all so long as such things, activities and contracts may be
lawfully done, carried on or entered into by the Partnership under the laws of
the Commonwealth of Massachusetts and the United States of America and under the
terms of this Agreement.
The Partnership shall not engage in any business not provided for in
this Section 3.2 without the Consent of a majority in interest of the Investor
Limited Partners.
Section 4. Term. The term of the Partnership commenced upon the filing
of the Certificate of Limited Partnership with the Secretary of the State of the
Commonwealth of Massachusetts, and shall terminate at midnight on December 31,
2020, unless sooner dissolved or terminated as provided in Section 11 hereof.
Section 5. Capital Contributions.
5.1 Contributions of General Partners. The General Partners have
contributed in cash in respect of their General Partnership Interests an
aggregate of $1,000, in the respective amounts set forth opposite their names in
Schedule A hereto. If upon termination of the Partnership, the General Partners
have a deficit balance in their Capital Accounts, they shall contribute in the
aggregate to the capital of the Partnership an amount equal to the amount, if
any, by which one and one-hundredths percent (1.01%) of the total Capital
Contributions of the Limited Partners exceeds the total amount of the General
Partners' Capital Contributions prior to such termination.
5.2 Contribution of the Original Limited Partner. The Original Limited
Partner has contributed $4,000 in cash in respect of its Original Limited
Partnership Interests. The Original Limited Partner shall not be obligated to
make any further Capital Contributions to the Partnership.
5.3 Contributions of Investor Limited Partners. Except to the extent,
if any, that additional Units of Investor Limited Partnership Interests may be
sold pursuant to a subsequent offering as specified in Section 6.1(b)(3)(ii)
hereof, the Investor Limited Partnership Interests in the Partnership shall
consist of up to twenty-five thousand (25,000) Units of Investor Limited
Partnership Interests which shall initially be held
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3
by the Investor Limited Partners who shall be admitted to the Partnership as
provided in Sections 6.1(b)(3)(i), 7.2 and 7.5 hereof. The Investor Limited
Partner or Partners acquiring each such Unit shall contribute One Thousand
Dollars ($1,000) per Unit (or, in the case of a subsequent offering pursuant to
Section 6.1(b)(3)(ii) hereof, such amount as may be specified by the General
Partners in connection therewith) in cash to the capital of the Partnership with
respect to such Unit in the manner and subject to the conditions described in
the aforesaid Sections. No Investor Limited Partner shall initially acquire or
thereafter own a fractional Unit.
5.4 Capital Accounts. A Capital Account shall be established and
maintained for each General Partner and Limited Partner. The Capital Account of
each Partner shall be (a) credited with all payments made to the Partnership by
such Partner on account of Capital Contributions and with allocations to such
Partner of Partnership Profits for Tax Purposes and (b) charged with allocations
to such Partner of Partnership Losses for Tax Purposes and with cash
distributions made to such Partner as distributions of Cash Flow or of Net Cash
Proceeds of Capital Transactions and the Terminating Capital Transaction, and
shall otherwise appropriately reflect transactions of the Partnership and the
Partners. A Partner shall not be required to make any Capital Contribution, or
be entitled to bring an action for partition against the Partnership, or to
demand or receive any distribution of or with respect to his Capital
Contribution except as is specifically provided under this Agreement. For the
purposes of this Section 5.4, a substitute Partner shall be deemed to have made
the Capital Contributions to the Partnership which were made by the Partner who
such substitute Partner succeeds, and to have received from the Partnership the
allocations and distributions received from the Partnership by such former
Partner. No loan made by a General Partner or a Limited Partner to the
Partnership as permitted by this Agreement shall constitute a Capital
Contribution for any purpose.
Section 6. General Partners.
6.1 Extent of Powers and Duties.
(a) General. Except as expressly limited by the provisions of
this Agreement, the General Partners shall have complete and exclusive
discretion in the management and control of the affairs and business of the
Partnership and all powers necessary, convenient or appropriate to carry out the
purposes, conduct the business and exercise the powers of the Partnership.
Except as so expressly limited, the General Partners shall possess and enjoy
with respect to the Partnership all of the rights and powers of partners of a
partnership without limited partners to the extent permitted by Massachusetts
law.
(b) Powers and Duties.
(1) General Powers and Duties. The General Partners
shall diligently and faithfully exercise their discretion to the best of their
ability and use
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4
their best efforts during so much of their time as may be necessary to carry out
the purposes and conduct the business of the Partnership in accordance with this
Agreement and in the best interests of the Partnership and so as, consistent
therewith, to protect the interests of the Limited Partners as a group. The
General Partners shall have fiduciary responsibility for the safekeeping and use
of all funds and assets of the Partnership, whether or not in their immediate
possession or control, and they shall not employ, or permit another person to
employ such funds or assets in any manner except for the exclusive benefit of
the Partnership. In particular, the General Partners, solely, shall be
responsible for and shall use their best efforts and exercise discretion to the
best of their ability: (i) to cause Properties to be acquired, held, financed
and refinanced, and sold, exchanged or otherwise disposed of; (ii) to rent,
maintain and operate the Properties so as to comply with the provisions of any
mortgage instruments, other indebtedness, and/or regulatory agreements with
governmental bodies or agencies relating thereto; (iii) to select and supervise
the activities of the real estate management agent(s) for the Partnership
including, without limitation, the inspection of the Properties in order to
assure their proper maintenance and repair; (iv) to assure the proper
application of revenues of the Partnership; (v) to maintain proper books of
account for the Partnership and to prepare all reports of operations and tax
returns which are to be furnished to the Partners pursuant to this Agreement or
which are required by taxing bodies or other governmental agencies; (vi) to
maintain adequate insurance with respect to the Properties and any other
insurable property of the Partnership pursuant to policies of insurance in form
and coverage customary for property similar to the Properties and such other
insurable property; and (vii) to assure the doing of all other things which may
be necessary or advisable in connection with the supervision of the affairs,
business and property of the Partnership.
(2) Amplification of Powers and Duties. As
amplification, and not by way of limitation on the powers expressed herein, the
General Partners shall have full power and authority on behalf of the
Partnership, in order to carry out and accomplish its purposes and functions:
(i) to expend Partnership capital and income; (ii) to purchase, lease, sell,
exchange, improve, divide, combine and otherwise transact business with respect
to interests in real estate and personal property, and in that connection to
employ engineers, contractors, attorneys, accountants, brokers, appraisers, and
such other consultants, advisors, artisans, and workmen as may be necessary or
advisable for the purpose; (iii) to designate depositories of the Partnership's
funds, and the terms and conditions of such deposits and drawings thereon; (iv)
to borrow money or otherwise to procure extensions of credit for the
Partnership, and in connection therewith to execute, seal, acknowledge, and
deliver agreements, promissory notes, guaranties and other written documents
constituting obligations or evidences of indebtedness, and as security therefor
to pledge, hypothecate, mortgage, assign, transfer, or convey mortgages or
security interests in the Properties and other assets of the Partnership; (v) to
execute and deliver documents and instruments relating to real and personal
property of whatever kind and description, including, but not limited to, deeds,
mortgages, leases and other
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5
documents of title or conveyance, regulatory agreements with governmental bodies
and agencies, assumption agreements pertaining to such agreements, powers of
attorney, and other contracts, instruments, agreements of all kinds; (vi) to
hold all or any portion of the Properties and other assets of the Partnership in
the name of one or more trustees, nominees or other agents of or for the
Partnership for the purpose of facilitating transactions involving said assets;
(vii) to establish reserves for normal repairs, replacements and contingencies
and, in their discretion, for any other proper Partnership purpose; and (viii)
in general to do all things and execute all documents the General Partners shall
deem necessary or convenient to accomplish the purposes of the Partnership, or
to protect and preserve the Partnership assets, to the same extent as if they
owned such assets individually.
(3) Admission of Investor Limited Partners. The
General Partners shall have the right to admit to the Partnership as Investor
Limited Partners such Persons (including a General Partner or the Original
Limited Partner) as may acquire the respective Units in consideration of their
Capital Contributions to the Partnership pursuant to Section 5.3 hereof,
provided that each Person so admitted shall, in connection with such
acquisition, agree to be bound by the provisions of this Agreement in the manner
specified in Section 7.2 hereof and further provided:
(i) In connection with the initial offering
of Units which shall involve up to twenty-five thousand (25,000) Units at an
offering price of $1,000 per Unit, no Investor Limited Partners shall be
admitted pursuant to this Section 6.1(b)(3) unless and until the class of
Investor Limited Partners has made aggregate Capital Contributions totaling
$4,000,000.
(ii) Subsequent to the initial offering of
Units, if in the judgment of the General Partners, the Partnership requires
additional Capital Contributions for the purpose of financing capital
improvements to one or more existing Properties for which improvements the
Partnership then has insufficient reserves, the General Partners may in their
discretion offer to sell additional Units, subject to certain conditions. These
conditions are: (i) in no event shall the Capital Contributions made in
connection with any and all such additional offerings exceed $3,000,000, (ii) at
the time of any such subsequent offering, all or substantially all of the net
proceeds of the initial offering of Units shall have already been invested in
Properties or reserves, (iii) the principal terms of any such offering shall
have been approved by vote of the holders of not less than 51% of the Units then
outstanding, and (iv) the capital expenditures to be financed through such
subsequent offering (or the amount of such expenditures) were not foreseen and
could not reasonably have been foreseen over the anticipated period of
Partnership ownership at the time the Property was acquired by the Partnership,
and such expenditures are, in the opinion of the General Partners, necessary to
preserve the value of the Property. If the General Partners elect to make such
an offering, each of the Investor Limited Partners shall be offered, to the
extent then permitted by applicable securities laws, an opportunity to subscribe
for additional Units pro rata to the number of Units held by
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6
such Investor Limited Partner, at a price equal to the fair market value of the
Units as determined in the judgment of the General Partners. If any Investor
Limited Partner does not subscribe for his proportionate share, the unsubscribed
Units shall be similarly offered to the remaining Investor Limited Partners, and
then to the Original Limited Partner and the General Partners in that order
until fully subscribed. Any Units not subscribed may thereafter be offered to
such persons as the General Partners shall determine, provided always the
minimum price to be received therefor is equal to the fair market value of the
Units as determined in the judgment of the General Partners.
(4) Authority to Enter into Certain Agreements. The
General Partners are specifically authorized to enter into the following
agreements on behalf of the Partnership, and to pay the following fees and
expenses:
(i) Commencing with the month of acquisition
of any Property, the General Partners are authorized to enter into a Management
Agreement and to pay the Management Agent which manages such Property a monthly
Management Fee in an amount equal to not in excess of the lesser of (i) the
competitive rate for comparable services in the market area, or (ii) five
percent (5%) of the rentals and other operating income of the Property actually
received.
(ii) The General Partners are authorized to
pay Management Agent Reimbursement to the entity or entities which manage any
Property pursuant to a Management Agreement, which Reimbursement shall include
all proper expenditures, obligations and liabilities incurred by such Agent in
connection with the operation of such Property. Such reimbursement shall be
limited to the actual cost of goods, services and materials used for or by the
Partnership, and in no event shall such cost exceed the cost of such items if
supplied by Persons other than the General Partners and their Affiliates. The
Management Agent Reimbursement shall not include reimbursement for costs of
services rendered by employees who are not employed in the operation of the
Property [except that employees servicing more than one property (whether or not
owned by the Partnership) may have their costs prorated based upon the
respective number of units or square footage in each property], or other
expenses for which managing agents of real estate would not customarily receive
reimbursement in addition to stated compensation.
Any agreements, contracts and arrangements authorized by clauses (i)
and (ii) of this Section 6.1(b)(4) may be entered into with a General Partner or
an Affiliate of the General Partners subject to the following conditions:
(A) any such agreements, contracts or arrangements shall be
embodied in a written contract which precisely describes the subject matter
thereof and all compensation to be paid therefor;
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7
(B) no rebates or "give-ups" may be received by a General
Partner or any such Affiliate, nor may the General Partner or any such Affiliate
participate in any reciprocal business arrangements which would have the effect
of circumventing any of the provisions of this Agreement;
(C) neither a General Partner (in any capacity other than as
General Partner) nor any such Affiliate may act as paying or purchasing agent
for the Partnership and no funds of the Partnership may be paid to a General
Partner or any such Affiliate by way of reimbursement for Partnership expenses
other than organization and offering expenses or direct expenses as permitted by
clause (ii) above or by Section 6.4(b) hereof;
(D) any such agreements, contracts or arrangements shall be
fully and promptly disclosed to all Partners in the reports provided for in
Section 12.4(a) hereof (stating the compensation paid and to be paid by the
Partnership); and
(E) any such agreements, contracts or arrangements shall be
terminable by either party, without penalty, upon 60 days' prior written notice.
(iii) The General Partners are authorized to
enter into a Sales Agent Agreement with Smith Barney under which Smith Barney
shall agree to act as sales agent for the initial offering of Units. Pursuant to
such Agreement, Smith Barney shall be entitled to receive out of the gross
proceeds of such offering the following compensation: (i) a sales commission of
$80 for each Unit sold, (ii) a financial consulting fee equal to an additional
$10 for each Unit sold, and (iii) reimbursement of the expenses incurred by
Smith Barney up to a maximum of $45,000. In addition, Smith Barney shall be
entitled under the Sales Agent Agreement to receive out of the Net Cash Proceeds
of sales and refinancings of Partnership Properties over the life of the
Partnership a Subordinated Financial Consulting Fee equal to 7.5% of any Net
Cash Proceeds from such sales or refinancings which remain after all
distributions of such Proceeds which are required by clauses First through Third
of Section 8.3(a) hereof and by clauses First through Fourth of Section 8.3(b)
hereof have been made to the Partners, provided, however, that in no event shall
the maximum amount of the Subordinated Financial Consulting Fee exceed 1.5% of
the gross proceeds of the initial offering of Units (including any exercise of
the over-allotment option granted by the Partnership to Smith Barney as sales
agent respecting such offering).
(5) Maintenance of Net Worth. The General Partners
shall at all times use their best efforts to maintain their combined net worth
(including the net worth of the general partners of any partnership which serves
as a General Partner including, without limitation, The Krupp Company) at a
sufficient level to meet all requirements of the Code under currently applicable
rulings, regulations and policies of the Internal Revenue Service and as
hereafter interpreted by the Internal Revenue Service, any agency of the federal
government or the courts, to permit the Partnership
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8
to be classified for federal income tax purposes as a partnership and not as an
association taxable as a corporation, and shall, irrespective of such
requirements, maintain such combined net worth on a fair market basis at an
amount at least equal to $1,000,000.
(c) Delegation of Powers. Each General Partner, while there
are more than one, may act on behalf of the Partnership in connection with any
particular matter affecting the Partnership, including the authority to execute
notes, deeds, mortgages and other instruments. Except as otherwise provided
under this Agreement or by law, the General Partners may delegate all or any of
their duties under this Agreement to any of their own respective partners,
officers or employees, and in furtherance of such delegation may elect, employ,
contract or deal with any Person (including any General Partner or any Affiliate
of a General Partner).
(d) Reliance by Third Parties. No Person dealing with the
Partnership, or its assets, whether as mortgagee, assignee, purchaser, lessee,
grantee or otherwise, shall be required to investigate the authority of the
General Partners, or any General Partner purporting to act in behalf of the
other General Partners, in selling, assigning, leasing, mortgaging, conveying or
otherwise dealing with any Partnership Property or other assets or any part
thereof, nor shall any such assignee, lessee, purchaser, mortgagee, grantee or
other Person entering into a contract with the Partnership be required to
inquire as to whether the approval of the Partners for any such sale,
assignment, lease, mortgage, transfer or other transaction has been first
obtained. Any such Person shall be conclusively protected in relying upon a
certificate of authority or any other material fact signed by any General
Partner, or in accepting any instrument signed by any General Partner in the
name and behalf of the Partnership or the General Partners.
6.2 Limitations on the Exercise of Powers of General Partners. The
General Partners shall have no power to take any action prohibited by this
Agreement or by the Massachusetts Uniform Limited Partnership Act. Furthermore,
in their administration of the Partnership's affairs, the General Partners shall
be subject to the following specific limitations:
(a) Investment Objectives and Policies. The Properties to be
acquired by the Partnership shall consist of apartment complexes and/or
commercial properties such as office buildings or shopping centers. All of the
Properties shall be located in the United States. The Partnership shall not
invest in Properties under construction or to be constructed, except for
expansion or improvement of existing Properties, and shall not invest in single
family residential homes, low income housing or other properties subject to
government housing assistance payments, secondary homes, resort or recreational
properties, hotels, nursing homes, gaming facilities, mobile home parks or
property subject to sale-leaseback transactions. No unimproved or non-income
producing property shall be acquired where the aggregate purchase price for all
such unimproved or non-income producing properties would exceed 10% of the
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9
gross proceeds of the initial offering of Units. On an interim basis, the
Partnership may invest its funds either in (i) United States Government
securities, other United States Government guaranteed money instruments,
certificates of deposit of banks located in the United States, bank repurchase
agreements collateralized by securities of the United States Government or
governmental agencies, bankers' acceptances, and similar money market
investments, or (ii) shares of public investment companies registered with the
Securities and Exchange Commission whose assets exceed $50,000,000 and are
invested in the foregoing types of investments and held by an independent
custodian. The Partnership shall not invest in mortgages, trust deeds or similar
obligations, except that the Partnership may advance a portion of the purchase
price of a Property to the seller in the form of a loan, and except that second
mortgages or similar obligations may be taken back from purchasers of Properties
in connection with the sale thereof by the Partnership. The aggregate amount of
mortgage indebtedness which may be incurred in connection with the acquisition
of Properties shall not exceed 80% of the gross purchase price of all Properties
determined on a combined basis. The Partnership shall not redeem or repurchase
Units and shall not underwrite the securities of other issuers. The General
Partners shall use their best efforts to assure that the Partnership shall not
be deemed an investment company as such term is defined in the Investment
Company Act of 1940.
(b) Sales and Leases of Properties from or to the General
Partners and their Affiliates. The Partnership shall not purchase, lease or
acquire any Property from any General Partner or any Affiliate of any General
Partner or any Person in which any General Partner or Affiliate has a material
interest including, without limitation, any partnership of which any General
Partner or Affiliate of a General Partner is a partner, unless (i) such
transaction occurs in connection with the formation of the Partnership and is
fully disclosed in the prospectus used by the Partnership for its initial
offering of Units, (ii) any Property sold to the Partnership is sold upon terms
fair to the Partnership and at a price not in excess of its value as determined
by independent appraisal, and (iii) the cost of any such Property and any
improvements thereon is clearly established. Notwithstanding the foregoing, the
General Partners or their Affiliates may purchase Property in their own name,
and assume loans in connection therewith and temporarily hold title thereto for
the purpose of facilitating the acquisition of such Property or the borrowing of
money or obtaining of financing for the Partnership, or completion of
construction of the Property, or any other purpose related to the business of
the Partnership, provided that such Property is purchased by the Partnership for
a cash investment no greater than the cash investment in such Property
(including, without limitation, equity payments, financing and closing costs)
made or agreed to be made by the General Partners or their Affiliates, and that
no other payment directly or indirectly arising out of such transaction is
received by any General Partner or Affiliate thereof apart from compensation
otherwise permitted by this Agreement. In the event the Partnership is not
successful in selling sufficient Units of Investor Limited Partnership Interests
to permit the Partnership to make any payments required in connection with
obligations or indebtedness incurred by the Partnership in connection with the
acquisition of any
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10
Property, the Partnership may sell such Property to the General Partners or any
Affiliate of the General Partners for a price (and related cash investment as
defined above) not less than the total price (and related cash investment) paid
by the Partnership for such Property. The General Partners or their Affiliates
may lease office or other space in any Property owned by the Partnership;
provided, however, that any such lease (i) shall be for rentals and on other
terms not less favorable to the Partnership than those available to the
Partnership from unaffiliated tenants, (ii) shall be terminable on 60 days'
prior written notice by the Partnership without penalty, and (iii) shall provide
that any rentals from subleases relating thereto which are in excess of the
rentals from such lease shall be paid to the Partnership and, provided further,
that no more than 15% of the office space of the Partnership Properties shall be
leased to the General Partners or their Affiliates. Except as otherwise provided
herein, the Partnership shall not sell or lease any Property to any General
Partner or any Affiliate of a General Partner.
(c) Loans to or from the General Partners and their
Affiliates. No loans may be made by the Partnership to any General Partner or
any Affiliate of a General Partner. Neither any General Partner nor any
Affiliate of a General Partner shall loan funds to the Partnership with interest
rates and other finance charges and fees in excess of the amounts that are
charged by unrelated banks on comparable loans for the same purpose in the
locality of the Property in connection with which the loan was made, and in no
event shall the annual interest rate charged on any such loan exceed by more
than 2% the then prime rate of such an unrelated local bank. In addition,
neither any General Partner nor any Affiliate of a General Partner shall make
loans to the Partnership with a prepayment charge or penalty which are evidenced
or secured by either a first or junior or all-inclusive note or mortgage, except
to the extent that such prepayment charge or penalty is attributable to an
underlying encumbrance. Neither any General Partner or Affiliate of a General
Partner shall provide permanent financing for the Partnership, and all payments
of principal and interest on any financing provided by the General Partners or
any Affiliate of a General Partner shall be due and payable within 12 months
after the date of the loan. In the event the Partnership utilizes any
all-inclusive (or "wrap-around") note issued by the Partnership to the General
Partners or an Affiliate thereof, said note shall provide that the Partnership
shall receive credit on its obligation under said note for payments made by the
Partnership directly on the underlying encumbrance and that a bank, escrow
company or other paying agent shall collect payments (other than amounts not to
be applied to the underlying encumbrance) on the all-inclusive note and make
disbursements therefrom to the holder of the underlying encumbrance prior to
making any disbursement to the holder of the all-inclusive note or, in the
alternative, all payments on the all-inclusive note and underlying notes shall
be made directly by the Partnership. In addition, no General Partner or
Affiliate of a General Partner shall receive interest on the amount of the
underlying encumbrance included in any all-inclusive note in excess of that
payable to the lender on that underlying encumbrance.
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11
(d) Exchange of Interests for Properties. The Partnership
shall not acquire any Property in exchange for Interests in the Partnership.
(e) Investments in Other Programs. The Partnership shall not
make investments in the general or limited partnership interests of any other
program, or enter into any joint venture or partnership which owns or operates a
particular Property except for (i) any such partnership or venture entered into
to facilitate the holding of title to any Property and in which the Partnership
holds all or substantially all of the beneficial interest, or (ii) a partnership
or joint venture entered into with an Affiliate of the General Partners to
acquire and hold a Property if the investment by the Partnership and such
Affiliate are on substantially the same terms and conditions, except as a result
from varying percentage interests in the joint venture. The Partnership shall
acquire a controlling interest in any such partnership or venture, and in no
event shall any duplicate property management or other fees be paid by the
Partnership as a result thereof. For purposes hereof, the term "controlling
interest" shall mean an interest of not less than 50% in the capital and profits
of the joint venture and the inclusion of appropriate provisions in the joint
venture agreement or related documents giving the Partnership the joint right to
make basic management decisions concerning the sale, leasing, refinancing or
expansion of the Property. The Partnership may not act indirectly through any
such joint venture if the Partnership would be prohibited from doing so directly
by reason of restrictions in this Agreement. In the event of a proposed sale of
the Property initiated by either joint venture partner, each party must have a
right of first refusal to purchase the other party's interest. Finally, in no
event shall the Partnership's equity investment in all such joint ventures
exceed 50% of the Partnership's total equity investment in all of its
Properties.
(f) Property Appraisals. No Property shall be acquired at a
purchase price to the Partnership (including any Acquisition Fees) in excess of
its market value as determined by an appraisal prepared by a competent
independent appraiser, which appraisals shall be maintained in the records of
the Partnership for not less than five years after the date of acquisition and
which shall be available for inspection and duplication by any Partner or his
representative at his cost.
6.3 Liability for Acts or Omissions and Indemnification. No General
Partner or Affiliate of a General Partner shall be liable, responsible or
accountable in damages or otherwise to any of the Partners or the Partnership
for any act or omission of any General Partner in good faith on behalf of the
Partnership and in a manner reasonably believed by such General Partner to be
within the scope of the authority granted to the General Partners by this
Agreement and in the best interests of the Partnership, except for acts or
omissions constituting negligence, misconduct or breach of fiduciary duty. The
General Partners and their respective Affiliates shall be entitled to indemnify
from the Partnership for any loss, damage, or claim by reason of any act or
omission performed or omitted by the General Partners in good faith on behalf of
the Partnership and in a manner reasonably believed by the General Partners
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12
to be within the scope of the authority granted to the General Partners by this
Agreement and in the best interests of the Partnership, except that they shall
not be entitled to be indemnified in respect of any loss, damage or claim
incurred by reason of negligence, misconduct, or breach of fiduciary duty. Any
indemnity under this Section shall be provided out of and to the extent of
Partnership assets only, and no Partner shall have or incur any personal
liability on account thereof.
6.4 Compensation of General Partners. The General Partners shall not,
in their capacities as General Partners, receive any salary, fees, profits or
distributions except:
(a) The General Partners shall be entitled to receive the
allocations and distributions which are provided under Section 8 hereof in
respect of their General Partnership Interests.
(b) Neither the General Partners nor their Affiliates shall
receive any Acquisition Fees in connection with the acquisition of Partnership
Properties, and the Partnership shall not pay any such Fees to any other Person.
The General Partners shall be entitled to receive reimbursement from the
Partnership for expenditures (including deposits and expenses incurred in the
acquisition of any Property), obligations and liabilities incurred by them in
connection with the organization, offering expenses and business of the
Partnership, including reimbursement for traveling expenses incurred on business
of the Partnership, and salaries and direct expenses of officers and employees
of the General Partners directly engaged in organizing the Partnership and
registering and marketing the Units, provided that such reimbursement shall be
subject to the following limitations. Except for expenses incurred in connection
with the organization of the Partnership and the initial offering of Units, all
of the Partnership's expenses shall be billed directly to and paid by the
Partnership. Reimbursements to the General Partners shall be limited to the
actual cost of goods, services and materials used for or by the Partnership and,
except for reimbursement of salaries of officers and employees of the General
Partners directly engaged in organizing the Partnership and registering and
marketing the Units, supplied by Persons other than the General Partners and
their Affiliates. In no event shall the Partnership be obligated to pay or
reimburse the General Partners for expenses (including, without limitation, any
salaries of officers or employees of the General Partners as aforesaid) incurred
in connection with the organization of the Partnership and the initial offering
of Units in an aggregate amount exceeding 5% of the gross proceeds of the
initial offering of Units. Furthermore, in no event shall (i) the Partnership's
reimbursement for travel and related expenses of the General Partners incurred
in connection with the acquisition of Partnership Properties exceed 2.0% of the
gross proceeds of the initial offering of Units, or (ii) any real estate
brokerage fees or other Acquisition Fees paid to or by any sellers of Properties
or other Persons in connection with the acquisition of Partnership Properties
exceed, with respect to each Property, 4.0% of its purchase price or, with
respect to all Properties, 4.0% of the gross proceeds of the initial offering of
Units. Expenses
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13
incurred by the General Partners in connection with the administration of the
Partnership including, but not limited to, salaries, rent and such other items
generally constituting General Partners' overhead, shall not be charged to the
Partnership.
(c) Upon the sale of any Property, the General Partners shall
receive for their actual services in arranging such sale, a brokerage fee in an
amount equal to three percent (3%) of the gross sales price of the Property,
provided that in no event shall (1) any such brokerage fee exceed 50% of the
competitive real estate commission in the area where the Property sold is
located and, together with any other brokerage fees payable to or by any other
Person, exceed 4% of the sales price of such Property, and (2) any such
brokerage fee be paid until after all Investor Limited Partners shall first have
received a return of their total Invested Capital and any previously unpaid
Cumulative Return on Investment as determined in accordance with Section 8.3(a)
Second and Section 8.3(b) Second hereof. If and when such a return has been
achieved, any and all brokerage fees previously earned by the General Partners
shall be paid by the Partnership to the General Partners prior to any other
distributions to the Partners.
6.5 Other Interests of the General Partners and their Affiliates. Any
General Partner and any Affiliate of a General Partner may engage in or possess
an interest in other business ventures (unconnected with the Partnership) of
every kind and description, independently or with others including, but not
limited to, serving as general partner of other partnerships and participating
in the real estate business in all of its phases, which shall include, without
limitation, ownership, operation, construction, management, syndication and
development of real property and which may include properties competitive with
any Property. The General Partners will devote such time to the affairs of the
Partnership and each other such partnership as they, within their sole
discretion, deem necessary for the proper performance of their duties. Neither
the Partnership nor the Limited Partners shall have any rights in and to such
independent ventures or the income or profits therefrom by reason of the General
Partner's position with the Partnership. Neither the General Partners nor any
Affiliate of any General Partner shall be obligated to present any particular
investment opportunity to the Partnership even if such opportunity is of a
character which, if presented to the Partnership, could be taken by the
Partnership, and each of the General Partners and their Affiliates shall have
the right to take for its own account (individually or otherwise) or to
recommend to others any such particular investment opportunity. Subject to the
other provisions of this Agreement, the Partnership may employ or transact
business with any Person, notwithstanding the fact that any Partner or any of
his Affiliates may have (or have had) an interest in or connection with such
Person, and neither the Partnership nor the other Partners shall have any rights
by virtue of this Agreement in or to any income or profits derived therefrom.
6.6 Other Transactions Involving the General Partners and their
Affiliates. Except as specifically permitted by this Agreement, the General
Partners are prohibited from entering into any agreements, contracts or
arrangements on behalf of
<PAGE>
14
the Partnership with any General Partner or any Affiliate of any General
Partner. Such prohibition shall include, without limitation, the following: (a)
neither a General Partner nor any such Affiliate shall be given an exclusive
right to sell or exclusive employment to sell Property for the Partnership; (b)
neither any General Partner nor any such Affiliate shall receive directly or
indirectly a commission or fee in connection with the reinvestment of the
proceeds of the sale, exchange or refinancing of any Property; and (c) neither
any General Partner nor any such Affiliate shall enter into an agreement or
contract with the Partnership for the development of any Property or the
construction of improvements on any Property.
Section 7. Limited Partners.
7.1 Classes of Limited Partners. There shall be two classes of Limited
Partnership Interests, namely, (a) Investor Limited Partnership Interests which
shall be acquired and held by the Investor Limited Partners, and (b) Original
Limited Partnership Interests which have been acquired and shall be held by the
Original Limited Partner.
7.2 Requirements for Admission as an Investor Limited Partner. Each
Person desiring to become an Investor Limited Partner, except for an assignee
desiring to be admitted as a Substitute Limited Partner in accordance with
Section 10 hereof, shall execute and deliver to the General Partners a
subscription agreement and such other documents as shall be deemed appropriate
by the General Partners. Under such subscription agreement and other documents,
such subscriber shall, subject to acceptance of his subscription by the General
Partners, execute and agree to be bound by this Agreement. If the General
Partner shall accept such subscription, and if, in connection with the initial
offering of Units pursuant to Section 6.1(b)(3)(i) hereof, subscriptions are
received and accepted respecting not less than $4,000,000 of Units (excluding
Units subscribed for by the General Partners and their Affiliates and by
residents of Texas) the subscribers whose subscriptions are accepted shall be
admitted as Investor Limited Partners in accordance with Section 7.5 hereof. The
General Partners shall accept or reject each subscription for Units within 30
days after its receipt by the Partnership; if rejected, all subscription
payments which accompanied such rejected subscription shall be returned
forthwith to the subscriber. No General Partner or Affiliate of a General
Partner or any underwriter, dealer or salesman of Units shall directly or
indirectly pay or award any finder's fee, commission or other compensation to
any Person engaged by a potential investor for investment advice as an
inducement to such advisor to advise the purchase of Units; provided, however,
that this provision shall not prohibit the normal selling commission payable to
a registered broker-dealer or other properly licensed Person for selling Units.
7.3 Absence of Control Over Partnership Business. The Limited Partners
hereby consent to the exercise by the General Partners of the powers conferred
on them by this Agreement. No Limited Partner (except one who may also be a
General Partner) shall participate in or have any control over the Partnership
business or have
<PAGE>
15
any right or authority to act for or to bind the Partnership. No Limited Partner
shall have the right to have the Partnership dissolved and liquidated or to have
his Capital Contribution returned except as provided in this Agreement.
7.4 Limited Liability. The liability of each Limited Partner in his
capacity as a Limited Partner shall be limited to the amount of the Capital
Contributions as described in Sections 5.2 and 5.3 hereof. Except as may
otherwise be required by law, no Limited Partner shall, in his capacity as
Limited Partner, have any further obligations to the Partnership or be required
to contribute any capital or loan funds to the Partnership.
7.5 Admission of Investor and Substitute Limited Partners. Each
Investor Limited Partner shall become a Partner simultaneously with the filing
of the first amendment to the Certificate of Limited Partnership which shall
reflect the respective name, address and Capital Contribution of such Investor
Limited Partner. The General Partners shall prepare and file the first amendment
to the Certificate of Limited Partnership admitting Investor Limited Partners to
the Partnership within 15 days after a successful completion of the minimum
offering of $4,000,000 of Units, as specified in Section 7.2 hereof. Thereafter,
the General Partners shall prepare and file from time to time during the initial
offering of Units, and in any event not less frequently than each month during
such offering period, and promptly upon the completion thereof, further
amendments to admit additional Investor Limited Partners whose subscriptions for
Units shall have been accepted by the General Partners. Until they are admitted
into the Partnership through the filing of an amendment to the Certificate of
Limited Partnership, the subscribers will not be Partners but instead will be
creditors of the Partnership entitled to a return of their respective
subscription payments in the event they are not admitted as Investor Limited
Partners. Following the completion of the initial offering of Units, the General
Partners shall prepare and file not less often than quarterly, as specified in
Section 10.3 hereof, further amendments to the Certificate of Limited
Partnership to reflect the admission of Substitute Limited Partners admitted to
the Partnership in accordance with Section 10 hereof.
Section 8. Allocations and Distributions.
8.1 Allocations of Profits and Losses for Tax Purposes.
(a) Operating Profits or Losses. Prior to the admission of any
Investor Limited Partner, the Profits or Losses for Tax Purposes of the
Partnership shall be allocated to the Original Limited Partner and the General
Partners in proportion to their respective Capital Contributions. Commencing
with the first day of the month in which the initial admission of an Investor
Limited Partner occurs, the Profits or Losses for Tax Purposes of the
Partnership, other than Profits or Losses of the Partnership arising from a
Capital Transaction and the Terminating Capital Transaction, for each fiscal
year (or portion thereof in the case of the initial fiscal
<PAGE>
16
year in which any Investor Limited Partner shall be admitted) shall be
determined as of the end of such fiscal year, or portion thereof, and allocated
among the classes comprised of the Investor Limited Partners, the Original
Limited Partner, and the General Partners in the same proportions as
distributions of Cash Flow are made pursuant to Section 8.2(b) hereof, or, in
the event no Cash Flow is then available for distribution, in the respective
proportions in which Cash Flow would have been distributed under that Section if
then available in the amount of such Profits or Losses.
(b) Profits for Tax Purposes from a Capital Transaction. The
Profits for Tax Purposes of the Partnership arising from a Capital Transaction
shall be allocated as follows:
First, to the class comprised of the Investor Limited
Partners to the extent of cash distributions pursuant to Section 8.3(a) First
attributable to the return of Invested Capital;
Second, to the class comprised of the Investor
Limited Partners to the extent of cash distributions pursuant to Section 8.3(a)
Second attributable to payment of the Cumulative Return on Investment;
Third, to the classes comprised of the Original
Limited Partner and the General Partners to the extent of cash distributions
pursuant to Section 8.3(a) Third attributable to the return of Invested Capital;
and
Fourth, until such time as the class comprised of the
Investor Limited Partners shall have received a return of its total Invested
Capital plus the Cumulative Return on Investment required by Section 8.3(a)
Second, any remaining Profits for Tax Purposes shall be allocated ninety-five
percent (95%) to the class comprised of the Investor Limited Partners, four
percent (4%) to the class comprised of the Original Limited Partner, and one
percent (1%) to the class comprised of the General Partners; and subsequent to
such time as the class comprised of the Investor Limited Partners shall have
received a return of its total Invested Capital plus such Cumulative Return on
Investment, any remaining Profits shall be allocated sixty-five percent (65%) to
the class comprised of the Investor Limited Partners, twenty-eight percent (28%)
to the class comprised of the Original Limited Partner, and seven percent (7%)
to the class comprised of the General Partners.
Notwithstanding anything in this Section 8.1(b) to the contrary, the
class comprised of the General Partners shall be allocated, to the extent not
otherwise allocated, at least one percent (1%) of all Profits for Tax Purposes
allocated pursuant to this Section 8.1(b).
(c) Profits for Tax Purposes from the Terminating Capital
Transaction. Subsequent to the charging to Capital Accounts of (i) all
distributions of Cash Flow
<PAGE>
17
pursuant to Section 8.2, (ii) the Net Cash Proceeds of any Capital Transactions
pursuant to Section 8.3(a), and (iii) the Net Cash Proceeds of the Terminating
Capital Transaction pursuant to Section 8.3(b) and as set forth in Section 8.4
(with regard to the allocations within the classes of Partners), the Profits for
Tax Purposes arising from such Terminating Capital Transaction and the winding
up of the affairs of the Partnership shall be allocated among the Partners
(treating the classes comprised of the Investor Limited Partners, the Original
Limited Partner, and the General Partners as separate classes for such
allocation) as follows:
First, to each class of Partners (without preference
over any other class of Partners) in the amount as to each class equal to the
excess of (1) the aggregate Losses for Tax Purposes and cash distributions
charged to the aggregate of the Capital Accounts of such class prior to the date
as of which such allocation is made, over (2) the sum of the aggregate Profits
for Tax Purposes and Capital Contributions credited to the aggregate of the
Capital Accounts of such class prior to the time as of which such allocation is
made;
Second, to the classes of Partners in the amount as
to each class equal to the aggregate cash distributions, if any, from the
Terminating Capital Transaction pursuant to clauses Second through Fourth of
Section 8.3(b); and
Third, until such time as the class comprised of the
Investor Limited Partners shall have received a return of its total Invested
Capital, plus the Cumulative Return on Investment required by Section 8.3(b)
Second, any remaining Profits for Tax Purposes shall be allocated ninety-five
percent (95%) to the class comprised of the Investor Limited Partners, four
percent (4%) to the class comprised of the Original Limited Partner, and one
percent (1%) to the class comprised of the General Partners; and subsequent to
such time as the class comprised of the Investor Limited Partners shall have
received a return of its total Invested Capital plus such Cumulative Return on
Investment, any remaining such Profits shall be allocated sixty-five percent
(65%) to the class comprised of the Investor Limited Partners, twenty-eight
(28%) to the class comprised of the Original Limited Partner, and seven percent
(7%) to the class comprised of the General Partners.
Notwithstanding anything in this Section 8.1(c) to the contrary, the
class comprised of the General Partners shall be allocated, to the extent not
otherwise allocated, at least one percent (1%) of all Profits for Tax Purposes
arising from the Terminating Capital Transaction. Any such allocation shall be
treated for all purposes as though it were otherwise receivable by the General
Partners under this Section.
(d) Losses for Tax Purposes from a Capital Transaction. All
Losses for Tax Purposes attributable to a Capital Transaction shall be allocated
as follows:
First, until such time as the class comprised of the
Investor Limited Partners shall have received a return of its total Invested
Capital plus the
<PAGE>
18
Cumulative Return on Investment required by Section 8.3(a) Second, ninety-five
(95%) to the class comprised of the Investor Limited Partners, four percent (4%)
to the class comprised of the Original Limited Partner, and one percent (1%) to
the class comprised of the General Partners; and
Second, after such time as the class comprised of the
Investor Limited Partners shall have received a return of its total Invested
Capital plus such Cumulative Return on Investment, sixty-five percent (65%) to
the class comprised of the Investor Limited Partners, twenty-eight percent (28%)
to the class comprised of the Original Limited Partner, and seven percent (7%)
to the class comprised of the General Partners.
(e) Losses for Tax Purposes from the Terminating Capital
Transaction. Losses for Tax Purposes attributable to the Terminating Capital
Transaction and the winding-up of the affairs of the Partnership shall be
allocated to the Partners to the extent of, and any excess in proportion to, the
positive balances in their Capital Accounts (adjusted as though the
Partnership's fiscal year ended immediately prior to the event giving rise to
such Losses).
Notwithstanding anything in this Section 8.1(e) to the contrary, the
class comprised of the General Partners shall be allocated, to the extent not
otherwise allocated, at least one percent (1%) of all Losses for Tax Purposes
allocated pursuant to this Section 8.1(e). Any such allocation shall be treated
for all purposes as though it were otherwise allocable to the General Partners
under this Section.
8.2 Cash Flow of the Partnership.
(a) "Cash Flow." The term "Cash Flow" of the Partnership for a
particular fiscal year shall include all Profits or Losses for Tax Purposes from
the operation of the Partnership for such fiscal year, excluding Profits or
Losses for Tax Purposes for such fiscal year arising from a Capital Transaction
or the Terminating Capital Transaction, and shall be determined by adjusting
such Profits or Losses (to the extent not otherwise adjusted) as follows:
(1) Depreciation of buildings, improvements and
personal property shall not be considered a deduction;
(2) Amortization of any item for which there is not
an associated cash payment shall not be considered a deduction;
(3) Principal and interest payments on a mortgage or
other loan shall be considered deductions;
(4) Principal payments on all conditional sales
contracts and other secured obligations shall be considered a deduction;
<PAGE>
19
(5) If the General Partner shall so determine,
reasonable reserves established in accordance with generally accepted accounting
principles shall be deducted to provide for replacements, improvements, capital
improvements or any other contingency of the Partnership;
(6) Any amounts paid by the Partnership for capital
expenditures or replacement (and not withdrawn from a reserve fund established
for such purpose) shall be considered a deduction;
(7) Amounts equal to accounts payable and accrued
items payable at the close of the Partnership fiscal year, to the extent not
already deducted in calculating Profits or Losses for Tax Purposes, shall be
considered a deduction;
(8) Amounts required to maintain reasonable working
capital shall be considered a deduction;
(9) The reimbursement and fees payable to the General
Partners hereunder shall be considered as a deduction;
(10) The Management Fees and Management Agent
Reimbursement shall be considered as a deduction;
(11) Capital Contributions to the Partnership and the
proceeds of any Capital Transaction or the Terminating Capital Transaction shall
not be included in Cash Flow of the Partnership and payments made from such
sources of funds shall be excluded in determining Cash Flow of the Partnership;
and
(12) Any other cash receipts from the operation of
the Partnership not properly includable in Profits or Losses for Tax Purposes,
and any amounts released from operating reserve accounts described in this
Section 8.2(a) and available for distribution, shall be included in Cash Flow of
the Partnership.
(b) Cash Flow Distributions. Within 45 days after the
completion of the first half of each of the Partnership's fiscal years,
commencing with the first fiscal year in which any Investor Limited Partner
shall be admitted to the Partnership, the Partnership will make a distribution
of Cash Flow to the Partners, which distribution will be based upon an estimate
by the General Partners of the Partnership's total Cash Flow for such year.
Within 90 days after the end of each fiscal year, the Partnership's Cash Flow
for such year will be determined and, after giving effect to the amount of Cash
Flow previously distributed, the remainder will then be distributed to the
Partners. Each such distribution of Cash Flow will be accompanied by a Cash Flow
statement as required by Section 12.4(a) hereof. Each distribution of Cash Flow
of the Partnership shall be made in the manner and amounts as follows:
<PAGE>
20
First, for years ending prior to the year in which
the class comprised of the Investor Limited Partners shall have received a
return of its total Invested Capital, plus the Cumulative Return on Investment
required by either Section 8.3(a) Second or 8.3(b) Second, ninety-five (95%) to
the class comprised of the Investor Limited Partners, four percent (4%) to the
class comprised of the Original Limited Partner, and one percent (1%) to the
class comprised of the General Partners; and
Second, for years commencing with the year in which
the class comprised of the Investor Limited Partners shall have received a
return of its total Invested Capital plus such Cumulative Return on Investment,
sixty-five percent (65%) to the class comprised of the Investor Limited
Partners, twenty-eight percent (28%) to the class comprised of the Original
Limited Partner, and seven percent (7%) to the class comprised of the General
Partners.
8.3 Proceeds of Capital Transactions and the Terminating Capital
Transaction.
(a) Capital Transaction Proceeds. All cash which is determined
by the General Partners to be available for distribution as a result of a
Capital Transaction and any cash other than Cash Flow distributable pursuant to
Section 8.2(b), and other than proceeds of the Terminating Capital Transaction
distributable pursuant to Section 8.3(b), shall first be applied to the payment
of all debts and liabilities of the Partnership then due (or required by any
lender or creditor to be repaid on account of the event referred to in this
Section 8.3(a) which makes such cash available), including any fees and expenses
then payable pursuant to Section 6.4 hereof but excluding any Subordinated
Financial Consulting Fee, and then to fund reserves for contingent liabilities
(including fees then earned but not yet payable pursuant to Section 6.4 hereof,
but excluding any Subordinated Financial Consulting Fee) to the extent deemed
reasonable by the General Partners, provided, that at the expiration of such
period of time as the General Partners shall deem advisable, the balance of such
reserves remaining after payment (or other satisfaction) of such contingencies
shall be distributed in the manner hereinafter set forth in this Section 8.3(a).
The remaining Net Cash Proceeds, if any, shall then be distributed as follows:
First, to the class comprised of the Investor Limited
Partners until such class has received a return of its total Invested Capital;
Second, to the class comprised of the Investor
Limited Partners until such class shall have received an amount which, when
added to the sum of (i) all amounts of Cash Flow whenever distributed to such
class pursuant to Section 8.2(b) First, and (ii) all amounts of cash distributed
to such class pursuant to this Section 8.3 (a) Second (which distributions were
made due to a prior Capital Transaction) equals the amount which such class
would have received, in the aggregate, if it had received the Cumulative Return
on Investment in respect of all fiscal years of the Partnership from the initial
admission of the Investor Limited Partners through the most recent
<PAGE>
21
fiscal year completed prior to the Capital Transaction giving rise to the
distribution made pursuant to this clause Second;
Third, to the classes comprised of the Original
Limited Partner and the General Partners until each such class has received a
return of its total Invested Capital;
Fourth, to Smith Barney to the extent of any
Subordinated Financial Consulting Fee then due; and
Fifth, any remaining Net Cash Proceeds shall be
distributed sixty-five percent (65%) to the class comprised of the Investor
Limited Partners, twenty-eight percent (28%) to the class comprised of the
Original Limited Partner, and seven percent (7%) to the class comprised of the
General Partners.
Notwithstanding anything in this Section 8.3(a) to the contrary, the
class comprised of the General Partners shall be entitled to receive, to the
extent not otherwise entitled, at least one percent (1%) of all Net Cash
Proceeds arising from a Capital Transaction. Any such distribution shall be
treated for all purposes as though it were otherwise distributable to the
General Partners under this Section.
(b) Terminating Capital Transaction Proceeds. All cash
available from a Terminating Capital Transaction and the winding up of the
affairs of the Partnership which is determined by the General Partners to be
available for distribution, shall first be applied to the payment of all debts
and liabilities of the Partnership then due (or required by any lender or
creditor to be repaid on account of the event referred to in this Section 8.3(b)
which makes such cash available), including the fees and expenses payable
pursuant to Section 6.4 hereof but excluding any Subordinated Financial
Consulting Fee, and then to fund such reserves for contingent liabilities
(including fees then earned but not yet payable pursuant to Section 6.4 hereof,
but excluding any Subordinated Financial Consulting Fee) to the extent deemed
reasonable by the General Partners, provided, that at the expiration of such
period of time as the General Partners shall deem advisable, the balance of such
reserves remaining after payment (or other satisfaction) of such contingencies
shall be distributed in the manner hereinafter set forth in this Section 8.3(b).
The remaining Net Cash Proceeds, if any, shall then be distributed as follows:
First, to the classes comprised of the Investor
Limited Partners, the Original Limited Partner and the General Partners, and in
that order of priority in the amount as to each class equal to the aggregate of
the then positive balances (if any) in the Capital Accounts of the Partners of
such class;
Second, to the class comprised of the Investor
Limited Partners until such class shall have received an amount which, when
added to the sum of (i) all amounts of Cash Flow whenever distributed to such
class pursuant to Section 8.2(b)
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22
First, and (ii) all amounts of cash whenever distributed to such class pursuant
to Section 8.3(a) Second arising from Capital Transactions, equals the amount
which such class would have received, in the aggregate, if it had received the
Cumulative Return on Investment in respect of all fiscal years of the
Partnership from the initial admission of the Investor Limited Partners through
the most recent fiscal year completed prior to the Terminating Capital
Transaction;
Third, to the class comprised of the Investor Limited
Partners until such class has received a return of its total Invested Capital;
Fourth, to the classes comprised of the Original
Limited Partner and the General Partners until each such class has received a
return of its total Invested Capital;
Fifth, to Smith Barney to the extent of any
Subordinated Financial Consulting Fee then due; and
Sixth, any remaining Net Cash Proceeds shall be
distributed sixty-five percent (65%) to the class comprised of the Investor
Limited Partners, twenty-eight percent (28%) to the class comprised of the
Original Limited Partner, and seven percent (7%) to the class comprised of the
General Partners.
Notwithstanding anything in this Section 8.3(b) to the contrary, the
General Partners shall be entitled to receive, to the extent not otherwise
entitled, at least one percent (1%) of all Net Cash Proceeds arising from the
Terminating Capital Transaction. Any such distribution shall be treated for all
purposes as though it were otherwise distributable to the General Partners under
this Section.
8.4 Allocations and Distributions Within Classes of Partners.
(a) Subject to the provisions of Section 8.4(c) hereof, which
shall govern with respect to allocations of Profits or Losses from normal
operations and distributions of Cash Flow derived from the Partnership's
operations during any fiscal year in which any Investor Limited Partner shall
initially be admitted to the Partnership, all Profits or Losses for Tax Purposes
of the Partnership allocated to, and distributions of cash made to, the classes
of Partners consisting of the Investor Limited Partners and the General Partners
shall be allocated among the respective members of such classes as follows: (i)
among the Investor Limited Partners, in proportion to their respective number of
Units, except for distributions of cash which are based upon a return of
Invested Capital, which shall be allocated in proportion to their respective
Invested Capital, and (ii) among the General Partners, in proportion to their
respective Invested Capital.
(b) All Profits or Losses for Tax Purposes allocated to, and
distributions of cash made to, the Partners shall be credited or charged, as the
case
<PAGE>
23
may be, to their Capital Accounts as of the date as of which such Profits or
Losses for Tax Purposes are allocated and the date as of which distributions of
cash are made. All distributions made to the Partners pursuant to the provisions
of Section 8.2 hereof shall be treated as having been made and charged to their
respective Capital Accounts prior to the allocation of Profits or Losses for Tax
Purposes pursuant to Section 8.1(a); distributions under Section 8.3(a) shall be
treated as having been made and charged to their respective Capital Accounts
prior to the allocation of Profits for Tax Purposes pursuant to Section 8.1(b)
First; distributions under Section 8.3(b) shall be treated as having been made
and charged to their respective Capital Accounts immediately after the
allocation of Profits for Tax Purposes pursuant to Section 8.1(c) First and
immediately prior to Section 8.1(c) Second; and all cash distributions shall be
treated as having been made and charged to their respective Capital Accounts
prior to the allocation of Losses for Tax Purposes pursuant to Section 8.1(d)
and Section 8.1(e). The Profits or Losses for Tax Purposes of the Partnership
allocated among the Partners pursuant to Section 8.1(a) shall be credited or
charged to their respective Capital Accounts prior to the allocation of Profits
or Losses for Tax Purposes of the Partnership pursuant to Sections 8.1(b), (c)
and (d).
(c) All Profits or Losses for Tax Purposes which are allocated
to the class of Investor Limited Partners pursuant to Section 8.1(a) hereof, and
all distributions, if any, of Cash Flow made to the class of Investor Limited
Partners pursuant to Section 8.2(b) hereof, shall, to the extent such
allocations or distributions are based upon the Partnership's operations during
any fiscal year in which Investor Limited Partners are initially admitted to the
Partnership, be allocated among the Investor Limited Partners as follows. First,
each such fiscal year shall be divided into twelve segments of one month each,
and the operations of the Partnership shall be deemed as having occurred on a
pro rata basis over each of such twelve segments irrespective of the actual
operations of the Partnership during any given month. Second, each Investor
Limited Partner who was admitted to the Partnership prior to the commencement of
such fiscal year shall be deemed to have held his respective Units during each
of such twelve segments, and each Investor Limited Partner who was admitted to
the Partnership during such fiscal year shall be deemed to have held his
respective Units during the appropriate number of such segments as shall
commence with the first day of the month in which his respective admission to
the Partnership as an Investor Limited Partner occurred. Third, all Profits or
Losses which are allocated to the class of Investor Limited Partners pursuant to
Section 8.1(a) hereof, and all distributions, if any, of Cash Flow made to the
class of Investor Limited Partners pursuant to Section 8.1(b) hereof, shall, to
the extent such allocations or distributions are based upon the Partnership's
operations during such fiscal year, be allocated among the Investor Limited
Partners in proportion to the respective products produced by multiplying (i)
their respective number of Units by (ii) the respective number of segments of
such year in which such Units were held.
(d) Upon the transfer of a Partnership Interest, which shall
be deemed to have occurred as set forth below, the transferor and transferee
shall be allocated a
<PAGE>
24
pro rata share of Profits or Losses for Tax Purposes and shall receive pro rata
distributions of Cash Flow and of Net Cash Proceeds, if any. Each item of
income, gain, cost, deduction or credit entering into the computation thereof
shall be pro-rated for the fiscal year in which the transfer occurs, and such
pro-ration between the transferor and transferee shall be based on the portion
of the fiscal year that the transferred Partnership Interest was held by the
transferor and transferee, respectively. Such pro-ration shall be based upon
dividing each fiscal year of the Partnership into twelve even segments of one
month each and without regard to the actual operations of the Partnership during
any specified month, as specified in Section 8.4(c) hereof. For the purpose of
allocating Profits or Losses for Tax Purposes and distributing cash, such
transfer shall be deemed to have been made on the first day of the month
following which written evidence respecting the assignment is received by the
Partnership in form satisfactory to the General Partners or, if such date shall
not be permitted for allocation purposes under the Code, on the nearest date
otherwise permitted under the Code.
8.5 Adjustment of Allocations and Distributions in the Event of the
Sale of Additional Units. If Units in addition to the Units originally offered
by the Partnership pursuant to Section 6.1(b)(3)(i) hereof (the "Original
Units") are subsequently offered and sold pursuant to Section 6.1(b)(3)(ii)
hereof (the "Additional Units"), the allocations and distributions described in
Sections 8.1 through 8.3 above for each class of Partners shall be adjusted with
respect only to those clauses of such Sections pursuant to which the class of
Investor Limited Partners receives a percentage interest of ninety-five percent
(95%), or sixty-five percent (65%). With respect to each of the aforementioned
clauses, the percentage interest of the class of Investor Limited Partners
(hereinafter "PI") shall be increased according to the following formula:
New percentage interest )
of the class of Investor ) = (PI + A)
--------
Limited Partners ) (100 + A)
In the above formula, "A" equals:
PI x (number of Additional Units/number of Original Units).
In the event of such an upward adjustment of the percentage interest of
the class of Investor Limited Partners, the percentage interests of the classes
of the Original Limited Partner and the General Partners with respect to the
clauses specified above shall be reduced in an aggregate amount equal to the
increase in the percentage increase for the class of Investor Limited Partners.
This reduction shall be allocated between the classes of the Original Limited
Partner and the General Partners in proportion to the relative percentage
interests of such classes in each particular clause to be adjusted.
Notwithstanding the foregoing, the percentage interest of the class of General
Partners in each allocation and distribution under this Agreement shall at all
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25
times be not less than one percent and, if and to the extent required, the
interest of the Original Limited Partner in any such allocation or distribution
shall be reduced as necessary to produce such a one percent allocation for the
class of General Partners.
8.6 Return of Partners' Capital Contributions. All Partners shall look
solely to the assets of the Partnership for the return of their respective
Capital Contributions or any other distributions with respect to their
Partnership Interests. If the assets remaining after payment or discharge, or
provisions for payment or discharge, of its debts and liabilities are
insufficient to return the Capital Contributions or to make any other
distributions to the Partners, no Partner shall have any recourse against the
personal assets of any other Partner for that purpose, except to the limited
extent set forth in Section 6.3 hereof.
8.7 Reinvestment of Cash Flow and Net Cash Proceeds. The Partnership
shall not invest Cash Flow in Properties. No Net Cash Proceeds of a Capital
Transaction or the Terminating Capital Transaction may be reinvested by the
Partnership except for Net Cash Proceeds of a Capital Transaction which occurs
in the two year period following the completion of the initial offering of
Units. In the event of such a Capital Transaction, the General Partners may
elect, in their sole discretion based upon real estate market conditions then in
effect, either to distribute all or any portion of such Net Cash Proceeds to the
Partners or to reinvest such Net Cash Proceeds in reserves or in one or more
Properties. Notwithstanding the foregoing, if such a Capital Transaction shall
create any federal or state income tax liability for the Investor Limited
Partners, no such Net Cash Proceeds shall be reinvested unless sufficient such
Net Cash Proceeds are distributed to the Investor Limited Partners to pay any
such federal or state income taxes (assuming the Investor Limited Partners are
taxable at a 40% rate on ordinary income and a 16% rate on capital gains).
8.8 Return of Uninvested Capital Contributions. In the event that any
portion of the Investor Limited Partners' Capital Contributions derived from the
initial offering of Units is not invested or committed for investment by the
Partnership within 24 months from the date on which such initial public offering
of Units commenced (except for any amounts utilized to pay expenses of the
Partnership and amounts set aside for reserves), such portion of Capital
Contributions shall promptly be distributed to the Investor Limited Partners by
the Partnership as a return of capital. For the purpose of this Agreement, funds
will be deemed to have been committed to investment and will not be returned to
the Investor Limited Partners to the extent written agreements in principle,
commitment letters, letters of intent or understanding, option agreements or any
similar contracts or understandings were at any time executed regardless of
whether any such investment is or is not ultimately consummated, and to the
extent any funds have been reserved to make contingent payments in connection
with any property, regardless of whether any such payments are or are not
ultimately made. In the event that any Investor Limited Partners' Capital
Contributions shall be returned pursuant to this Section, the respective Capital
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26
Contributions (and Invested Capital) of such Partners shall thereupon be deemed
to have been reduced by the amount of such distribution.
Section 9. Withdrawal of General Partners
9.1 Voluntary Withdrawal. Any General Partner may Voluntarily Withdraw
from the Partnership at any time provided that (a) the Partnership shall have
received the opinion of Counsel to the Partnership to the effect that such
Withdrawal will not constitute a termination of the Partnership or otherwise
materially adversely affect the status of the Partnership for federal income tax
purposes and (b) if the General Partner proposing to withdraw is then the sole
General Partner, or if such Voluntary Withdrawal shall require the admission of
a new General Partner in order to preserve the status of the Partnership as a
partnership for federal income tax purposes, a new General Partner shall have
been selected who, or which, (1) shall have stated willingness to be admitted,
(2) shall satisfy the then applicable provisions of the Code and any applicable
procedures, regulations, rules and rulings (including published private rulings)
thereunder, including applicable net worth requirements so that the Partnership
shall be classified as a partnership for tax purposes, and (3) shall have
received the unanimous Consent of all of the other Partners with respect to
admission (which unanimous consent shall, in the case of the Limited Partners,
be deemed to have been received provided that the Consent of a majority in
interest of the Investor Limited Partners has been received in the manner
provided in Section 13 hereof).
9.2 Involuntary Withdrawal. If a General Partner (or all general
partners of a partnership which acts as a General Partner of the Partnership)
shall die, or become insane or otherwise physically, mentally or emotionally
incapable of performing the duties or exercising the responsibilities of a
General Partner, or be liquidated or dissolved, or become a bankrupt, such
General Partner shall be deemed to have Involuntarily Withdrawn from the
Partnership upon the date of such occurrence. The date upon which such General
Partner (or such general partners) shall be deemed to have become insane or
incapacitated as aforesaid is the date upon which a certificate of a licensed
physician shall be delivered to the Partnership which certificate shall state
the opinion of the signer that the General Partner (or each such general
partner) is incapable of performing his duties and exercising his
responsibilities by reason of physical, mental or emotional disability of
indefinitely long duration. A General Partner shall be deemed to become a
bankrupt when such Partner (or each general partner thereof) files a bankruptcy
petition, voluntarily takes advantage of any bankruptcy or insolvency law, or is
adjudicated a bankrupt, or if a petition or an answer is filed proposing
adjudication as a bankrupt, when such Partner (or each such general partner)
shall consent to the filing thereof or 60 days after the filing thereof, unless
the same shall have been discharged or denied prior thereto.
9.3 Consequences of Withdrawal.
(a) Upon the Withdrawal of any General Partner, the Withdrawn
General Partner or his estate or legal representatives shall be entitled to
receive from
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27
the Partnership (1) any positive balance in his or its Capital Account (as
adjusted to the date of such Withdrawal), (2) any amounts due and owing to it or
him by the Partnership less any amounts due and owing by it or him to the
Partnership, and (3) the remaining balance, if any, of fees payable as and when
due pursuant to this Agreement or any other written agreements between the
Partnership and such General Partner in his capacity as General Partner;
however, the Withdrawn General Partner shall not be entitled to any such fees
which had not yet been earned by him prior to his Withdrawal. The right of a
General Partner, his estate or legal representatives to payment of said amounts
and fees shall be subject to any claim for damages which the Partnership or any
Partner may have against such General Partner, his estate or legal
representative if such Withdrawal is in contravention of this Agreement.
(b) Each General Partner hereby covenants and agrees, in the
event of his Withdrawal, to transfer to a Substitute General Partner selected as
provided in Section 9.5 hereof or to the remaining General Partner or General
Partners, such portion, if any, of his General Partnership Interest as may be
required to assure that the Partnership will meet the minimum general
partnership interest requirement for the continued treatment of the Partnership
as a partnership under the then applicable provisions of the Code and any
applicable procedures, regulations, rules and rulings (including published
private rulings) thereunder. Any such transfer will be made in consideration of
the payment by the Substitute General Partner or the remaining General Partner
or Partners to the Withdrawn General Partner, his estate or legal
representatives, of the fair market value of such interest. Such payments shall
be in addition to any amounts payable pursuant to Section 9.3(a) hereof by the
Partnership. Any portion of such Withdrawn General Partner's Interest which is
not required to be transferred as aforesaid may be retained by such Withdrawn
General Partner, or his estate or legal representatives as appropriate. Such
Withdrawn General Partner, or his estate or legal representatives, shall be
treated as a Limited Partner in the Partnership in respect of any such retained
Interest.
9.4 Liability of Withdrawn General Partner. If the business of the
Partnership is continued after Withdrawal of a General Partner, the Withdrawn
General Partner, his estate and legal representatives shall remain liable for
all obligations and liabilities incurred by him while a General Partner and for
which he was liable as a General Partner, but shall be free of any obligation or
liability incurred on account of or arising from the activities of the
Partnership from and after the time such Withdrawal shall have become effective.
9.5 Continuation of Partnership Business.
(a) Procedure if there is a Remaining General Partner. Upon
the Withdrawal of a General Partner, the remaining General Partner or Partners,
if any, shall promptly notify the Limited Partners of such Withdrawal. The
remaining General Partner or Partners may elect to continue the Partnership
business. If such General Partner or Partners so elect, the Limited Partners
hereby elect to continue the business of the Partnership. If at any time The
Krupp Company or a successor
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28
General Partner with substantial net worth shall Withdraw as a General Partner,
the remaining General Partners or Partner may (but shall not be obligated to),
propose for admission a Substitute General Partner or General Partners. Any such
proposed Substitute General Partner shall, with the Consent of the other General
Partners, and with the Consent of a majority in interest of the Investor Limited
Partners, become a Substitute General Partner upon his or its execution of this
Agreement. Provided that the Consent of a majority in interest of the Investor
Limited Partners is obtained as specified in Section 13 hereof, the Investor
Limited Partners hereby specifically and unanimously consent to such admission
of a Substitute General Partner.
(b) Procedure if there is no Remaining General Partner. If,
following the Withdrawal of a General Partner, there is no remaining General
Partner or Substitute General Partner, any Investor Limited Partner may notify
the other Limited Partners of such circumstances and may propose for admission a
Substitute General Partner. Any Substitute General Partner proposed by such
Investor Limited Partner pursuant to this Section 9.5(b) shall, with the Consent
of a majority in interest of the Investor Limited Partners, become a Substitute
General Partner upon his or its execution of this Agreement. Provided that the
Consent of a majority in interest of the Investor Limited Partners is obtained
as specified in Section 13 hereof, the Investor Limited Partners hereby
specifically and unanimously consent to such admission of a Substitute General
Partner. If no Substitute General Partner has received the Consent of a majority
in interest of the Investor Limited Partners and executed this Agreement within
one-hundred eighty (180) days from the date of the last remaining General
Partner's Withdrawal, then the Partnership shall thereupon terminate.
Section 10. Assignment of Limited Partnership Interests.
10.1 Withdrawal of a Limited Partner. Subject to compliance with this
Agreement, an Original or Investor Limited Partner may withdraw from the
Partnership only by assigning or otherwise transferring his or its Interest as
specified in this Section 10. The withdrawal of a Limited Partner shall not
dissolve or terminate the Partnership. In the event of a Limited Partner's
withdrawal because of death or legal incompetence, the estate or legal
representative of such withdrawn Limited Partner shall be deemed to be the
assignee of such withdrawn Limited Partner's Interest and may become a
Substitute Limited Partner upon compliance with the provisions of Section 10.3
hereof.
10.2 Assignment. Except as provided in Section 10.4 below, any Limited
Partner may Assign all or any part of his Limited Partnership Interests,
provided such Limited Partner shall file with the Partnership, in form
satisfactory to the General Partners, a duly executed counterpart of the
instrument making such Assignment and such instrument (a) evidences the written
acceptance by the assignee of all of the terms and provisions of this Agreement,
(b) represents that such Assignment was made in accordance with all applicable
laws and regulations (including, without limitation, such minimum investment and
investor suitability requirements as may
<PAGE>
29
then be applicable under state securities laws), and (c) is accompanied by a fee
of not in excess of $50.00 to reimburse the Partnership for its costs respecting
the Assignment.
10.3 Substitution. An assignee of a Limited Partnership Interest
assigned in accordance with the provisions of Section 10.1 or 10.2 hereof shall
become a Substitute Limited Partner of the same class as his assignor if:
(a) the General Partners, in their sole discretion, shall
consent in writing to such substitution (which consent may be withheld);
(b) such assignee executes an instrument reasonably
satisfactory to the General Partners accepting and adopting the terms and
provisions of this Agreement; and
(c) in the case of Assignments other than by operation of law,
the assignor states his intention in writing to have his assignee become a
Substitute Limited Partner.
If all of the conditions of Sections 10.2 and 10.3 shall have been met,
the assignee of a Unit shall become a Substitute Limited Partner on the date as
of which the General Partners consent in writing to his admission to the
Partnership as a Substitute Limited Partner, which consent shall be evidenced by
the filing of an amendment to the Certificate of Limited Partnership listing the
name of such Substitute Limited Partner. Such an amendment shall be filed no
later than 15 days after the completion of any fiscal quarter of the Partnership
in which an Assignment has occurred which will give rise to the admission of a
Substitute Limited Partner.
An assignee of a Limited Partnership Interest who does not become a
Substitute Limited Partner in accordance with this Section 10.3 and who desires
to make a further Assignment of his Interest shall be subject to all the
provisions of Sections 10.2, 10.3 and 10.4 hereof, to the same extent and in the
same manner as any Limited Partner of his class desiring to make an Assignment
of his Interests. Failure or refusal of the General Partners to admit an
assignee as a Substitute Limited Partner shall in no way affect the right of
such assignee to receive the share of the Profits or Losses for Tax Purposes and
distributions of Cash Flow and Net Cash Proceeds to which his predecessor in
interest was entitled in accordance with Section 8.4(d) hereof.
10.4 Prohibited Assignment. Unless in each of the following instances
the General Partners shall give their express written consent, no Units may be
assigned or otherwise transferred:
(a) to a minor or incompetent (unless a guardian, custodian or
conservator has been appointed to handle the affairs of such person);
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30
(b) to any person or entity not permitted to be a transferee
under law including, in particular but without limitation, applicable state
securities laws which generally provide that, except in the case of a transfer
by gift, inheritance, intra-family transfer, or family dissolution, each
transferee of Units must acquire not less than five Units and must satisfy
similar investor suitability standards to those which were applicable to the
original offering of Units, and that following a transfer of less than all his
Units, each transferor must retain a sufficient number of Units to satisfy the
minimum investment standards applicable to his initial purchase of Units;
(c) in the case of a proposed assignment of Units, to any
assignee if such assignee would hold after such Assignment a fraction of a Unit;
or
(d) to any person if, in the opinion of Counsel to the
Partnership, such transfer would result in the termination under the Code of the
Partnership's taxable year or of its status as a partnership.
Any such attempted Assignment without the express written consent of
the General Partners shall be void and ineffectual and shall not bind the
Partnership. In the case of a proposed Assignment which is prohibited solely
under clause (d) above, however, the Partnership shall be obligated to permit
such Assignment to become effective if and when, in the opinion of Counsel to
the Partnership, such Assignment would no longer have either of the adverse
consequences under the Code which are specified in that clause.
10.5 Status of an Assigning Limited Partner. Any Limited Partner who
shall Assign his Interest (other than by pledge or similar conditional
assignment which has not yet become effective) shall cease to be a Limited
Partner of the Partnership, and shall no longer have any of the rights or
privileges of a Limited Partner.
Section 11. Termination and Liquidation.
11.1 Events Causing Termination. The Partnership shall be terminated
and its affairs wound up on the first to occur of the following:
(a) the Withdrawal of any General Partner, unless the
remaining General Partner or Partners, if any, or a Substitute General Partner
admitted in accordance with Section 9.5 hereof, agree to continue the
Partnership business pursuant to Section 9.5; or
(b) an election to dissolve the Partnership made in writing by
the General Partners with the Consent of a majority in interest of the Investor
Limited Partners, or, subject to compliance with Section 13, hereof, made by a
majority in interest of the Investor Limited Partners without action by the
General Partners; or
(c) the sale or other disposition of all or substantially all
of the assets of the Partnership unless the General Partners elect to continue
the Partnership
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31
business for the purpose of the receipt and collection of a note and payments
thereon or the collection of any other consideration to be received in exchange
for the assets of the Partnership (which activities shall be deemed to be a part
of the Terminating Capital Transaction and the winding up of the affairs of the
Partnership); or
(d) the expiration of the Partnership term; or
(e) any other event which causes the termination and
dissolution of the Partnership under the Massachusetts Uniform Limited
Partnership Act to the extent not otherwise provided herein.
11.2 Distribution Upon Termination. Upon the termination of the
Partnership, the General Partners, or if there is none, such other Person
required by law to wind up the Partnership's affairs, shall proceed with the
liquidation of the Partnership (including, without limitation, the sale or other
disposition of any remaining Properties and cancellation of the Certificate of
Limited Partnership), and the net proceeds of such liquidation shall be applied
and distributed in accordance with the provisions of Section 8.3(b) hereof.
During the period of winding up, liquidation and the final termination of the
Partnership, the General Partners or any Person performing such actions may
exercise all of the powers granted to the General Partners herein, and they may
adopt such plan, method or procedure of liquidation as they may deem reasonable
in order to effectuate an orderly liquidation. If the General Partners shall
perform the foregoing functions, they shall be compensated therefor as provided
in Sections 6.4 and 8 hereof, and if such functions shall be performed by
Persons other than the General Partners, such Persons shall be entitled to
reasonable compensation from the Partnership for their services.
Section 12. Fiscal Matters.
12.1 Title to Property and Bank Accounts. Except to the extent that
trustees, nominees or other agents are utilized as specified in Section
6.1(b)(2) hereof, the Properties and other assets of the Partnership shall be
held in the name of the Partnership. The funds of the Partnership shall be
deposited in the name of the Partnership in such bank account or accounts as
shall be designated by the General Partners, and withdrawals therefrom shall be
made upon the signature of any General Partner or such Person or Persons as
shall be designated in writing by any General Partner. The funds of the
partnership shall not be commingled with the funds of any other Person.
12.2 Records and Accounting. The General Partners shall keep or cause
to be kept complete and accurate books with respect to the Partnership's
business. The books and records of the Partnership shall be kept on an accrual
basis and the Profits and Losses for Tax Purposes of the Partnership shall be
determined for each fiscal year in accordance with accounting methods followed
for federal income tax purposes and otherwise in accordance with generally
accepted accounting principles applied in a consistent manner. Except as
otherwise provided herein, whenever a proportionate
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32
part of the Profits or Losses for Tax Purposes of the Partnership is credited or
charged to a Partner's Capital Account, every item of income, gain, loss or
deduction entering into the computation of such Profits or Losses shall be
considered either credited or charged, as the case may be, and every item of
credit or tax preference related to such Profits and Losses and applicable to
the period during which such Profits or Losses were realized shall be allocated
to such Capital Account in the same proportion.
12.3 Fiscal Year. Except as may otherwise be determined from time to
time by the General Partners, the Partnership's fiscal year for federal income
tax and financial reporting purposes shall end on December 31 of each year.
12.4 Reports, Accounting Decisions and Federal Tax Elections.
(a) Reports to Limited Partners.
(1) Quarterly Reports. Within 45 days after the end
of each the first three quarters of each fiscal year, the General Partners shall
send to each Person who was a Limited Partner at any time during the quarter
then ended (i) a balance sheet (which need not be audited), (ii) a statement of
operations (which need not be audited), (iii) a Cash Flow statement (which need
not be audited), (iv) a detailed statement describing (A) any new agreement,
contract or arrangement required to be reported by Section 6.1(b)(4), and (B)
the amount of all fees and other compensation and distributions paid by the
Partnership for such quarter to any General Partner or any Affiliate of any
General Partner, (v) a report in narrative form summarizing the status of the
Partnership's investments, (vi) until the Capital Contributions to the
Partnership derived from the initial offering of Units shall be fully invested,
a special report of real property acquisitions including (A) a description of
the Properties purchased, (B) a description of the geographic locale and of the
market upon which the success of operations is dependent, (C) the date of
appraisal and amount thereof, (D) the actual purchase price and terms, (E) the
cash expended from Capital Contributions to acquire each Property, and (F) the
amount of Capital Contributions which then remains unexpended, stated in terms
of both dollar amount and percentage of the total amount of Capital
Contributions derived from the initial offering of Units, and (vii) a report of
the activities of the Partnership during such fiscal quarter.
(2) Annual Reports. Within 90 days after then end of
each fiscal year, the General Partners shall send to each person who was a
Limited Partner at any time during the fiscal year then ended (i) a balance
sheet as of the end of such fiscal year and statements of operations, Partners'
equity and changes in financial position for such fiscal year, all of which
shall be prepared in accordance with generally accepted accounting principles
and accompanied by an auditor's report containing an opinion of the Accountants,
(ii) a Cash Flow statement (which need not be audited), (iii) a report
summarizing the fees and other remuneration paid by the Partnership for such
fiscal year to any General Partner or any Affiliate of any General Partner, and
(iv) a statement (which need not be audited) showing the Cash Flow and
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33
Net Cash Proceeds from any Capital Transaction or Terminating Capital
Transaction distributed per Unit to each Person who was a Limited Partner at any
time during such fiscal year. Until the Capital Contributions of the Partnership
derived from the initial offering of Units shall be fully invested, the annual
report shall also contain a special report of real property acquisitions
containing the information specified above for quarterly reports.
(b) Tax Returns and Tax Information. The General Partners
shall:
(i) have the Accountants prepare the tax
returns (federal, state and local, if any) of the Partnership for each fiscal
year within 75 days after the end of each calendar year in which such fiscal
year was completed; and
(ii) deliver to each Partner within 75 days
after the end of each calendar year the information necessary to prepare his
federal income tax return, and a state tax return to the extent required in each
state where the Partnership then owns a Property, for the calendar year during
which such fiscal year was completed.
(c) Accounting Decisions. All decisions as to accounting
matters, except as specifically provided to the contrary herein, shall be made
by the General Partners in accordance with the accounting methods adopted by the
Partnership for federal income tax purposes and otherwise in accordance with
generally accepted accounting principles and procedures applied in a consistent
manner. Such decisions must be acceptable to the Accountants, and the General
Partners may rely upon the advice of such Accountants as to whether such
decisions are in accordance with generally accepted accounting principles.
(d) Federal Tax Elections. The Partnership, in the sole
discretion of the General Partners, may make elections for federal tax purposes
as follows:
(i) In case of a transfer of all or part of
the Partnership Interest of a Partner, the Partnership, in the absolute
discretion of the General Partners, may timely elect pursuant to Section 754 of
the Code (or corresponding provisions of future law) and pursuant to similar
provisions of applicable state or local income tax laws, to adjust the basis of
the assets of the Partnership. In such event, any basis adjustment attributable
to such election shall be allocated solely to the transferee.
(ii) All other elections, including but not
limited to the adoption of accelerated depreciation or cost recovery methods,
required or permitted to be made by the Partnership under the Code shall be made
by the General Partners in such manner as will, in the opinion of the
Accountants, be most advantageous to a majority in interest of the Limited
Partners. The Partnership shall, to the extent permitted by applicable law and
regulations, elect to treat as an expense for federal income tax purposes all
amounts incurred by it for real estate taxes, interest and other
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34
charges which may, in accordance with applicable law and regulations, be
considered as expenses.
(e) Access to Books and Records. The books and records of the
Partnership will be maintained at the Partnership's principal office and each
Limited Partner (or his duly authorized representative) at his own expense will
have access to them and the right to inspect and copy them at all reasonable
times during normal business hours. A list of the names and addresses of all
Investor Limited Partners and their respective Capital Contributions shall be
maintained as part of the books and records of the Partnership and shall be made
available on request to any Investor Limited Partner or his representative at
his cost.
(f) Tax Audits. In the event of an audit of the Partnership,
or the interest of any Partner in the Partnership, by the Internal Revenue
Service, the General Partners, at Partnership expense, shall have the exclusive
right, but not the obligation, to conduct all negotiations with the Internal
Revenue Service on behalf of the Partnership and the Partners, and the attorneys
and accountants selected by the General Partners to conduct such negotiations
are hereby specifically authorized by the Partners so to act, and each Partner
will execute such further authority, if any, as the Internal Revenue Service may
require therefor. Each of the General Partners is hereby authorized on behalf of
each of the Partners, and as their attorney, to execute in the name and stead of
each of the Partners such authority as the Internal Revenue Service may require
to permit the General Partners and their selected attorneys and accountants to
so represent the Partners.
(g) Reports to Appropriate State Authorities. The General
Partners shall prepare and file with appropriate state authorities all reports
required to be so filed by state securities or "Blue Sky" authorities.
Section 13. Meetings and Voting Rights of Investor Limited Partners.
13.1 Meetings.
(a) Meetings of the Investor Limited Partners for any purpose
may be called by the General Partners and shall be called by the General
Partners upon receipt of a request in writing signed by 10% or more in interest
of the Investor Limited Partners. Notice of any such meeting shall be sent
within ten days after receipt of such request. Such request shall state the
purpose of the proposed meeting and the matters proposed to be acted upon at the
meeting. Such meeting shall be held at the principal office of the Partnership,
or at such other place as may be designated by the General Partners or, if
called upon the request of Investor Limited Partners, as designed by such
Investor Limited Partners. In addition, upon receipt of a request in writing
signed by 10% or more in interest of the Investor Limited Partners, the General
Partners shall submit any matter (upon which the Investor Limited Partners are
entitled to act) to the Investor Limited Partners for a vote by written Consent
without a meeting.
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35
(b) A notice of any such meeting shall be given either
personally or by mail, not less than 15 days nor more than 60 days before the
date of the meeting, to each Investor Limited Partner at his record address, or
at such other address which he may have furnished in writing to the General
Partners. Such notice shall be in writing, and shall state the place, date and
hour of the meeting, and shall indicate that it is being issued at or by the
direction of the Partner or Partners calling the meeting. The notice shall state
the purpose or purposes of the meeting. If a meeting is adjourned to another
time or place, and if any announcement of the adjournment of time or place is
made at the meeting, it shall not be necessary to give notice of the adjourned
meeting. The presence in person or by proxy of a majority in interest of the
Investor Limited Partners shall constitute a quorum at all meetings of the
Investor Limited Partners; provided, however, that if there be no such quorum,
holders of a majority in interest of such Investor Limited Partners so present
or so represented may adjourn the meeting from time to time without further
notice, until a quorum shall have been obtained. No notice of the time, place or
purpose of any meeting of Investor Limited Partners need be given to any
Investor Limited Partner who attends in person or is represented by proxy
(except when an Investor Limited Partner attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or convened), or
to any Investor Limited Partner entitled to such notice who, in writing, has
executed and filed with the records of the meeting, either before or after the
tie thereof, waiver of such notice.
(c) For the purpose of determining the Investor Limited
Partners entitled to vote on, or to vote at, any meeting of the Partnership or
any adjournment thereof, the General Partners or the Investor Limited Partners
requesting such meeting may fix, in advance, a date as the record date for any
such determination of Investor Limited Partners. Such date shall not be more
than 50 days nor less than ten days before any such meeting.
(d) Each Investor Limited Partner may authorize any person or
persons to act for him by proxy in all matters in which an Investor Limited
Partner is entitled to participate, whether by waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed by the Investor
Limited Partner or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the Investor Limited
Partner executing it.
(e) At each meeting of Investor Limited Partners, the Investor
Limited Partners present or represented by proxy may adopt such rules for the
conduct of such meeting as they shall deem appropriate.
13.2 Voting Rights of Investor Limited Partners. Subject to Section
13.3, a majority in interest of the Investor Limited Partners, without the
concurrence of the General Partners or the Original Limited Partner, may (a)
amend this Agreement,
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36
subject to the provisions of Section 14 hereof and to the conditions that such
amendment (i) may not in any manner allow the Limited Partners to take part in
the control of the Partnership's business and (ii) may not, without the consent
of the General Partner affected, alter the rights, power and duties of such
General Partner as set forth herein, (b) terminate the Partnership, (c) remove
any General Partner and elect a replacement thereof (who shall upon such
replacement be deemed a Substitute General Partner admitted to the Partnership
in accordance with Section 9.5 hereof), or (d) approve or disapprove the sale of
all or substantially all the assets of the Partnership.
13.3 Conditions to Action by Investor Limited Partners. The rights of
the Investor Limited Partners pursuant to Section 13.2 hereof shall not come
into existence or be effective in any manner unless and until (a) the
Partnership has received an opinion of counsel, which counsel is satisfactory to
a majority in interest of the Investor Limited Partners, as to the legality of
such action, and (b) either (1) the Partnership has received an opinion of
counsel, which counsel is satisfactory to a majority in interest of the Investor
Limited Partners, that such action may be effected without subjecting the
Investor Limited Partners to liability as general partners under the
Massachusetts Uniform Limited Partnership Act or under the laws of such other
jurisdiction in which the Partnership is qualified or owns a Property, or (2) a
Massachusetts court having appropriate jurisdiction has entered a judgment to
the foregoing effect, and (c) either (1) the Partnership has received an opinion
of counsel, which counsel is satisfactory to a majority in interest of the
Investor Limited Partners, that such action may be effected without changing the
Partnership's status for tax purposes or (2) either a court having appropriate
jurisdiction has entered a judgment, or the Internal Revenue Service has issued
a ruling, to the foregoing effect. For purposes of this Section 13.3, counsel
will be deemed satisfactory to the Investor Limited Partners if proposed by the
General Partners and affirmatively approved in writing within 45 days by a
majority in interest of the Investor Limited Partners; provided that if the
holders of 10% or more of the Investor Limited Partnership Interests propose
counsel for this purpose, such proposed counsel, and not counsel proposed by the
General Partners, shall be submitted for such approval by the Investor Limited
Partners.
13.4 Valuation of Interest of General Partner. In the event of removal
of any General Partner pursuant to Section 13.2 hereof, his or its Interest as a
General Partner in the Partnership shall be appraised by two independent
appraisers, one selected by the removed General Partner and one by the Investor
Limited Partners. In the event that such two appraisers are unable to agree on
the value of the removed General Partner's Interest, they shall jointly appoint
a third independent appraiser whose determination shall be final and binding.
The Partnership shall pay the removed General Partner for the value of its
Interest as so determined by delivery of a promissory note bearing interest at
the then prime rate of The First National Bank of Boston, with interest payable
annually in cash and principal payable from any cash thereafter received by the
Partnership from the sale or refinancing of Partnership
<PAGE>
37
properties and prior to any distribution being made to the Partners pursuant to
Section 8.3 of this Agreement. Any amounts received pursuant to Section 13.4
shall constitute complete and full discharge for all amounts owing to the
removed General Partner on account of its Interest in the Partnership. For
purposes of this Section 13.4, the independent appraiser selected by the
Investor Limited Partners shall be selected in the following manner: a list of
three qualified MAI (Member of Appraisal Institute) appraisers shall be obtained
(by a General Partner not being removed) from the Boston chapter of the American
Institute of Real Estate Appraisers and one of said three appraisers shall be
selected by random number and proposed by such General Partner for selection by
the Investor Limited Partners. Such appraiser shall be deemed selected by the
Investor Limited Partners unless objected to in writing by a majority in
interest of the Investor Limited Partners within 45 days after notification
thereof is sent in writing by such General Partner.
Section 14. Amendments.
(a) In addition to the right of the Investor Limited Partners to amend
this Agreement pursuant to Section 13 hereof, the General Partners may propose
an amendment to this Agreement. The General Partners shall submit to all of the
Partners in writing the text of any such proposed amendment to this Agreement
and a statement by the General Partners of the purpose of any such amendment.
The General Partners may include in any submission a statement of the view of
the General Partners as to the proposed amendment. Upon the Consent of the
General Partners, of the Original Limited Partner, and of a majority in interest
of the Investor Limited Partners, such amendment shall take effect, except that
no such amendment shall increase the liability of any Partner or adversely
affect any Partner's share of distributions of cash or allocations of Profits or
Losses for Tax Purposes of the Partnership (except in the case of a sale of
additional Units pursuant to Section 6.1(b)(3)(ii) hereof) without in each case
the approval of the Partner involved, and except that all the Investor Limited
Partners must approve any amendment of this Section 14. A written approval may
not be withdrawn or voided once it is filed with the General Partners.
(b) In addition to any amendments otherwise authorized herein, this
Agreement may be amended from time to time by the General Partner without the
consent of any of the Limited Partners: (i) to add to the representations,
duties or obligations of the General Partners or surrender any right or power
granted to the General Partners herein, for the benefit of the Limited Partners,
(ii) to cure any ambiguity, to correct or supplement any provision herein which
may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Agreement
which will not be inconsistent with the provisions of this Agreement; (iii) to
preserve the status of the Partnership as a "partnership" for federal income tax
purposes; and (iv) to delete or add any provisions of this Agreement required to
be so deleted or added by the Staff of the Securities and Exchange Commission or
other federal agency or by a state "Blue Sky" commissioner or similar such
official, which addition or deletion is deemed by such
<PAGE>
38
Commission, agency or official to be for the benefit or protection of the
Limited Partners.
Section 15. Power of Attorney.
(a) Appointment. Each of the Investor Limited Partners hereby makes,
constitutes, and appoints the General Partners of the Partnership and each of
them, and each person who shall hereafter become a General Partner during the
term of the Partnership and any continuation of the Partnership pursuant to
Section 9.5 and Section 11, with full power of substitution, the true and lawful
attorney-in-fact of, and in the name, place and stead of, such Limited Partner,
with the power from time to time to execute, acknowledge, make, swear to,
verify, deliver, record and/or publish:
(1) this Agreement of Limited Partnership and the Certificate
of Limited Partnership under the laws of the Commonwealth of Massachusetts or
any other jurisdiction, that may be required by this Agreement or by the laws of
Massachusetts or any such other jurisdiction, any subsequent amendment to this
Agreement and the Certificate of Limited Partnership (including, but not limited
to, amendments reflecting the addition or substitution of Partners), or any
other document required from time to time to admit a Partner, to effect the
substitution of a Partner, or to effect the substitution of a Limited Partner's
assignee as a limited Partner;
(2) any other document required to reflect any action of the
Partners duly taken in the manner provided for in this Agreement, whether or not
such Limited Partner voted in favor of or otherwise Consented to such action;
(3) any other instrument, certificate or document which may be
required by any regulatory agency, laws of the United States, any state, or any
other jurisdiction in which the Partnership is doing or intends to do business
or which the General Partners deem advisable to file or record, provided such
instrument, certificate or document is not inconsistent with the terms of this
Agreement as then in effect;
(4) any certificate of dissolution or cancellation of the
Certificate of Limited Partnership that may be necessary upon the termination of
the Partnership; and
(5) any instrument or papers required to continue or terminate
the business of the Partnership pursuant to Sections 9.5 and 11 hereof;
provided that no General Partner shall take any action as attorney-in-fact for
any Limited Partner which could in any way increase the liability of such
Limited Partner beyond the liability expressly set forth in this Agreement or
alter the rights of Investor Limited Partners under Section 8 of this Agreement
(except in the case of a sale of additional Units pursuant to Section
6.1(b)(3)(ii) hereof), unless (in either
<PAGE>
39
case) the Limited Partner has given a Power of Attorney to a General Partner
expressly for such purpose.
(b) Amendments to Agreement and Certificate
(1) Each of the Investor Limited Partners is aware that the
terms of this Agreement permit certain amendments of this Agreement to be
effected and certain other actions to be taken or omitted by, or with respect
to, the Partnership, in each case with the approval of less than all the
Investor Limited Partners if a specified percentage of the Partners shall have
voted in favor of, or otherwise Consented to, such action. If, as, and when:
(i) an amendment of this Agreement is proposed or an
action is proposed to be taken or omitted by, or with respect to, the
Partnership which requires, under the terms of this Agreement, the Consent of a
specified percentage in interest (but less than all) of the Partners;
(ii) Partners holding the percentage of interests
specified in this Agreement as being required for such amendment or action have
Consented to such amendment or action in the manner contemplated by this
Agreement; and
(iii) a Limited Partner has failed or refused to
Consent to such amendment or action (hereinafter referred to as a
"non-consenting Limited Partner"), then each non-consenting Limited Partner
agrees that each attorney-in-fact specified in Section 15(a) above, with full
power of substitution, is hereby authorized and empowered to execute,
acknowledge, make, swear to, verify, deliver, record, file and/or publish, for
and in behalf of such non-consenting Limited Partner, and in his name, place and
stead, any and all instruments and documents which may be necessary or
appropriate to permit such amendment to be lawfully made or action lawfully
taken or omitted. Each consenting and non-consenting Limited Partner is fully
aware that he and each other Limited Partner have executed this special power of
attorney and that each Limited Partner will rely on the effectiveness of such
powers with a view to the orderly administration of the Partnership's affairs.
(2) Any amendment to this Agreement (and to the Certificate of
Limited Partnership) substituting a Limited Partner, or adding a Limited or
General Partner, may be signed by any General Partner and by the person to be
substituted as a Limited Partner, or added as a Limited or General Partner, and
shall also be signed on behalf of the assigning Limited Partner in the case of a
substitution. Any amendment reflecting the determination of the remaining
General Partner or Partners to continue the business of the Partnership upon the
Withdrawal of a General Partner need be signed only by one General Partner. The
execution of any such amendment on behalf of a Limited Partner or any proposed
substitute or added Limited Partner may be effected by his attorney-in-fact.
<PAGE>
40
(c) Power Coupled With an Interest. The foregoing grant of authority:
(1) is a special power of attorney coupled with an interest in
favor of the General Partners and as such shall be irrevocable and shall survive
the death or insanity of each Limited Partner;
(2) may be exercised for each Limited Partner by a signature
of any General Partner of the Partnership or by listing the names of all of the
Investor Limited Partners, including such Limited Partner, and then executing
any instrument with a single signature of any General Partner acting as
attorney-in-fact for all of them; and
(3) shall survive the Assignment by any Limited Partner of the
whole or any portion of his Interest, except that, where the assignee of the
whole thereof has furnished a Power of Attorney and has been approved by the
General Partners for admission to the Partnership as a Substitute Limited
Partner, this Power of Attorney shall survive such Assignment with respect to
the assignor for the sole purpose of enabling a General Partner to execute,
acknowledge and file any instrument necessary to effect such substitution and
shall thereafter terminate with respect to any Partner who assigns his entire
Interest.
(d) Power of Attorney by Substitute Investor Limited Partners. A
similar power of attorney shall be one of the instruments which the General
Partners shall require an assignee of a Limited Partner to execute as a
condition to the admission of such assignee as a Substitute Limited Partner.
Section 16. General Provisions.
16.1 Notices, Approvals and Consents. All notices, approvals, Consents
or other communications hereunder shall be in writing and signed by the party
giving the same, and shall be deemed to have been given when the same are (a)
deposited in the United States mail and sent by first class mail, postage
prepaid, or (b) delivered. In each case, said mailing or delivering shall be
made to the parties at the address set forth below or at such other addresses as
such parties may designate by notice to the Partnership:
(1) If to the Partnership or any General Partner, at the
principal office of the Partnership;
(2) If to the Original Limited Partner at the address set
forth in Schedule A hereto or to such other address as may be designated by
notice from such Partner; and
(3) If to an Investor Limited Partner, at the address set
forth in Schedule A hereto, or to such other address as may be designated by
notice from such Partner given in the manner hereby specified.
<PAGE>
41
16.2 Further Assurances. The Partners will execute, acknowledge and
deliver such further acts and things as may be required to carry out the intent
and purpose of this Agreement.
16.3 Captions. Captions contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any of the provisions thereof.
16.4 Binding Effect. Except to the extent required under the
Massachusetts Uniform Limited Partnership Act and for fees, rights to
reimbursement, and other compensation provided as such, none of the provisions
of this Agreement shall be for the benefit of or be enforceable by any creditor
of the Partnership.
16.5 Separability. If one or more of the provisions of this Agreement
or any application thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and any other application thereof shall not in any way be
affected or impaired thereby, and such remaining provisions shall be interpreted
consistently with the omission of such invalid, illegal or unenforceable
provisions.
16.6 Integration. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties in connection
therewith which conflict with the express terms of this Agreement. No covenant,
representation or condition not expressed in this Agreement shall affect or be
effective to interpret, change or restrict the express provisions of this
Agreement.
16.7 Applicable Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of Massachusetts.
16.8 Counterparts. This Agreement may be signed by each party hereto
upon a separate copy (including, in the case of the Investor Limited Partners, a
separate signature page executed by one or more such Partners), in which event
all such copies shall constitute a single counterpart of this Agreement.
However, no counterpart shall be binding unless accepted by one or more of the
General Partners, which acceptance shall be evidenced by the filing of the
Certificate of Limited Partnership or an appropriate amendment thereto.
16.9 Interest in HUD Federally Regulated Projects. So long as any of
the Property shall include a Federally Regulated Project with a mortgage insured
or held by the Department of Housing and Urban Development ("HUD"), the
following provisions and controls shall not be altered or amended without the
written consent of the Secretary of HUD and such provisions and controls shall
apply to the ownership and management of each of such Federally Regulated
Projects so long as each remains such a Federally Regulated Project, and if any
ceases to be such a Federally
<PAGE>
42
Regulated Project these provisions and controls shall continue to apply to all
other such Federally Regulated Projects:
(i) All applicable regulations, rules, restrictions and
procedures (all being herein called "HUD Regulations"), including, without
limitation, any provisions contained in any applicable regulatory agreement,
shall control each HUD Federally Regulated Project hereunder, and in the event
any provision of this Partnership Agreement shall be in conflict with any of the
HUD Regulations, the HUD Regulations shall control with respect to each such HUD
Federally Regulated Project.
(ii) In no event shall any action be taken under this
Partnership which relates to any HUD Federally Regulated Project unless the same
shall conform in all respects with all applicable HUD Regulations.
(iii) Any Partner shall as a condition of receiving a direct
ownership interest in any HUD Federally Regulated Project of the Partnership
agree to be bound by the note, mortgage, and regulatory agreement and other
documents required in connection with any loan secured by such HUD Federally
Regulated Project of the Partnership to the same extent and on the same terms as
the Partnership. Upon any dissolution of the Partnership, no title or right to
possession and control of any HUD Federally Regulated Project of the
Partnership, and no right to collect the rents therefrom, shall pass to any
person who is not bound by the applicable regulatory agreement relating to such
HUD Federally Regulated Project of the Partnership in a manner satisfactory to
the Secretary of HUD.
(iv) No "Distribution" (as defined in the HUD Regulations) and
no management fees in excess of those allowed by HUD shall be paid to anyone
except from "Surplus Cash" (as defined in the HUD Regulations) or except (a)
from Cash Flow or (b) from proceeds of any Capital Transactions, none of which
arise from HUD Federally Regulated Projects, nor may Cash Flow or proceeds from
Capital Transactions arising from Federally Regulated Projects be used to
reimburse expenses except in conformity with the HUD Regulations.
(v) The General Partners are specifically authorized:
(a) to deal with HUD and to comply with all of its
requirements, including the submission of such financial reports and other data
as may from time to time be required by HUD;
(b) to enter into such regulatory and other
agreements as may be required by HUD; and
(c) any one of the General Partners is authorized to
execute and deliver to the Secretary of HUD any note, mortgage, regulatory or
other agreement required by the HUD Regulations in accordance with the transfer
of a HUD Federally
<PAGE>
43
Regulated Project to the Partnership, and to execute and to deliver any
document, instrument or report which may at any time be required by HUD
Regulations.
(vi) No person or entity may become a General Partner of the
Partnership except by complying with the applicable HUD Regulations.
16.10 Creditors. No creditor who makes a non-recourse loan to the
Partnership shall have or acquire at any time, as a result of making such loan,
any direct or indirect interest in the profits, capital or property of the
Partnership other than as a secured creditor.
16.11 Interpretation. Unless the context in which words are used in
this Agreement otherwise indicates that such is the intent, words in the
singular shall include the plural and in the masculine shall include the
feminine and neuter and vice versa.
Section 17. Definitions. The defined terms used in this Agreement shall
have the meanings specified below:
"Accountants" means Coopers & Lybrand, One Post Office Square,
Boston, Massachusetts or a successor thereto, or another firm of independent
certified public accountants selected by the General Partners.
"Acquisition Fees" means the total of all fees and commissions
paid by any Person to any Person in connection with the selection, purchase,
construction or development of any Property by the Partnership, whether
designated as a real estate commission, acquisition fee, finder's fee, selection
fee, development fee, construction fee, non-recurring management fee, consulting
fee or any fee of similar nature however designated and however treated for tax
or accounting purposes.
"Affiliate" means when used with reference to a specified
Person, (i) any Person that directly or indirectly through one or more
intermediaries controls or is controlled by or is under common control with the
specified Person, (ii) any Person that is an officer of, partner in or trustee
of, or serves in a similar capacity with respect to, the specified Person or of
which the specified Person is an officer, partner or trustee, or with respect to
which the specified Person serves in a similar capacity, (iii) any Person that,
directly or indirectly, is the beneficial owner of 10% or more of any class of
equity securities of, or otherwise has a substantial beneficial interest in, the
specified Person or of which the specified Person is directly or indirectly the
owner of 10% or more of any class of equity securities or in which the specified
Person has a substantial beneficial interest, and (iv) any Immediate Family
Member of the specified Person.
"Agreement" means this Amended Agreement of Limited
Partnership, as the same may hereafter be amended from time to time.
<PAGE>
44
"Assign" means, with respect to a Partnership Interest or part
thereof, to offer, sell, assign, transfer, hypothecate, pledge, give, or
otherwise dispose of, whether voluntarily or involuntarily or by operation of
law. "Assignment" means any such transaction involving a Partnership Interest or
any part thereof.
"Capital Account" means the capital account of each Partner
established and maintained in accordance with Section 5.4 hereof.
"Capital Contribution" means the amount of cash contributed to
the Partnership by a Partner, prior to the deduction of any offering expenses or
selling commissions.
"Capital Transaction" means the sale, exchange, refinancing,
condemnation, eminent domain taking, casualty or other disposition of a
Partnership Property, but not including the Terminating Capital Transaction.
"Cash Flow" shall have the meaning given in Section 8.2(a)
hereof.
"Certificate of Limited Partnership" means the certificate of
limited partnership to be filed with the Secretary of State of the Commonwealth
of Massachusetts pursuant to this Agreement, as the same may be amended from
time to time.
"Code" means the Internal Revenue Code of 1954, as amended, or
corresponding provisions of subsequent laws.
"Consent" means either the consent given by vote at a meeting
called and held in accordance with the provisions of Section 13.1 hereof or the
written consent, as the case may be, of a Person to do the act or thing for
which the consent is solicited, or the act of granting such consent, as the
context may require.
"Counsel to the Partnership" means Messrs. Gaston Snow & Ely
Bartlett, One Federal Street, Boston, Massachusetts 02110 or another law firm
selected by the General Partners.
"Cumulative Return on Investment" means a return equal to nine
percent (9%) per annum (and pro rated for part of a year commencing with the
initial admission of an Investor Limited Partner) of the Invested Capital of the
class comprised of the Investor Limited Partners. In calculating whether the 9%
annual Cumulative Return on Investment payable to the Investor Limited Partners
has been satisfied, only distributions by the Partnership of cash will be
considered and no credit will be given for tax benefits allocated to the
Investor Limited Partners.
"Federally Regulated Project" means any Property owned by the
Partnership that at the time is (i) encumbered by a mortgage, deed of trust or
similar instrument securing indebtedness held, insured or reinsured in whole or
in part by any
<PAGE>
45
agency, department, administration or commission of the United States
Government, and (ii) subject to a regulatory agreement between the Partnership
(whether directly or by assumption) and such agency, department, administration
or commission.
"General Partner" means any person designated as a General
Partner in Schedule A of this Agreement or who becomes a Substitute General
Partner as provided in this Agreement, in such person's capacity as a General
Partner of the Partnership.
"General Partners" means every person or persons who serve(s)
as a General Partner, whether there be one or several.
"Immediate Family Member" means with respect to any person,
his spouse, parent, parent-in-law, issue, brother, sister, brother-in-law,
sister-in-law, or child-in-law.
"Interest" means the entire ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement, but excluding any claims which such
Partner may have against the Partnership as a creditor.
"Invested Capital" means, with respect to each class of
Partners, the Capital Contributions by such class of Partners less any amounts
of cash distributed to such class pursuant to: (i) Clauses First and Third of
Section 8.3(a) hereof from a Capital Transaction; and (ii) Clauses First, Third
and Fourth of Section 8.3(b) hereof from the Terminating Capital Transaction.
With respect to each Partner in a class of Partners, the respective Invested
Capital of such Partner shall be determined by the proportion which such
Partner's Invested Capital bears to the total Invested Capital held by such
class.
"Investor Limited Partner" means any person who shall purchase
a Unit and be admitted to the Partnership as an Investor Limited Partner, or any
person who becomes a Substitute Investor Limited Partner, in the capacity of
such person as an Investor Limited Partner.
"Involuntary Withdrawal" means, with respect to any General
Partner, the deemed withdrawal or retirement of a General Partner from the
Partnership pursuant to Section 9.2 hereof due to death, insanity, physical,
mental or emotional incapability of performing the duties of a General Partner,
or the liquidation, dissolution or bankruptcy of such General Partner. In the
case of The Krupp Company, or any other partnership which shall serve as a
General Partner of the Partnership, such partnership shall be deemed to have
Involuntarily Withdrawn as such a General Partner upon the death, insolvency,
physical, mental or emotional incapability or bankruptcy of all of its
respective general partners.
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46
"Limited Partner" means any Original Limited Partner or
Investor Limited Partner or any Person admitted to the Partnership as a
Substitute Limited Partner in such Person's capacity as an Original or Investor
Limited Partner of the Partnership.
"Management Agent" means an entity which enters into a
Management Agreement with the Partnership.
"Management Agent Reimbursement" means the reimbursement paid
to the Management Agent as authorized by Section 6.1(b)(4)(ii) hereof.
"Management Agreement" and "Management Fee" mean an agreement
entered into for the management of a Property and the fees payable pursuant to
such agreement as authorized by Section 6.1(b)(4)(ii) hereof.
"Net Cash Proceeds" of a Capital Transaction or the
Terminating Capital Transaction means the cash received by the Partnership as a
result of such Transaction, less (i) all debts and liabilities of the
Partnership required to be paid as a result of the Transaction (including, among
other liabilities, any fees and expenses payable pursuant to Section 6.4 hereof,
exclusive of any Subordinated Consulting Fee), and (ii) any reserves for
contingent liabilities (including fees then earned but not yet payable pursuant
to Section 6.4 hereof, exclusive of any Subordinated Consulting Fee), to the
extent deemed reasonable by the General Partners provided that, at the
expiration of such period as the General Partners shall deem advisable, the
balance of such reserves remaining after payment of such contingencies shall be
distributed in the manner provided in this Agreement for Net Cash Proceeds.
"Original Agreement" means the Agreement of Limited
Partnership executed and delivered on April 23, 1982 by the General Partners and
the Original Limited Partner.
"Original Limited Partner" means The Krupp Company, a
Massachusetts limited partnership, or a Substitute Limited Partner to The Krupp
Company admitted to the Partnership in accordance with this Agreement, in its
capacity as the Original Limited Partner of the Partnership.
"Partner" means any General Partner or Limited Partner.
"Partnership" means the limited partnership as formed and as
amended in accordance with this Agreement, as said limited partnership may from
time to time be constituted.
"Person" means any individual, partnership, corporation,
trust, governmental official, body or agency, or other entity of any type.
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47
"Profits or Losses for Tax Purposes" means profits or losses
as determined by the Partnership for federal income tax purposes, and items of
income, gain, loss, deduction, or credit entering into the computation thereof.
"Property" means any real estate, buildings, improvements,
fixtures and related personal property acquired by the Partnership, and any
equity interest of the Partnership therein, whether direct or indirect through a
nominee, joint venture or otherwise.
"Sales Agent Agreement" means the Sales Agent Agreement
between the Partnership and Smith Barney entered into pursuant to Section
6.1(b)(4)(iii) hereof.
"Schedule A" means Schedule A to this Agreement as amended
from time to time.
"Smith Barney" means Smith Barney, Harris Upham & Co.
Incorporated, a New York corporation, and any successor thereto by statutory
merger or other reorganization.
"Subordinated Financial Consulting Fee" means the subordinated
financial consulting fee payable by the Partnership to Smith Barney pursuant to
the Sales Agent Agreement over the life of the Partnership out of the Net Cash
Proceeds of sales and refinancings of Partnership Properties.
"Substitute General Partner" means the assignee of a General
Partnership Interest who is admitted to the Partnership as a General Partner
pursuant to Section 9.5 or Section 13.2 of this Agreement.
"Substitute Limited Partner" means the assignee of a Limited
Partnership Interest who is admitted to the Partnership as a Limited Partner
pursuant to Section 10.3 of this Agreement.
"Terminating Capital Transaction" means the sale, exchange,
condemnation, eminent domain taking, casualty or other disposition of all or
substantially all of the assets of the Partnership which results in the
termination of the Partnership pursuant to Section 11 of the Agreement. The
Terminating Capital Transaction shall also include the receipt and collection of
notes, if any, and payments thereon or any other consideration received or to be
received by the Partnership upon a sale or other disposition of all or
substantially all of the assets of the Partnership and all activities reasonably
related thereto. Such activities are deemed to be included in the winding up of
Partnership affairs, and all allocations and distributions therefrom shall be
governed by Sections 8.1(c) and (e) and 8.3(b) hereof.
"Unit" means the Investor Limited Partnership Interest of an
Investor Limited Partner representing, in the case of the initial offering of
Units, a Capital
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48
Contribution of One Thousand Dollars ($1,000), and in the case of any additional
Units sold by the General Partners pursuant to Section 6.1(b)(3)(ii), a Capital
Contribution equal to the fair market value of such Units at the time of such
offering, as determined in the judgment of the General Partners.
"Voluntary Withdrawal" means, with respect to a General
Partner, the voluntary retirement or withdrawal of a General Partner from the
Partnership, or the voluntary sale, assignment, encumbrance or other disposition
of his General Partnership Interest pursuant to Section 9.1 hereof.
"Withdrawal" means, with respect to a General Partner, the
Voluntary or Involuntary Withdrawal of such General Partner.
<PAGE>
49
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amended Agreement of Limited Partnership as of the date first specified above.
GENERAL PARTNERS ORIGINAL LIMITED PARTNER
THE KRUPP COMPANY THE KRUPP COMPANY
By: s/George Krupp By: s/George Krupp
--------------------- ---------------------
George Krupp, a George Krupp, a
General Partner General Partner
THE KRUPP CORPORATION
By: s/Douglas Krupp
---------------------
Douglas Krupp,
President
<PAGE>
SCHEDULE A
NAMES, ADDRESSES AND
CAPITAL CONTRIBUTIONS OF PARTNERS
Capital Contributions
Names and Addresses Made
I. General Partners
The Krupp Company $ 975
One Liberty Square
Boston, Massachusetts 02109
The Krupp Corporation 25
One Liberty Square
Boston, Massachusetts 02109
-----------
Total $ 1,000
II. Original Limited Partner
The Krupp Company $ 4,000
One Liberty Square
Boston, Massachusetts 02109
III. Investor Limited Partners
[To be determined] [To be determined]
Exhibit 5
PROPERTY MANAGEMENT AGREEMENT
This Agreement is made as of the ____ day of ________________, 199___ between
the undersigned KRUPP REALTY FUND, LTD.-III (The "Owner") and the undersigned
BERKSHIRE REALTY ENTERPRISES LIMITED PARTNERSHIP, (the "Agent").
1. APPOINTMENT AND ACCEPTANCE. The Owner appoints the Agent as exclusive
agent for the management of the property described in Section 2 of this
Agreement, and the Agent accepts the appointment, subject to the terms and
conditions set forth in this Agreement.
2. DESCRIPTION OF THE PROJECT. The property to be managed by the Agent
under this Agreement (the "Project") is a housing development consisting of the
land, buildings, and other improvements located in _______________ and known as
________________ Apartments, containing ______ dwelling units.
3. BASIC INFORMATION. The Agent will thoroughly familiarize itself with
the character, location, construction, layout, plan and operation of the
Project, and especially the electrical, plumbing, air-conditioning and
ventilating systems, the elevators and all other mechanical equipment.
4. MARKETING. The Agent will carry out the marketing activities designed
to attract tenants as described below.
5. RENTALS. The Agent will offer for rent and will rent the dwelling
units and commercial space, if any, in the Project. Incident thereto, the
following provisions will apply:
a. The Agent will show the Project to prospective tenants;
b. The Agent will take and process applications for rentals.
If an application is rejected, the applicant will be told
the reason for rejection, and will be given the rejected
application, with reason for rejection noted. A current
list of prospective tenants will be maintained;
c. The Agent will prepare all dwelling leases and, unless
otherwise directed by the Owner, will execute the same in
its name, identifying itself thereon as agent for the
Owner. Dwelling leases will be in a form approved by the
Owner;
d. The Owner will furnish the Agent with rent schedules, showing
contract rents for dwelling units, and other charges for
facilities and services. The Agent will periodically review such
<PAGE>
rent schedules and make recommendations to the Owner with respect
to changes thereto;
e. The Agent will collect, deposit, and disburse security
deposits, if required, in accordance with the terms of
each tenant's lease;
f. The Agent will negotiate and prepare commercial leases and
concession agreements, if the Project shall now or hereafter
contain any commercial space, and will execute the same in its
name, identified thereon as agent for the Owner, subject to the
Owner's prior approval of all terms and conditions; and
g. The Agent will perform periodic market surveys with
respect to the market area in which the Project is
located.
6. COLLECTION OF RENTS AND OTHER RECEIPTS. The Agent will collect, when
due, all rents, charges and other amounts receivable for the Owner's account in
connection with the management and operation of the Project. Such receipts will
be deposited in an account, separate from all other accounts and funds, with a
bank whose deposits are insured by the Federal Deposit Insurance Corporation.
This account will be carried in the Owner's name and designated of record as
"Krupp Realty Fund, Ltd.-III dba ___________ Apartments" (the "Project Rental
Account"). Subject to compliance with Section 11 hereof, the Agent is, however,
hereby authorized to make deposits to and withdrawals from the Project Rental
Account as agent for the Owner.
7. ENFORCEMENT OF LEASES. The Agent will secure full compliance by each
tenant with the terms of such tenant's lease. Voluntary compliance will be
emphasized, but the Agent may lawfully terminate any tenancy when, in the
Agent's judgment, sufficient cause (including but not limited to non-payment of
rent) for such termination occurs under the terms of the tenant's lease. For
this purpose, the Agent is authorized to consult with legal counsel, to be
designated by the Owner, to bring actions for eviction against such tenants;
provided, however, the Agent shall keep the Owner informed of such actions and
shall follow such instructions as the Owner may prescribe for the conduct of any
such action. Subject to the Owner's approval, attorney fees and other necessary
costs incurred in connection with such actions will be paid out of the Project
Rental Account as Project expenses.
8. MAINTENANCE AND REPAIR. The Agent will maintain the Project in good
repair and in compliance with local codes, and in a condition at all times
acceptable to the Owner, including, but not limited to, cleaning, painting,
decorating, plumbing, carpentry, grounds care, and such other maintenance,
repair, remodeling and refurbishing work as may be necessary, subject to any
limitations imposed by the Owner in addition to those contained herein. The
<PAGE>
Agent will also assist the Owner in identifying and implementing capital
improvements to the Project. The Agent will perform such periodic physical
inspections as shall be appropriate in connection therewith. Incident thereto,
the following additional provisions will apply:
a. Special attention will be given to preventive maintenance,
and, to the extent feasible, the services of regular
maintenance employees will be used;
b. Subject to the Owner's prior approval, the Agent will negotiate,
review and sign, on behalf of the Owner, contracts with qualified
independent contractors for the maintenance and repair of heating
and air-conditioning systems and elevators, and for extraordinary
repairs to such items and other assets of the Project, which are
beyond the capability of regular maintenance employees;
c. The Agent will systematically and promptly receive and
investigate all service requests from tenants, take such action
thereon as may be justified, and will keep records of the same.
Emergency requests will be received and serviced on a twenty-four
(24) hour basis. Complaints of a serious nature will be reported
to the Owner after investigation;
d. The Agent is authorized to purchase all materials,
equipment, tools, appliances, supplies and services
necessary to the proper maintenance and repair of the
Project; and
e. Notwithstanding any of the foregoing provisions, the prior
approval of the Owner will be required for any expenditure
which exceeds Five Thousand Dollars ($5,000) in any one
instance for labor, materials or otherwise, in connection
with the maintenance and repair of the Project, except for
recurring expenses within the limits of the operating
budget and emergency repairs involving manifest danger to
persons or property or required to avoid suspension of any
necessary service to the Project. In the latter event,
the Agent will inform the Owner of the facts as promptly
as possible.
9. UTILITIES AND SERVICES. In accordance with the operating budget, the
Agent will make arrangements for water, electricity, gas, sewage and trash
disposal, vermin extermination, decorating, laundry facilities, and telephone
service. Subject to the Owner's prior approval, the Agent will make such
contracts as may be necessary to secure such utilities and services.
10. NONCUSTOMARY SERVICES. Notwithstanding any contrary provision in
this Agreement, the Owner shall cause any services, in connection with the
rental of the Project, that are not customarily furnished to tenants of
comparable buildings in the region (including, but not limited to, the provision
<PAGE>
of maid service and the furnishing of parking facilities, other than on a
complimentary, unreserved basis), to be performed by an entity qualifying as an
independent contractor.
11. EMPLOYEES. Except as otherwise agreed, all on-site
personnel will be employees of the Owner, for purposes of their
compensation, and not the Agent, but will be hired, paid,
supervised, and discharged through the Agent, in the Agent's sole
discretion, subject to the following conditions:
a. The resident manager will have duties of the type usually
associated with this position;
b. Compensation (including fringe benefits) of bookkeeping,
clerical, and other managerial personnel will be within
the Agent's sole discretion, provided minimum wage
standards are met;
c. The Owner will reimburse the Agent for the compensation
(including fringe benefits) payable to the on-site
management and maintenance employees, and for all local,
state and federal taxes and assessments (including, but
not limited to, Social Security taxes, unemployment
insurance, and Workman's Compensation insurance) incident
to the employment of such personnel. Such reimbursements
will be paid out of the Project Rental Account and will
be treated as Project expenses; and
d. Compensation (including fringe benefits) payable to the
on-site staff, and all bookkeeping, clerical and other
managerial personnel, plus all local, state and federal
taxes and assessments incident to the employment of such
personnel will be borne solely by the Project, and will
not be paid out of the Agent's management fee. The
rental value of any dwelling unit furnished rent-free to
on-site personnel will be treated as a cost of the
Project.
12. DISBURSEMENTS FROM PROJECT RENTAL ACCOUNT.
a. From the funds collected and deposited by the Agent in the
Project Rental Account, either the Owner or the Agent, as shall
be determined from time to time by the Owner, will make the
following disbursements, when payable:
(1) Reimbursement to the Agent for compensation payable to
the employees specified in Section 10 above, and for
the taxes and assessments payable to local, state and
federal governmental agencies;
(2) All sums otherwise due and payable by the Owner as
expenses of the Project, including compensation payable
<PAGE>
to the Agent for its services hereunder and expenses of
the Project incurred by the Agent under the terms of
this Agreement;
(3) Any payment required to be made monthly by the Owner to
any mortgagee of the Project, including the amounts due
under the mortgage for principal amortization,
interest, ground rents, taxes and assessments, and fire
and other hazard insurance premiums;
b. Except for the disbursements mentioned above, funds will
be disbursed or transferred from the Project Rental
Account only as the Owner may from time to time direct;
and
c. In the event the balance in the Project Rental Account is at any
time insufficient to pay disbursements due and payable under
Section 11(a) above, the Agent will inform the Owner of that
fact and Owner shall immediately deposit sufficient funds. In no
event will the Agent be required to use its own funds to pay
such disbursements.
13. RECORDS AND REPORTS. The Agent will have the following
responsibilities with respect to records and reports:
a. The Agent will establish and maintain a comprehensive
system of records, books and accounts in a manner
satisfactory to the Owner;
b. With respect to each fiscal year ending during the term of this
Agreement, the Agent will furnish an annual financial report.
The Agent will also prepare and review budgets and cash flow
projections for the Project in such manner and at such times as
may be agreed with the Owner;
c. The Agent will furnish such information (including
occupancy reports) as may be reasonably requested by the
Owner from time to time with respect to the financial,
physical, or operating condition of the Project; and
d. By the twenty-fifth (25th) day of each month, the Agent will
furnish the Owner with a statement of receipts and disbursements
during the previous month, a schedule of accounts receivable and
payable, as of the end of the previous month and reconciled bank
statements for the Project Rental Account, as of the end of the
previous month.
14. ON-SITE MANAGEMENT FACILITIES. Subject to the further agreement of
the Owner and the Agent as to more specific terms, the Agent will maintain a
management office within the Project, for the convenience of the Owner, for the
sole purpose of the Agent's performing its duties under this Agreement, and the
Owner will make no rental charge for such office.
<PAGE>
15. INSURANCE. The Owner will inform the Agent of insurance
to be carried with respect to the Project and its operations, and the Agent,
when authorized by the Owner, will cause such insurance to be placed and kept in
effect at all times. The Agent will pay premiums out of the Project Rental
Account, as an expense of the Project. All insurance will be placed with such
companies, on such conditions, in such amounts, and with such beneficial
interests appearing thereon as shall be acceptable to the Owner and shall be
otherwise in conformity with any mortgage relating to the Project, provided that
the same will include public liability coverage, with the Agent designated as
one of the insured, in amounts acceptable to the Owner, Agent and any mortgagee
of the Project. The Agent will investigate and furnish the Owner with full
reports as to all accidents, claims, and potential claims for damage relating to
the Project and will cooperate with the Owner's insurers in connection
therewith.
16. AGENT'S COMPENSATION. The Agent will be compensated for its service
under this Agreement by monthly fees to be paid out of the Project Rental
Account to be treated as Project expenses. Such fees will be payable monthly.
Each such monthly fee will be in an amount equal to five percent (5%) of the
gross receipts (including rentals and other operating income of the Project)
actually received during the preceding month. In addition, the Agent shall
receive reimbursement for all proper expenditures, obligations and liabilities
incurred by the Agent in connection with the operation of the Project. Such
reimbursement shall be limited to the actual cost of goods, services and
materials used for or by the Project, and in no event shall such cost exceed the
cost of such items if supplied by persons or entities other than the Agent or
its affiliates. Such reimbursement shall not include reimbursement for costs of
services rendered by employees who are not employed in the operation of the
Project (except that employees servicing more than one property (whether or not
owned by the Owner) may have their costs prorated based upon the respective
number of units or square footage in each property), or other expenses for which
managing agents of real estate would not customarily receive reimbursement in
addition to stated compensation.
17. INDEMNIFICATION BY THE OWNER. The Owner shall indemnify and hold
harmless the Agent, to the full extent permitted by the Delaware General
Corporation Law (in effect at the time indemnity is sought), from all liability,
claims, damages or loss arising out of the performance of its duties hereunder,
and related expenses, including reasonable attorneys' fees, to the extent such
liability, claims, damages or losses and related expenses are not fully
reimbursed by insurance; provided, however, that the Agent shall be entitled to
indemnification, under this Section 17, only if the Agent, in connection with
any liability, damages, claim or loss for which it seeks indemnity, acted in a
manner which would not constitute gross negligence or wilfull misfeasance.
18. INDEMNIFICATION BY THE AGENT. The Agent shall indemnify and hold
<PAGE>
harmless the Owner from contract or other liability, claims, damages, losses and
related expenses, including attorneys' fees, to the extent that such liability,
claims, damages, losses and related expenses are not fully reimbursed by
insurance and are incurred by the Owner by reason of the Agent's deliberate
dishonesty or gross negligence.
19. RIGHT TO ASSIGN. The Agent may assign some or all of its rights or
obligations under this Agreement, provided that the Agent remains principally
responsible hereunder, and the Owner is given notice of such assignment. The
Owner may assign its rights and obligations under this Agreement to any
successor in title to the Property, and upon any such assignment, the Owner
shall be relived of all liability accruing after the effective date of such
assignment.
20. TERM OF AGREEMENT. This agreement shall be in effect for
a period commencing on the date hereof. This agreement may be
terminated, without penalty, by written notice of either party to
the other as of the end of any calendar month, provided at least
sixty (60) days advance notice thereof is given.
IN WITNESS WHEREOF, the parties hereto (by their duly authorized
representatives) have executed this Agreement on the date first above written.
OWNER: AGENT:
KRUPP REALTY FUND, LTD.-III BERKSHIRE REALTY ENTERPRISES
By: The Krupp Corporation, LIMITED PARTNERSHIP
its General Partner
By: By:
------------------------ ------------------------
Exhibit 6
SETTLEMENT AGREEMENT
This Settlement Agreement and Release (this "Agreement") is
made and entered into as of the 27th day of June, 1996, by and between The Krupp
Corporation ("Krupp"), a Massachusetts corporation with a principal place of
business at 470 Atlantic Avenue, Boston, Massachusetts 02210, and Liquidity
Financial Group, L.P. ("Liquidity") individually and on behalf of certain
Affiliates as hereinafter defined, a California limited partnership with a
principal place of business at 2200 Powell Street, Suite 700, Emeryville,
California 94608.
W I T N E S S E T H
WHEREAS, Liquidity is engaged in the business of sponsoring
and managing funds which invest in, among other things, real estate limited
partnerships;
WHEREAS, Krupp and certain affiliates sponsored and are
engaged in the business of managing, among other things, real estate limited
partnerships;
WHEREAS, Liquidity sponsored and manages Liquidity Fund #33 LP
as well as other investment funds, and may in the future sponsor and manage
and/or provide investment advice to additional investment funds (collectively,
the "Liquidity Funds"), and Krupp sponsored and manages Krupp Realty Fund,
Ltd.-III ("Realty III") and Krupp Realty Limited Partnership-V ("Realty-V") as
well as other investment funds, and may in the future sponsor or manage
additional investment funds (individually a "Krupp Fund" and collectively, the
"Krupp Funds");
WHEREAS, Liquidity has, on behalf of certain of the Liquidity
Funds sought to obtain from Krupp lists of the investors in certain of the Krupp
Funds for the stated purpose of contacting such investors in order to attempt to
acquire their units in the Krupp Funds;
WHEREAS, Krupp has refused to provide lists of the investors
to Liquidity, alleging that they are not entitled to obtain such lists and
Liquidity has stated that, absent a satisfactory resolution, its present
intention is to litigate the issue;
WHEREAS, the parties have conferred through their respective
counsel and are desirous of resolving and settling Liquidity's claims, upon the
terms and conditions hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
<PAGE>
1. DELIVERY OF LISTS: Within ten (10) business days of the date of this
Agreement, Krupp will deliver to Liquidity lists of investors (containing the
names, addresses and capital contributions of such investors) in Realty III and
Realty V. The lists will be sorted alphabetically and delivered in both paper
format and on 3.5" IBM Compatible computer diskette in ASCII format. Any
additional lists delivered pursuant to paragraph 3 below will also be delivered
in both paper format and on 3.5" IBM Compatible computer diskette in ASCII
format.
2. PAYMENT FOR LISTS: Within ten (10) business days of the date of
this Agreement, Liquidity will deliver to Krupp payment for the estimated cost
of reproducing and delivering such lists in the total amount of $600.00.
3. PROVISION OF ADDITIONAL LISTS: From time to time during the twelve
(12) month period commencing on the date hereof and expiring on the first
anniversary date of this Agreement, Krupp will, upon written request from
Liquidity, deliver to Liquidity within fifteen (15) business days of receipt of
such written request, updated lists of investors in Realty III and Realty V, or,
to the extent a Liquidity Fund is a Limited Partner or Shareholder (as the case
may be) in any other Krupp Fund, current lists of investors in such other Krupp
Fund, provided such request includes an undertaking by Liquidity to pay the cost
of reproducing and delivering such lists within ten business days after receipt
of such lists.
4. RESTRICTION ON ACTIVITIES: For a period commencing on the date
hereof and continuing for thirty (30) months from the last date an investor list
in a Krupp Fund is delivered to Liquidity in response to Liquidity's request,
Liquidity and any person or entity controlling, controlled, managed or advised
by Liquidity or its subsidiaries (including the Liquidity Funds) or under common
control with Liquidity ("Liquidity Affiliates") shall not, without the prior
written consent of Krupp, which may be granted or withheld in Krupp's sole and
exclusive discretion and for any reason, or no reason:
(a) vote its interests in any Krupp Fund on any issue other
than in proportion to the votes of all other interest holders who vote on such
issue;
(b) in any manner acquire, attempt to acquire, or make a
proposal to acquire, directly or indirectly, more than a 25% interest in any
Krupp Fund;
(c) propose, or propose to enter into, directly or indirectly,
any merger, consolidation, business combination, sale or acquisition of assets,
liquidation or other similar transaction involving any Krupp Fund;
(d) form, join or otherwise participate in a "group" within
the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as
amended, with respect to any voting securities of a Krupp Fund;
2
<PAGE>
(e) make or participate in any way, directly or indirectly, in
any solicitation of "proxies" or "consents" (as such terms are used in the proxy
rules of the Securities and Exchange Commission) to vote, or seek to advise or
influence any person with respect to the voting of any voting securities of any
Krupp Fund.
(f) sell, transfer or assign any interests in any Krupp Fund
to any person or entity not bound by the terms and conditions of this Agreement;
(g) disclose any intention, plan or arrangement inconsistent
with the terms of this Agreement;
(h) loan money to, advise, assist or encourage any person in
connection with any of the actions restricted or prohibited by this Agreement.
5. USE OF LISTS, PROHIBITION ON FURNISHING TO OTHERS: Any investor list
obtained by Liquidity or Liquidity Affiliates relative to any Krupp Fund will be
utilized only for the purpose of contacting investors to inquire as to whether
they wish to sell their units in such Krupp Fund to a Liquidity Fund, and for no
other purpose. The lists will not be furnished by Liquidity or Liquidity
Affiliates to any other person or entity.
6. THIRD PARTIES: If at any time Liquidity or Liquidity Affiliates is
approached or contacted by any third party concerning participation in a
transaction involving the assets, businesses or securities of any Krupp Fund or
involving any of the actions proscribed by Section 4 hereof or otherwise by this
Agreement, Liquidity or Liquidity Affiliates, as the case may be, will
immediately notify such party of its inability to participate in such a
transaction and its obligation to notify Krupp and will thereafter promptly (and
in any event, within five (5) business days) notify Krupp of the nature of such
contact and the parties thereto. Krupp will indemnify, defend and hold harmless
Liquidity and the Liquidity Affiliates from and against any and all claims,
demands or liabilities that may arise as a result of Liquidity's or any
Liquidity Affiliates' strict compliance with the terms of this paragraph.
7. COMPLIANCE WITH SECURITIES AND OTHER LAWS: Liquidity and Liquidity
Affiliates acknowledge their obligations under the Securities Laws and Rules of
the Securities and Exchange Commission.
8. PROVISION OF COPIES OF ALL COMMUNICATIONS: Liquidity and Liquidity
Affiliates covenant and agree that they shall deliver to Krupp at least five (5)
business days before mailing or otherwise distributing to investors in any Krupp
Fund any communication to be given to one or more investors in any Krupp Fund.
3
<PAGE>
9. FIDUCIARY DUTIES OF KRUPP; SAFE HARBOR PROVISION, PROTECTION OF
PARTNERSHIP STATUS: Liquidity acknowledges that:
(a) Krupp and its affiliates have significant fiduciary
obligations to the investors in the Krupp Funds, and has stated that it is
entering into this Agreement to, among other things, fulfill those fiduciary
obligations;
(b) Krupp may need to take certain further action to meet its
fiduciary obligations, including, without limitation, suspending the acceptance
of transfer paperwork in one or more Krupp Funds to avoid the termination of
such Krupp Fund's status as a partnership under the Internal Revenue Code of
1986 (the "Code"), as amended; avoid the treatment of such Krupp Fund as a
Publicly Traded Partnership under the Code; or cause the Krupp Fund to fall
outside any so-called "Safe Harbor" provision relating to taxation or tax
status, including provisions relating to Publicly Traded Partnerships; and
(c) That the suspension of the acceptance of transfer
paperwork by Krupp would mean that notwithstanding the presentment of valid
transfer paperwork and the terms of this Agreement, transfers requested by
Liquidity or a Liquidity Affiliate would not be processed nor reflected on the
books and records of the Krupp Fund.
Nothing herein shall be construed, however, as an
acknowledgment or agreement by Liquidity that Krupp has the right under any
particular circumstances to suspend the acceptance of transfer paperwork, or as
a waiver of any future claims of Liquidity arising out of any such suspension or
other similar action.
10. RELEASE: FOR AND IN CONSIDERATION OF THE AGREEMENTS HEREIN MADE,
LIQUIDITY, INDIVIDUALLY AND ON BEHALF OF THE LIQUIDITY AFFILIATES, DOES HEREBY
REMISE, RELEASE AND ACQUIT KRUPP AND ALL OF ITS PARTNERS, OFFICERS, DIRECTORS,
AFFILIATES, PREDECESSORS, SUCCESSORS AND ASSIGNS AND EACH OF THEIR PARTNERS,
OFFICERS, DIRECTORS, AFFILIATES, PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM AND
AGAINST ANY AND ALL CLAIMS, DAMAGES, COSTS, EXPENSES, ACTIONS AND CAUSES OF
ACTION WHICH LIQUIDITY AND THE LIQUIDITY AFFILIATES (INCLUDING THEIR PARTNERS,
OFFICERS, DIRECTORS, AFFILIATES, SUCCESSORS AND ASSIGNS AND ALL OF THEIR
PARTNERS, OFFICERS, DIRECTORS, AFFILIATES, PREDECESSORS, SUCCESSORS AND ASSIGNS)
HAD IN THE PAST, NOW HAS, OR MAY IN THE FUTURE ACQUIRE, ARISING FROM OR RELATED
TO THE FAILURE OR REFUSAL OF KRUPP TO PRODUCE AN INVESTOR LIST OF ANY KRUPP
FUND, EXCEPT FOR SUCH A FAILURE OR REFUSAL IN VIOLATION OF THE PROVISIONS OF
THIS AGREEMENT.
11. NOTICES: Any and all notices required or permitted hereunder shall
be in writing and shall be deemed given or served, as the case may be, upon
actual delivery to the parties at the following addresses:
4
<PAGE>
If to Liquidity: Liquidity Financial Group, L.P.
220 Powell Street, Suite 700
Emeryville, California 94608
Attention: Brent Donaldson
With a copy to: Roger B. Mead, Esq.
Folger & Levin
Embarcadero Center West Tower
275 Battery Park, 23rd Floor
San Francisco, California 94111
If to Krupp: The Krupp Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Laurence Gerber
With a copy to: Scott D. Spelfogel, Esq.
Vice President and General Counsel
The Berkshire Group
470 Atlantic Avenue
Boston, Massachusetts 02210
12. NO ADMISSIONS, CONFIDENTIALITY: The parties agree that this
Agreement is being entered into solely to settle disputed claims, and nothing
herein shall be deemed to constitute an admission of liability on the part of
Krupp, all such liability being expressly contested. The parties agree that
their discussions prior to entering into this Agreement, the nature, existence
and terms of this Agreement, and all matters relating to the dispute and
settlement shall be strictly confidential and not disclosed by either party to
any individual or entity, not be admissible in court for any purpose.
Notwithstanding the foregoing, should either party believe that it must produce
this Agreement in response to subpoena or other lawful process, it shall first
notify the other party and provide the other party with at least fifteen (15)
business days in which to seek to quash or limit any such subpoena or process,
before producing this Agreement. To the extent the second party does not have
standing to seek to quash or limit the subpoena, the first party shall cooperate
in such efforts, provided such cooperation does not result in the incurring of
any costs on the part of said first party.
13. ENFORCEMENT: The parties agree that each shall be entitled to
equitable relief, including injunctive relief and specific performance, in the
event of any breach of the provisions of this Agreement, in addition to all
other remedies available at law or in equity. In the event either party must
refer this Agreement to an attorney for enforcement, the prevailing party shall
be entitled to all costs of enforcement, including attorney's fees.
5
<PAGE>
14. GOVERNING LAW; VENUE AND JURISDICTION: This Agreement shall be
governed by the laws of the Commonwealth of Massachusetts without regard to
principles of conflict of law thereof. The parties agree that the Federal and
state courts located within the Commonwealth of Massachusetts shall have
exclusive jurisdiction over disputes arising hereunder, and the parties hereby
consent to such venue and submit to the jurisdiction of such courts.
15. CAPTIONS: Captions and section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
16. AMENDMENTS: This Agreement may be amended, changed, modified,
altered or terminated only by written instrument or written instruments signed
by all of the parties hereto.
17. SEVERABILITY: In the event any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first above written.
LIQUIDITY FINANCIAL GROUP, L.P.
By: Liquidity Financial Corporation, its
general partner
By: S/Brent Donaldson
----------------------------
Brent Donaldson
President
THE KRUPP CORPORATION
By: S/Laurence Gerber
----------------------------
Laurence Gerber
President
6
Exhibit 7
FIRST AMENDMENT TO
SETTLEMENT AGREEMENT AND RELEASE
This First Amendment to Settlement Agreement and Release (this
"Amendment") is made and entered into as of the 8th day of October, 1996, by and
between The Krupp Corporation ("Krupp"), a Massachusetts corporation with a
principal place of business at 470 Atlantic Avenue, Boston, Massachusetts
022210, and Liquidity Financial Group, L.P. ("Liquidity") individually and on
behalf of certain Affiliates as defined in the Agreement (as hereinafter
defined), a California limited partnership with a principal place of business at
2200 Powell Street, Suite 700, Emeryville, California 94608.
WITNESSETH:
WHEREAS, the parties entered into a Settlement Agreement and
Release dated the 27th day of June, 1996 (the "Agreement") and desire to amend
the Agreement to eliminate a possible ambiguity, as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 4(d) of the Agreement shall be and hereby is
amended by adding, at the end of said section following the semicolon, the
following clause:
provided, however, that Liquidity and Liquidity
Affiliates shall not be deemed to be acting in a
"group" in violation of this Section 4(d) solely by
virtue of their voting their interests in compliance
with Section 4(a) of this Agreement;
2. Except as expressly set forth above, the Agreement shall
remain in full force and effect without amendment or modification.
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first above written.
LIQUIDITY FINANCIAL GROUP, L.P. THE KRUPP CORPORATION
By: Liquidity Financial
Corporation, its general partner
By: s/Brent Donaldson By: s/Laurence Gerber
------------------------ ------------------------
Brent Donaldson Laurence Gerber
President President
